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Interest Rate Trends

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Interest Rate Trends

What History Tells Us About

Real Estate Loans

- Lets look at history

- Prime Rate30 year Fixed
- 1982-18.5%1982-12.75%
- 1995-8.5%1995-7.5%
- 2001-8.75%2001-6.75%
- Today-6.00%Today-5.875%

- Most likely
- How much? (any ones guess)
- However:
- New home construction is the heart of the economic recovery
- Prices are beginning to exceed average buyer capability
- Demand still exceeds supply in desirable locations

- Yes and No
- 2002 major push of option ARM allowing borrowers to pay interest only payments
- 2004 3/1;5/1,7/1 & 10/1 interest only fixed rate loans expand in market place
- 2005 CalHFA introduces interest only loan for first-time home buyers
- April 2005 major banks decide to increase minimum payments on consumer revolving debt from 2% to 4%

- Loan Amount = $300,000
- Interest Rate = 6.00
- 30 Year P & I = $1798.65
- Interest Only = $1500.00
- Borrower Leverage:
- Borrower additional $59,000 for same Payment

- Old Rule:
- 28/36 debt ratio’s
- 5% of revolving debt included in ratio
- New Rule:
- FICO SCORE; FICO SCORE; FICO SCORE
- Automated Underwriting
- Some times you might qualify with a 50% debt ratio

- As rates rise they will meet the challenge of creating programs to help borrowers to qualify and keep houses selling
- Just remember:
- When you bought your first house was there 100% financing available other than a government subsidized program