Market Monitor Report, August 2009

1. Weichert Financial Services
Market Monitor
Issu e 1 0 , V o l u m e 30 / A u g u st 7, 2 0 0 9
Paying Off Your Mortgage in Half the Time The Week Ahead -> The “Keys”
By: Tim McLaughlin - FOMC Rate Announcement and Inflation Data are Key
We have all heard about the PITI formula: principal,
interest, taxes and insurance. These four items make up the Date Economic Release Prediction Last
monthly payment that homeowners send in to their servicer
each month. The first piece, principal repayment is the gradual 8/11 Nonfarm Productivity 5.3% 1.6%
reduction in the loan balance over the term of the loan. And
interest can be thought of as the rent you pay for borrowing 8/11 Unit Labor Cost -2.3% 3.0%
the money you used to buy your house. And because home
8/11 Wholesale Inventories -1.0% -0.8%
loans are calculated with a simple interest calculation, the
amount of interest charged declines each month as the 8/11 IBD/TIPP Eco Optimism - 46.3
principal balance of the loan is paid down. Taxes are paid to
the county or municipality collecting them and lenders require 8/12 BB Global Confidence - 39.13
that we maintain insurance coverage on the house to protect
them (and us) against loss due to fire or other casualty. 8/12 MBA Mortgage Applications - 4.4%
Of these four elements, the interest we spend over the life 8/12 Trade Balance -$28.5B -$26.0B
of the loan is typically the greatest expenditure, so when a
8/12 Monthly Budget Statement -$161.5B -
borrower has an opportunity to significantly reduce that
expense, its worth considering. Given current market 8/12 FOMC Rate Decision 0.25% 0.25%
conditions, that opportunity may be at hand.
8/13 Import Price Index (MoM) -0.3% 3.2%
For the first time in a long time, the differential between 30
and 15 yr mortgage terms has become quite significant, 8/13 Import Price Index (YoY) -19.0% -17.4%
rewarding the shorter term borrower with a rate in the mid to
8/13 Advance Retail Sales 0.4% 0.6%
high 4% range (with points). In contrast, the typical borrower
who chooses a similar loan with a 30 yr term will pay a rate in 8/13 less Autos 0.1% 0.3%
the low to mid 5% range with similar points.
8/13 less Autos and Gas - -0.2%
True, both these rates are excellent when compared with
predominant rates over the past 30 some years. But any time 8/13 Initial Jobless Claims - 550k
you have the opportunity to lock down a home loan rate of 15
years at any rate under 5.50 percent; it’s a true bargain, 8/13 Continuing Claims - 6310k
particularly in a culture that has moved from “spender” based,
8/14 CPI (MoM) 0.0% 0.7%
to “saver/wealth generation” based. As an example, on a
$275,000, 15 year mortgage at 4.75%, the average monthly 8/14 ex Food/Energy 0.2% 0.2%
P&I is $2,139.04. On a like 30 year mortgage at 5.5%
(approx .75% higher in rate), the P&I is $1,561.42, $577.62 8/14 CPI (YoY) -2.0% -1.4%
lower a month. HOWEVER, if you can swing the extra $577 in
this example, the upside is you pay off your mortgage 15 8/14 ex Food/Energy 1.6% 1.7%
years earlier, AND your total life of loan interest is $110K vs.
8/14 CPI Core Index SA - 219.34
$287K on a 30 year, over $177K saved in interest payments.
8/14 CPI NSA - 215.69
Does this equation work for you? Does $177K in saved
interest sound appealing, whether you are purchasing or 8/14 Industrial Production 0.1% -0.4%
refinancing? Have questions and want to explore further?
Your Weichert Financial Gold Services Manager can help. We 8/14 Capacity Utilization 68.5% 68.0%
can address your questions quickly and easily!
8/14 U of Michigan Confidence 68.5 66.0
Weichert Gold Services. Real Estate, Mortgage, Insurance, Title, Home Connections. We Do It All For You.
At the date of this printing all information is deemed reliable but not guaranteed. This publication is a service to our clients and friends. It is designed only to give general information on the topics
actually covered. It is not intended to replace tax, legal or financial advice, for which you are encouraged to seek a competent professional advisor. Weichert Financial Services Executive Offices:
225 Littleton Road, Morris Plains, NJ 07950. 1-800-829-CASH. An Affiliate of Weichert, Realtors®. Licensed Mortgage Banker with State Department of Banking: NJ, NY, CT, and PA. Licensed
Lender: DE, MD, VA, DC, AK, TX, and WV. An Equal Housing Lender.