What kind of loan are you getting with no PMI and only 10% down? And, mortgage rates are already below for on some products and they’re going to go down again, IMHO. Not much but down.

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Posted by Omada

Member since Jun 2015

701 posts

Posted on 6/9/19 at 11:55 am to LSUSUPERSTAR

quote:
You're right. I'm just trying to understand how a bank/mortgage broker could tell someone with a straight face that a house interest rate is double digits. About to close on my 3rd house since 2004 and the rate will be around 4%. We haven't gone over 5% on any of them.

Not trying to be a dick, but stating that high interest rates back then was due to “pure greed” doesn’t say good things about you. First, it shows you don’t understand how interest rates are determined; second, it shows a lack of trust in your fellow human beings generally or those in business/banking specifically; and third, you could’ve easily found out why with a Google search instead of putting your foot in your mouth. Since I’m here, I’ll attempt to rectify the first issue.

Interest rates are determined by the federal funds rate. Here is an explanation of the federal funds rate from Investopedia, but a short version is that it’s the rate at which banks lend to each other overnight and is set by the Federal Reserve based on economic conditions such as, but not limited to, inflation. Inflation was quite high back then, as you can see from this chart of historical inflation rates by year. The Federal Reserve was trying to get inflation under control, so the FFR was likewise high as can be seen in this chart of the federal funds rate. People and businesses don’t get to borrow at the FFR because of the risks involved; instead, people and businesses borrow at the FFR plus whatever excess the bank deems necessary based on risk analysis.

It's worthwhile to mention that the FFR does not merely affect what interest rates banks charge but also the interest rates banks pay on deposits. As Jag_Warrior mentioned, you could get 12-15% on CD's back then. From 2009 through 2015, however, savings accounts paid 0.01% because the FFR was 0-0.25% then.

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Posted by Twenty 49

Shreveport

Member since Jun 2014

20080 posts

Posted on 6/9/19 at 7:59 pm to anc

We got 8.125% in the early 90s, and the banker printed me an amortization table like that on green and white paper. Showed how much of each payment was principal and interest.

He said to add the principal part of the next payment and you could check it off too. The early payments attribute only a few bucks to principal, so we would wipe out a few months by paying extra principal. It felt good to check those bastards off.

Rates went down after that, and we refinanced at 6 or so for 15 years. Payments were about the same.

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Posted by tigeraddict

Baton Rouge

Member since Mar 2007

13354 posts

Posted on 6/10/19 at 7:59 am to Twenty 49

I remember my parents getting a 11.75% interest rate back in 1984. they refinanced 2x over the course of the 12 years they lived in that house as rates dropped.

crazy to think that now i have a 3.75% interest rate.

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Posted by I B Freeman

Member since Oct 2009

27843 posts

Posted on 6/10/19 at 7:16 pm to anc

My first was 12.25% in about 1987

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Posted by Thib-a-doe Tiger

Member since Nov 2012

36271 posts

Posted on 6/11/19 at 12:53 pm to I B Freeman

This is fun, everyone should look at inflation rates back then too

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Posted by Hopeful Doc

Member since Sep 2010

15388 posts

Posted on 6/11/19 at 5:15 pm to GWfool

quote:
What kind of loan are you getting with no PMI and only 10% down? And, mortgage rates are already below for on some products and they’re going to go down again, IMHO. Not much but down.

There's a specific loan out there called a "physician loan" available but many banks will do a similar thing in-house if you ask. They have expanded to a handful of other professions (or dentistry), but basically they saw dramatically low default rates in physicians over time despite not great financial stats (graduate in average near $200K in debt and make $50K, but in 3-6 years, income jumps 4-6x and it's a group late 20s folks starting families that wanted to set roots even when they didn't have big down payments). There's also usually an odd amount of time off between graduation and the first job that they tend to work around.
There are a handful of options. A lot of the ones i looked at were ARMs.
I actually wound up with a similar loan. I bought a house I plan to pay off in 7 years or so, but the way my mortgage went was 0 down, no PMI, they took the market average interest rate and added 0.5% for 80% of the loan (30y fixed) and then added a 15y fixed on 20% of the amount an additional 1% above that. There's no early penalties or anything crazy in it. If you aggressively pay it down, it's not bad. But 80% of my house is on a 30y at 5%, 20% at 5.5% (15y).

While admittedly not the absolute best financial strategy, we finished residency with 6 and 8 weeks off (wife is also an MD) with an emergency fund of about 6 months in the bank while being newlyweds moving to a new city, and this let us move into what could easily be our "forever home" right away instead of moving to a new city and renting for a year.

here is a semi-corroborating link to the concept. His experience was that basically everyone but Wells Fargo waived the PMI for 5% down for physicians with many companies offering 100% financing (made up for with significantly higher interest rates)

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