Congress just passed the American Recovery & Reinvestment Act of 2009.
That Act gives taxpayers who have not owned a principal residence within the last 3 years a tax CREDIT of $8,000. This is not a tax deduction but a dollar for dollar reduction of your tax bill in the sum of $8,000.
There are certain limitations. The purchase must occur within the 2009 calendar year. The purchase must be of an owner-occupied single family residence. This includes houses, condos & town homes. The full $8,000 credit is available to taxpayers with adjusted gross incomes of no more than $75,000 for individual filers or $150,000 for joint filers. The credit phases out for those with adjusted gross incomes up to $20,000 above those caps. If the home is sold within 3 years, the entire tax credit must be repaid. If the home is owned more than 3 years, there is no repayment obligation.
Why It Makes Sense to Purchase Now
Current interest rates are being quoted at 4.75% for borrowers with good credit.
This puts interest rates at their absolute historic low. The table below shows the average annual interest rates since 1990, which at their lowest averaged 5.97%.
So you can see that if history is any guide, interest rates are bound to go up to 6% and beyond, once we are out of this recession.
|
Year |
Average Interest Rate |
Year |
Average Interest Rate |
|
1990 |
10.19% |
1991 |
9.35% |
|
1992 |
8.51% |
1993 |
6.72% |
|
1994 |
8.49% |
1995 |
8.18% |
|
1996 |
8.03% |
1997 |
7.76% |
|
1998 |
7.06% |
1999 |
7.55% |
|
2000 |
8.21% |
2001 |
7.16% |
|
2002 |
6.65% |
2003 |
5.97% |
|
2004 |
5.97% |
2005 |
6.00% |
|
2006 |
6.53% |
2007 |
6.58% |
|
2008 |
6.52% |
|
|
This data was obtained from national monthly mortgage averages published by HSH Associates, Financial Publishers. www.HSHAssociates.com.
The table below gives you an idea of the impact a 4.75% interest rate has on principal and interest payments.
|
Loan Amount |
4.75% interest |
5.5% interest
|
6% interest |
6.5% interest |
|
$200,000 |
$1,043 |
$1,136
|
$1,199 |
$1,264 |
|
$206,000 |
$1,076 |
$1,171 |
$1,237 |
$1,304 |
|
$217,500 |
$1,135 |
$1,235
|
$1,304
|
$1,375 |
|
$225,000
|
$1,174 |
$1,278 |
$1,349 |
$1,422 |
|
$250,000 |
$1,304 |
$1,420
|
$1,499
|
$1,580 |
|
$275,000 |
$1,435 |
$1,561 |
$1,649 |
$1,738
|
You may be worried about declining home values. You can see from the above chart if you borrowed $250,000
at 4.75% interest today, your principal & interest payment would be $1,304. If interest rates went up to 6%, that same payment would get you a $217,500 loan. If rates went up to 6.5%, that same $1,304 would get you a financing of only $206,250. So, today’s cheap interest gives you a lot more borrowing power.
Please check out my other blog posts to learn more about 100% financing and other financing incentives currently available in Portland. You can chat with me on my blog, email or call me at any time if you have any questions about any facet of the home buying process. Thanks for visiting my blog!
