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  • Welcome to money matters.

  • I'm David Kroll, and I'm the senior regional mortgage lender for mortgage network.

  • Uh, today, instead of talking about global events and national events and grand topics about the economy, I'm going to focus on mortgages.

  • Uh, what the interest rate markets are doing and what the impact looks like being here in the low country.

  • So it's going to be, ah, much more narrow focus today on, uh, the the most immediate topic at hand, which is the low country interest rates and mortgages.

  • Okay, here we go.

  • Uh, the 10 year Treasury bill I finished yesterday at a 2.86% I That is lower than it has been over the last two or three months.

  • And it's been bubbling along and quite a stable fashion for the last several weeks.

  • 2.86% would indicate that interest rates are probably not going to be skyrocketing.

  • Uh, we're in a very interesting period where the short term interest rates, which are largely dictated by the Federal Reserve and it's fed funds rate, uh, are 2%.

  • Long term rates, as shown by the 10 year Treasury, are 2.86%.

  • Uh, so the spread between short term and long term would appear based on the two government sponsored rates would appear to be about 20.8% 2% over on the Fed funds rate for very short term money and 2.86% at the 10 year Treasury level.

  • Now, what's interesting here is that when you translate that through to the marketplace to the money money that all of you borrow, the uh, the 2% feds fed funds rate feeds the short term lending that local banks do in the form of equity lines of credit.

  • Uh, which is the cheapest money at the bank?

  • Uh, the equity lines of credit are going right now for prime prime is 3% higher, then the prime rate of interest is 3% higher than the Fed funds funds rate.

  • Normally, uh, so prime prime rate of interest is that 5% remember, Fed funds rate is at 2%.

  • Add 3% total 5% for prime, and then mortgage bankers like ourselves are lending 30 year fixed rate money as of yesterday at approximately 4.7% interesting, 4.7% is roughly 3% higher than wth E 10 year Treasury, which is 2.86%.

  • So I don't want to lose you all with a bunch of numbers.

  • But think of it this way.

  • Short term money hits the street hits you at about 3% more than the very best government rate and long term money in the form of 30 year fixed rate mortgages from from mortgage network and from people like me hits you also about 3% higher than then.

  • The very, very best borrowers can borrow at the 10 year Treasury rate.

  • The best, the best borrower in the in the in the country with the very best credit is the U.

  • S.

  • Government in the U.

  • S.

  • Government is paying 2.86% for its money right now.

  • So and you are paying approximately 4.75% which is only 2% higher.

  • So you should be paying in A perfect lee efficient and orderly economy should be paying about 5.75% for 30 year mortgage money.

  • What has happened, however, because that would be 3% above the 10 year treasury.

  • Rick, however, What's happened is that there's been a compression in the yield curve between short term rates and long term rates, which is led to ah, flattening of the yield curve and very nearly an inversion in the yield curve.

  • So, in fact, borrowers today are paying less for 30 year fixed rate money by a long shot, then would be predictable in a normal market, Uh, we have very little inflation.

  • Inflation usually gets added into the equation, so costs banks about 3% toe lend cost them about 2% for the money, that's 5%.

  • And then the rate of inflation gets added in on top of that.

  • At the moment, rates are lower than they should be by classical models.

  • So it's interesting there's a surplus of money.

  • Uh, there's a surplus of available investable funds, and that is holding back because it keeps pouring into bonds securities.

  • It's holding back the interest rates.

  • Ah, so with all of those numbers, what you considered distill out out the back end of it is that 30 year fixed rate money is costing about 4.74 point 75% right in there.

  • That's about $5.20 per 1000 of borrowed money.

  • So if you borrow mortgage today of $100,000 then your principal and interest payment will be $520.

  • If you borrow $200,000 then your principal and interest payment will be 1000 and $40.

  • Ah, $200,000 mortgage on a 200 let's call it a $210,000 home.

  • Ah, and let's make it a 97% mortgage.

  • $206,000 home, $207,000 home.

  • Uh, that $200,000 mortgage will be 1000 $40.

  • The taxes on that property will be about $80.

  • The insurance on that property will be about $80.

  • The mortgage insurance on that property will be about $70.

  • And when you add it all together, that's about $1270.

  • If you add a little bit for the homeowners association, maybe $50 a month, it's about 1313 $125 for for ah home in Bluffton, that costs $207,000.

  • The equation at these interest rates between rental property and purchase purchased property continues to favor purchased property by quite a, uh, quite a large margin.

  • A new, uh, three bedroom two and 1/2 bath house for $207,000 in Bluffton would rent for about 16 or $1700.

  • That same house costs $1325 to buy.

  • So you can you can see that the that the value proposition that the that the marginal proposition very much still favors the purchase of the home over the rental of, ah, similar property, if you could find one, uh, the what's causing that to be.

  • The case is among a number of factors on Lee, one of which is interest rates and to today's segment.

  • My segment, for money matters is, is trying to keep focused on interest rates.

  • So one of the things you need to, uh, that I wanted to finish with is, too.

  • Is too.

  • Address the question that I'm frequently asked, which is when, you know, we know that interest rates have gone up over the last year from 3.75% to 4.75%.

  • At what point Uh, people asked me what point is that going to start to affect the market and, uh, and caused the purchase market of real estate to slow down Because real estate gets too expensive.

  • The short answer is not yet.

  • Uh, the value proposition is still strong.

  • At 4.75% we haven't seen even a blink in the market.

  • Buyers are still absolutely stepping up to the plate, and rates have not impacted the market at this point.

  • Okay, that's my segment for today, Uh, David Kroll from Mortgage Network and finishing off this segment of money matters.

  • Thank you very much.

Welcome to money matters.


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