The interest charged by banks and other lenders for the money people borrow to purchase a home could affect the housing market. Low interest rates make it possible for low- and middle-income buyers to enter the real estate market by making the monthly payments affordable. Government support for lowering interest rates, such as the State of New York Mortgage Agency (SONYMA), have been successful in making home ownership affordable for more people, according to public finance expert Bill Mulrow.
Monthly Mortgage Payments
A homeowner’s mortgage payment each month includes the interest charged by the lender on the outstanding mortgage balance and a portion that goes toward reducing the principal balance. Most lenders also include in the monthly payment one-twelfth of the annual real estate taxes and one-twelfth of the annual cost of the homeowner’s insurance policy covering the home against fire and other casualties. The lender holds the real property taxes and insurance payments in an escrow account to pay the taxes and insurance as they come due during the year.
Bill Mulrow and other mortgage industry leaders know that a one-percent difference in the interest rate charged on a mortgage equates to about a 10 percent difference in a buyer’s monthly mortgage payment. For example, a $250,000 30-year mortgage at a 5 percent fixed-rate of interest would result in a $1,342.05 monthly payment of principal and interest. The same loan with a 4 percent rate of interest would have a monthly payment of $1,193.54 for a difference of $148.51 a month.
Government Programs to Make Housing Attainable
On the federal and state levels, government has played an important role in making home ownership affordable by offering programs to reduce the interest rate charged by lenders to designated categories of prospective buyers. For example, the programs offered to New York residents by SONYMA include low-interest rates combined with reduced down payment requirements for first-time homebuyers.
SONYMA does not lend money directly to buyers. Instead, the agency works through participating mortgage lenders who agree to grant loans to eligible borrowers. Borrowers must meet lender underwriting guidelines and SONYMA criteria for eligibility under the programs offered by the state in order to qualify for financing. The role of the state agency is as an insurer of the loans issued by the participating lenders to eligible borrowers.
Target Area Financing Assistance and Assistance for Veterans
The federal government has designated certain neighborhoods in New York State as economically distressed. SONYMA offers low-interest loans and down payment assistance to buyers in targeted economically distressed neighborhoods even if they are not first-time homebuyers. The interest rates offered in the target areas are also lower than on standard SONYMA financing.
Bill Mulrow suggests that veterans, or military personnel on active duty who are stationed in New York, should apply for SONYMA low-interest and down payment assistance loans through participating lenders. The programs for veterans are offered in cooperation with the New York State Department of Veterans’ Affairs office to assist active or former military personnel with financing without regard to their status as first-time homebuyers.
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