Your Questions About Mortgage Rates Graph

Betty asks…

Should i sell or refinance my home? Switch from 30 to 10 year mortgage?

I bought my home in Findlay Illinois in October of 2007. Its a 1 bedroom, wood framed, 900 square foot home built in 1916 with a 40×40 detached 2 car heated and insulated garage. I paid 35,000 for it. It appraised for 38,200 at time of purchase. 30 year fixed mortgage at 6.75% interest, financed with help of first time home buyers loan through usda rural development. My credit score was 640 at time of the purchase with no bad strikes or missed payments since and i have since payed off an automobile loan.

Looking at this graph in this link really scares

http://www.businessinsider.com/the-housing-chart-thats-worth-1000-words-2009-2

Im young and really goofed when purchasing this home as it was a rush rush situation due to a family member dying and i got overly excited about it and didnt do my research and get educated on the matter untill after i purchased it.

Im afraid that since the housing crash, the house may not be worth what i have left on the loan.

National interest rates are extremely low right now, so im considering trying to refinance it. I dont know if i would be better off refinancing or selling it right now.

I can afford a considerable raise in the monthly payment which is only 318$ after escrow, so im thinking of refinancing and going with a 10 year loan. I dont know much on the 30 vs 10 year subject but i would suspect its a lot harder to get a 10 year loan than a 30? Am i correct?

What would you do in my situation?

admin answers:

Go ahead and refinance. Your total mortgage was only $35,000.
No big deal in the big world of mortgages.

Save up a couple of thousand dollars and then refinance into a 10 year.
(Frankly… Save up $10,000 and get that loan down to a 5 year…

There are people out there that finance cars that cost more than your house. Stay in it as long as you want… You will never see a better deal out there again.

James asks…

I need help with a real estate project….. Details provided!!?

Project-Spreadsheet assignment

1. You are currently in the 7th year of a 25-year fixed rate, fully amortized mortgage with monthly payments. You originally borrowed $150,000 with a 9.50% annual interest rate. Interest rates are expected to be lower, so you are considering the feasibility of refinancing the loan. To refinance, closing costs are expected to be 3.25% of the new loan amount. You will also have to pay 1 point. Assume no prepayment penalties both with the original and new loans.

A) Using a spreadsheet, calculate the new loan payments for every eighth of a percent from a
revised interest rate of 7.5% to 8.5%. Assume you will refinance at the end of the 7th year
of the mortgage with points and closing costs included in the new loan and you do not wish
to extend the length of the mortgage beyond its current length (i.e. the maturity of the new
loan is 18 years from now).

B) How low must interest rates go in order for you to breakeven?

C) Draw a graph to plot the new interest rate versus the new mortgage payment and show the breakeven point.

2. In this problem, you are being asked to calculate the effective borrowing cost (rate) of an adjustable rate mortgage assuming you live in the house till the loan matures under the following eight (8) scenarios:

1. Index rises 1/4% every year
2. Index rises 1/2% every year
3. Index rises 3/4% every year
4. Index rises 1% every year
5. Index rises 2% every year
6. Index falls 1/4% every year
7. Index falls 1/2% every year
8. No change in index

A description of the 1-year ARM with monthly payments is as follows:
Amount: $100,000
Maturity: 15 years
Points: 2
Closing Costs: 4%
Initial Contract Rate (teaser): 3.75%
Margin: 125 bps (1basis point = 0.01%)
Current Index Yield: 4%
Caps and Floors: Annually: 1%, Lifetime: 3%

admin answers:

Do your own homework or hire an accountant

Maria asks…

Mortgage and Geometrical Series problem?

Assume that in 5 years you want to buy a house that costs $200,000. The house requires a 10% down payment and you plan to start saving money immediately. Assume that a bank will give you a savings account which earns a nominal rate of interest of 5% compounded monthly.
Q#1
Assume that you will deposit an equal amount of money each month, how much do you need to put in the savings account each month in order to have enough for the down payment for the house in 5 years?
Q#2
Assume that after you make the 10% down payment, you will have a mortgage with a fixed nominal annual interest rate of 6% convertible monthly for 10 years. Assume you will pay an equal amount each month, what will be your monthly payment?
Q#3
In addition, make graph
Month——-Monthly payment———Interest paid——–Principal Repaid——-Outstanding Principal
1
2
3

120

admin answers:

Why do you keep posting the same question over and over again…. By the way no bank will pay 5% on your savings at this time… More like 1 to 1.5%…

And if this is your homework for Econ:Money and Banking…. Do it yourself…. An HP12c Calculator or the on-line version can do all of this for you.

Thanks,

Rich

Mandy asks…

1.How does unemployment impact the housing market on a S & D Chart? What happens to CS and PS?

2. What happens to the housing market when government policies such as the first time home-buyer and mortgage-backed securities are terminated (ref 2009) on an S & D graph? What happens to consumer surplus and producer surplus?

Potential Answers:
1) I think that demand will shift downwards. I also think that CS will increase and PS will decrease?
2) I think that demand will increase after policies are removed because the spike in sales created by these policies invoked bidding wars which shied potential home-buyers away and secondly the mortgage rates during that time went up nearly a point which decreased demand. Now that they are removed there in still a massive amount of inventory and buyers are becoming more successful with their bids. With that said I think that producer surplus will increase and consumer surplus will decrease.

Tell me what you guys think, I might be off but I think I am close. Thank you.

admin answers:

1. Greater unemployment means that fewer people have jobs and can afford to buy houses. It may also mean that more people can’t afford their existing homes and end up defaulting on their mortgage.

Since most home sales are of unique homes, and since home buyers generally buy as much home as they can afford, it isn’t clear exactly what the classical definitions of producer and consumer surplus mean in this context. These are usually defined in terms of a single product, not a substitution situation.

It is certainly the case that a given home will sell for a higher price when demand for homes in general is higher. But it is generally not purchased by the same person who would have purchased it at a lower price.

2. When purchase subsidies go down, so does demand. If the purchase subsidy decline was anticipated, then in addition to the long term decline you’ll also get a short term transfer – with a slightly increased demand before the transition and a decreased (relative to the long term) demand after.

Helen asks…

I really need help with my assignment on national income and aggrigate supply and demand…10pts.?

This is my assignment and I just really don’t understand it. I was going to use an article about low mortgage rates….the article is here http://www.dallasnews.com/sharedcontent/dws/bus/personalfinance/stories/DN-perfi_06bus.ART0.State.Edition1.4a8c5df.html
I’m thinking that the short run aggregate demand will shift to the right b/c lower interest rates encourages more investment. I’m not sure about the supply or anything else though.

1.Find an article in a recent newspaper or magazine illustrating a change that will affect national income.

2.Analyze the situation using economic reasoning.

3. Draw an aggregate demand and aggregate supply graph to explain this change. Be sure to label your graph and clearly indicate which curve shifts. Explain what happens to national income and to the price level in the short run.

4.Share your your observations on the discussion board. Two people may not have the same article.

5. Turn in a copy of the article along with your work/explanation in class for a grade.

Hints: for Discussion

This can be a nice way to review the elements of aggregate demand (consumption, investment, government spending, and net exports) and the elements of aggregate supply (productive resources, technology).

Most changes will only shift one curve.

Note the differences between AS and AD shifts.

admin answers:

1. Http://www.washingtonpost.com/wp-dyn/content/article/2009/03/18/AR2009031802283.html

2. The money supply is expanding. Use the quantity theory of money

MV = PY.

In the short run, prices are sticky. Velocity is also constant.
Therefore if M goes up, Y must go up

3. Draw a graph with Price on the Y axis, and Output,Income
on the X axis.
Draw a downward sloping curve, label it AD1
Draw a horizontal line. Label it SR AS.
Draw another Downward sloping curve a little to the right of the first. Label it AD2.
Note the intersections of the AD and SRAS cuves, the price level should be unchanged and the output should be to the right.

4. Knock yourself out with copypasta.

5. Print the link.

TY, hope it works out.

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