As of Today April 7th 2010, the Mortgage Bankers Association put the national average for a 30-year fixed-rate mortgage at 5.31 percent. One week ago, it was 5.04 percent.

The question is what does this really mean for me as a San Jose CA home buyer? It’s all about affordability. For every 1 percentage point rise in rates, ( San Jose homes priced between $400,000 to $500,000 ) would-be buyers are priced out of the market in a given year, according to the National Association of Realtors.

The rule of thumb is that every 1 percentage point increase in mortgage rates reduces a buyer’s purchasing power by about 10 percent.

For example, taking out a 30-year mortgage for $300,000 at a rate of 5 percent will cost you about $1,600 a month, not including taxes and insurance. But the same monthly payment at a rate of 6 percent will only get you a loan of $270,000.

The next big question is what will this do to home prices? The banks will still need to sell their San Jose foreclosure listings but their going to have to do so at a lower cost. If the once $300K home buyer still wants to purchase then they will do so at the new $270k range.

Dropping home prices might be expected but Silicon Valley Real Estate might not see a 10% decrease due to our stronger real estate market.

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 Lawmakers are starting to wrestle with how to replace Fannie Mae and Freddie Mac, the mortgage giants that nearly collapsed at the start of the financial meltdown.

In September 2008, the government seized control of Fannie and Freddie — massive companies that purchase home loans, package them into investments and guarantee them against default. Since then, the government has pumped a combined $126 billion into the companies to keep them afloat.

House lawmakers Tuesday took tentative steps toward figuring out what to do next, holding their first hearing about how to restructure the mortgage system in the wake of the financial crisis. For the time being, the market is still resting on three government pillars: Fannie, Freddie and the Federal Housing Administration.

Last year, the two companies backed about 70 percent of all home loans, according to Inside Mortgage Finance, a trade publication. The duo also manage the Obama administration’s $75 billion loan modification program.

Rep Barney Frank, D-Mass., chairman of the House Financial Services Committee, said there is consensus about replacing Fannie and Freddie, but little agreement on what should take their place.  More….

If you have been thinking about it well now is the time. Right before the government cuts off the additional funding that is helping to keep rates low. Without a re-newed commitment from the Fed some analysts are expecting rates to rise.

This week the average rate on a 15-year fixed rate mortgage was 4.32%, down .01% from last weeks rate according to Freddie Mac.

So call your lender and have your loan papers ready to go. These rates will be gone soon.