Thursday, March 05, 2009
Treasury Department examples of how the new Homeowner Affordability and Stability Plan will slash mortgage payments are all well and good - a monthly savings of about $400 for a house purchased a few years back at just over $200,000 will mean a lot to many people - but what kind of savings might be seen in former real estate hot spots such as California where, just a few years ago, the median house price was a half million dollars?
As shown below, some Californians might stand to save thousands of dollars a month and, as was the case back in 2005, the fact that the half million dollar house might be worth only $250,000 doesn't seem to matter.
The table above assumes a household income of $80,000 which means that the new maximum allowed 31 percent mortgage payment (including Principal, Interest, Taxes, and Insurance) is $2,067. This appears in the top row and is based on a 40-year mortgage, because you can't get there with anything other than that, even at two percent.
The four rows underneath indicate monthly payments based on 30-year loans at various interest rates assuming a 2005-era original loan amount of a half million dollars. The monthly savings achieved with the new loan are shown in the right-most column.
Principal reduction is omitted from this discussion, something that could add even more savings on top of what is shown above.