Perspective on interest rates

We all spend a lot of time calculating and predicting interest rates, and for good reason. The rates greatly affect our financial lives. As they slowly move in a direction of higher numbers, let’s examine them from the correct perspective.

Many of us remember the mid 1980s, when rates were at 14 percent briefly and we celebrated as they fell to 9 percent. Our rates are currently in the high 4 percent area (for a 30-year fixed) which seem very acceptable compared to those days. Even if rates move into the 5 percent range, we still have a historic lowmortgage rate for a purchase or refinance.

As the economy expands and the Federal Reserve increases the bank discount rate, mortgage rates will rise. It is just a matter of howfast theywill increase. But do not let this slow your interest in purchasing a home in Santa Fe. The two most compelling reasons to buy now are (1) Interest rates will probably continue to float higher and (2) purchase prices will also start rising as we get deeper into 2018 and then 2019.

At today’s rate of, say, 4.625 percent for a 30-year fixed, what is the monthly principle and interest and what will it be at a rate of 5.0 percent? Lets see: for a 30year fixed-rate loan of $400,000, the P & I will amount to $2,056 per month at 4.625 percent and the same loan amount at 5.0 percent will be $2,147 per month. At 5.25 percent, the monthly payment is $2,208.

Don’t let a small difference in payment prevent you from realizing your dream of owning a Santa Fe home. And remember that as increases inmortgage rates occur, you will also experience an increase in investment rates. This means your savings accounts at banks, your investment accounts containing bonds, and interest-bearing investments will also increase in yield.

Please keep the correct perspective on rates. Sure they will increase. Focus on your life goals. If a $100 per month extra mortgage payment each month will gain you a Santa Fe home, go for it.

Jim Gay was a real-estate broker for 20 years and has been a consultant to Fortune 500 companies. He is currently a broker/ owner ofThe Mortgage Place Inc. (505986-9080) and can be reached at jim@ jimgayhomemortgage.com.