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Interest Rate Trends

Interest Rate Trends . What History Tells Us About Real Estate Loans. Is there a correlation between the Prime Rate and Mortgage Rates?. Lets look at history. Prime Rate History 1949 to 1999. Prime Rate History 1995 to 2005. Conforming Fixed Rate Mortgages 1992 to 2005. Rate Comparisons.

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Interest Rate Trends

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  1. Interest Rate Trends What History Tells Us About Real Estate Loans

  2. Is there a correlation between the Prime Rate and Mortgage Rates? • Lets look at history

  3. Prime Rate History1949 to 1999

  4. Prime Rate History 1995 to 2005

  5. Conforming Fixed Rate Mortgages 1992 to 2005

  6. Rate Comparisons • Prime Rate 30 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%

  7. Will they rise? • 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

  8. Is Credit Tightening • 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%

  9. Interest Only verses P&I • 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

  10. Borrower Qualification • 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

  11. Outlook for Mortgage Industry • 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

  12. Last builder Conversation

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