1% Matters - How Mortgage Rates Impact Your Buying Power

A history on mortgage interest rates and what it means to your purchasing power.

You have decided it is the right time to purchase your first home, or maybe it is time to get a new home.  Thousands of people make this decision every day.  The first step begins with your lender, and the pre-approval process unless you are paying cash.  When getting a mortgage, the price you quality for is directly related to the current mortgage interest rate you can lock.  Obviously, this impacts you when you are selling as well.  Low interest rates increase purchasing power.

Imagine getting a pre-approval letter saying that you have been approved for a home with a 30 year mortgage with fixed interest rate of 13.7 percent? Believe it or not, those were the average mortgage interest rates experienced in the US in the 1980s for 30 year mortgages. Interest Rates in the last four years have been the lowest we have experienced in over a century. The all-time low historical rate for a 30 year fixed mortgage was in 2012 at an average of 3.7 percent. That is an astonishing 10 percent drop from the average rate seen in the 1980s. The second lowest average rate was in 2013 at 4 percent. So far in 2014, the average rate is at 4.4 percent for the months of January, February and beginning of March. The graph below illustrates the fact that the last time we experienced rates close to the ones we have today was in the 1950s, after World War II. Even then according to the National Bureau of Economic Research, the average rate on a 30-year, fixed-rate, FHA-insured mortgage was 5.15 percent as of December 1956. That was the only point in time when rates even came anywhere near the rates being seen today.

Information courtesy of Dr. Steve Sjuggerud & Federal Reserve Bank of St. Louis

How would you like your buying power going from $300,000 to $267,000 based on an interest rate change of just 1 percent? According to Dan Green, of The Mortgage Reports, he states that a 1 percent change in mortgage rates means a significant change in what you can afford. With a 1 percent change in interest it will mean a 10.75 percent change in affordability for the home buyer. This change in affordability will be seen across the board at any price range and will affect anyone looking to buy. For instance, if you are seeking to purchase a $200,000 home, the 1 percent change in interest rate would lower your purchasing power to $178.500. These examples of the decline in purchasing power are dramatic, and our examples only reflect a 1 percent change.  Can you imagine the effect of a 3 or 4 percent change in interest rates?  It is important to note, that although the Federal Reserve has held interest rates fairly constant over the past few years, interest rates are unpredictable and change on a daily basis.

The chart below provides examples of 30 year fixed rate mortgages and the effects of increasing rates on purchase prices of $300,000 and $267,000.

What is the take away from this article?  With regard to your personal purchasing power, right now is a very advantageous time to purchase a home.

Authored by: Cynthia Cure & Bill Barkley, Broker

Additional Sources: bankrate.com

Getting Into College 101

Late last fall, a student in my son’s class stopped by our house to ask me for some help. He is a first generation American citizen and his parents apparently did not go to college. At least this is what I surmised from our brief conversation. He was looking for guidance on completing the FAFSA and other college entry paperwork. Now keep in mind, this young man is a senior this year, at the very top of his class and an avid athlete and will have absolutely no problem getting into college. He just didn't know where to begin and I knew of resources out there that could help and advice I could offer from my own personal experience.

We are now in the final semester of my middle son’s Senior’ year and I find myself thinking about some of the things that young man was asking me. Like most parents, we all ask ourselves similar questions. Will we have enough money to pay for college if he doesn't get scholarships or get accepted to a Military Academy? Should he take the SAT or ACT again even though he meets the minimum requirements for admittance or does it matter? Where does he go to do the applications and apply for scholarships?

If you are the parent of what you consider to be a college bound student, it is best to get started with them preparing for college in middle school! Yes, I said middle school. Start planting the seeds of expectation early. Now, in no way am I a saying that every child is college material but I am saying there are steps, we as parents, can take to help get them on the road to success outside of school if matriculation at this level is the obvious goal.

You might think my statement about middle school was off mark, but really it isn't, especially if your child is in the upper quarter of his/her class already. Taking advance placement classes in 7th and 8th grade, not only help ranking but it helps them acquire credits earlier than their classmates. It also prepares them for coursework they will soon get at the next level. While their friends may find the transition to high school remarkable and strenuous, your child will find it easier because they have already been challenged with this higher level curricula. And the best part is that, those classes can also be applied to their high school transcripts and allow them additional time to take courses they may not have been able to take leisurely because they didn't have a free class block. For instance, my oldest was able to get credit for 5 years of Spanish by beginning classes in middle school. Following this same pattern, my middle son could have graduated early but has chosen to stay through his senior year to play soccer. He had already fulfilled his academic requirements but is now taking courses he might not have been able to take this year if he hadn’t had AP Biology, TAG Algebra and AP History in Middle School.

Keep in mind, some are unique to our region, but here are a few mechanisms to start with early on:
Café College is located at 131 El Paso St, San Antonio, TX 78204. The City of San Antonio funds Café College and it is managed by the San Antonio Education Partnership. The program is a “one-stop-shop” for college access advice, guidance, and workshops. It can be especially beneficial to parents and students who are first generation college applicants. For details go to http://www.cafecollege.org

Generation Texas was started in 2010 and is a project of the Texas Higher Education coordinating Board. They are located at 150 West Sunset in San Antonio. They are passionate in the belief that every student has the ability to succeed at the higher levels of education and they provide resources for both students and teachers to achieve those goals. Learn more at http://gentx.org/.

Apply Texas is the online application for public Universities in Texas. It provides an easy step by step process for the common application for the Colleges and Universities that accept this online application. It makes the process much easier and allows the student the luxury of doing one application and submitting it to multiple schools. Be wary that there are questions in regards to the family’s personal finances that your student may need assistance in answering. In addition, there are usually 3 essay topics and each school may request a different one. https://www.applytexas.org

Compare College | TX is self-explanatory. This site as defined by its header is “an interactive, mobile-friendly web tool designed to help users learn more about Texas public Universities and Community Colleges. To get started simply go to http://comparecollegetx.com/ and start comparing Admission Costs, Enrollment rates, Graduation and Transfer rates, Graduate success, Degree programs available and so on and so forth.

These are just starting points for those parents that are just now beginning the process. I plan to write additional blogs which are more specific to this topic later on. I just wanted to share some resources that have become valuable tools for me, other parents I have spoken to and the students who ask me for help.

As a final note, my son told me his friend has been accepted into the Engineering Department at Texas A&M for the class of 2018! I am also proud to announce my son Tristán Alexander Holiday has been accepted into the US Naval Academy.