Subprime freeze could mean at least $8,400 in your pocket!
Bush's freeze could save you at least $8,400 over its life if you own a ridiculously low-priced home at $163,000.
It looks like James Shilling, DePaul University's M.J. Horne Chair in Real Estate, is a fan of S&P/Case-Shiller as a measure of the direction of Chicago housing prices.
“The Case-Shiller Index is a more conclusive index,” he said.
The good professor did do some interesting figuring using Case-Shiller numbers that will please some readers.
Shilling took the infamous Case-Shiller Index and figured what the savings could be for a homeowner with some equity under the Bush freeze.
Using the $163,000 purchase price of a home and assuming a loan value of $154,000, Shilling says that a homeowner can expect to save $8,400 over the five year life of the freeze.
He assumed a 2 percent teaser rate that will reset higher and would qualify under the treasury plan for a frozen interest rate.
The current margin on a five- year arm would be 2.75. The current five year Treasury rate is 3.67 percent. Adding those together gives you the reset today, Shilling says. That would be 6.41 percent.
Shilling then took the reset vs. the freeze and calculated how much of a savings that would be for an individual household that opted into this program.
With annual payments of about $9,500 per year, the value of a freeze at the current teaser rate would have present value over five years of $8,400.
$8,400! That’s some pocket change!
As to that ridiculously low single-family house price for Chicago of $163,000, Shilling said, laughing: “Those are Indiana prices, I don’t know.”
He promised he would find out and get back to us.
