Archive for June, 2007
Rising Mortgage Interest Rates
Mortgage rates have been on the rise over the past couple of weeks. They have been the subject of numerous articles, but authors rarely take the time to translate the increase to something we can all understand – an actual cost in dollars. Let’s fire up Excel!
We’re going to look at homes at two price points; a starter home at $250,000 and a mid-level home at $500,000. Both are very common in Greater Hartford. We’re also going to assume that we have good credit scores and can get close to the lowest rates possible. At the beginning of the year, 30 year fixed rates were about 6.25%. Recently they rose to about 6.75%.
For those interested in learning how to use Excel to calculate mortgage payments, I’ve posted the file used in these calculations. Instructions are included in the file. Note that taxes vary widely from town to town, so be sure to update that input before relying on the calculation.
Let’s begin with the $250,000 house. At the beginning of the year the mortgage portion of the monthly payment would have been about $1,231 at 6.25%. The increase in rates to 6.75% adds about $66 dollars per month, bringing the mortgage portion of the monthly payment up to about $1,297.
Keep in mind that the actual check you write each month contains homeowner’s insurance and property tax payments in addition to the mortgage amount. With a fixed rate mortgage, the portion that goes towards repaying the mortgage remains the same for the life of the loan. However, the insurance and property taxes can (and usually do) increase over time.
The mid-level house would have had a $2,463 mortgage payment on a 30 year mortgage at a fixed 6.25%. Recent rate changes have bumped that payment to $2,594, and increase of about $132 per month.
The difference in monthly payments seems small compared to the overall total, but let’s try to put it in perspective. An increase of $66 per month for the entry-level house is about the same as a typical electric bill (without air conditioning). The $132 difference for the mid-level house is comparable to cable TV, internet and phone.
Although it seems like a bit of an exaggeration to say that the recent increases in interest rates have a major impact on the affordability of housing, homebuyers will feel the impact. Despite the increase, buyers shouldn’t delay their purchase in hopes that rates will decrease – the financial markets are expecting more increases.
West Hartford Budget Defeated
Less than 30% of West Hartford’s eligible voters turned out yesterday to vote on the Budget Referendum. Sad. The budget was soundly defeated, as 73% of those that did vote sent the message “Nice try, but go back to the drawing board, we don’t want to be taxed this much.”
So now the question is “What exactly will be cut in order to reduce the budget?” Education will most likely be the main target, as it’s the largest chunk of the budget.
My question is: what exactly is going to be the per household reduction in taxes based on the new cuts? Are we looking at the scale of a few hundred dollars per household? A few thousand dollars per household? Has this been quantified by anyone? I’m assuming it has to be a few hundred dollars per household. So to save everyone a few hundred dollars, the main draw to West Hartford, its school system, is going to continue to be sacrificed. Talk about taking a short term view. Well, I guess if everyone has an extra $300 in their pocket, they can spend it at Blue Back.
West Hartford Budget Referendum Vote TODAY
Please remember that today is the Budget Referendum vote in West Hartford. Make it to the polls if you can…