Interest Rates and the New Dodd-Frank and Federal Consumer Finance Protection Bureau Regulations

Most people in real estate don’t expect interest rates to stay down much longer. As unemployment drops and the economic recovery gains momentum and therefore demand for business borrowing, the pressure to raise interest rates increases. In addition the federal government has spent $17,000,000,000,000 more than they had. They therefore borrowed the money. This results in a requirement to pay it back. It will be paid back with increased taxes or with inflation. I don’t think they have political will to do it with taxes and that leaves inflation. With inflation comes higher interest rates.

A one percent increase in interest rates results in about a 12.5 percent increase in your monthly mortgage payment. Let’s say you have a $100,000 loan and the rates go from four percent to five percent. Your monthly payment will increase from $477 to $536 per month. This happens because each payment is made up of principle and interest. The vast majority of most mortgage payments are made up of interest in the early years, and they equal out over the life of the loan. If your payment were all interest and no principle, your monthly payment would increase by 25 percent.

As of January 10, 2014 home loans will be more difficult to get. The new Dodd-Frank and Federal Consumer Finance Protection Bureau regulations go into effect, requiring lenders to become far more restrictive. The biggest change will be in the debt-to-income ratio. Currently, you can borrow up to about 50 percent of your gross income, but that will drop to about 43 percent in 2014.

If you make $60,000 a year and pay $500 a month for your car payment and $100 a month toward your credit card debt, right now you’d qualify for a mortgage of about $285,000. However, when the new regulations take effect in January, you’ll only qualify for about $215,000 (if you qualify at all). In addition, there are new requirements to prove you make the $60,000 per year. If you’d like more details (and by more I mean MORE) about the new regulations, go to

Depending on whether this significantly impacts the number and size of loans, the increased cost of dealing with the regulations will be passed on to consumers. In other words, with fewer loans of smaller sizes and increased regulations the cost of getting a loan will go up.

The bottom line is this: if you are thinking of buying or refinancing, sooner is better than later. Financing never justifies making a bad real estate or bad investment decision, but if the decision is already made, consider the current state of financing and act before the end of the year.

For the past couple weeks, I’ve encouraged people to consider donating to the Ukiah Valley Christmas Effort ( Many wonderful local charities care for local people during the holidays and year-round. Tax-deductible donations make good financial sense, and more importantly, help us strengthen our community. The Greater Ukiah Chamber of Commerce has a list of non-profit members listed at If you have more time than money, you can always volunteer to help out.

Next time I’ll write about investing in real estate. If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at or visit our website at If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 35 years.

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