When Interest Rates Don’t Matter
Believe it or not there are times the interest rate is unimportant when you are getting a loan. Right now everyone is caught up in trying to explain what Greenspan calls the “conundrum”. The National Association of Realtors’ chief economist, David Lereah, is reported as saying,
Not only have mortgage interest rates declined, but an expected rise in the second half the year will be slower than in earlier projections.
With the rate on 30 year fixed mortgages dropping below 5.5%, almost a full percentage point less than this time last year, when would someone purchasing a new home not want to worry about the interest rate?
If you are a first time homebuyer and have been paying premium rental fees, you will save money by purchasing a home no matter if the interest rate is 5.5 or 6.5. Depending on your income and tax bracket, the interest rate would have to hit double digits for you to question whether or not you would experience savings. It is almost always cheaper to own home than to rent, especially if you earn over $40,000 a year and have no dependents.
If you have specific circumstances which make your loan program a niche item, your rate won’t be as low as current market but if it allows you to meet your overall financial goals, then you want to do the loan despite a higher rate.
I tell my clients routinely that they have to look at the big picture of what they are trying to accomplish. If the higher rate program helps them better meet their financial needs, then the rate doesn’t matter.