Getting the right mortgage is very important for your real estate purchase. While there are many factors to consider when shopping for a mortgage, like points and other fees charged by the lenders, I'd like to show just how important the mortgage rate is.

This week, lenders in the weekly mortgage rate survey that is sponsored by the Honolulu Board of REALTORS® and circulated to local newspapers, were reporting fixed 30-year mortgage rates at around 5.25%.

If a household could afford a monthly payment of $3,000 and the mortgage rate they can get is 5.5%, the purchase price, working backward, would be $660,500, based on normal lending assumptions like a 20% down payment, etc.

I then looked at the effect that various changes in rates would have on the price. If the mortgage rate increased to 6.0% and the family's payment budget remained at $3,000 per month, the computed purchase price would decrease to $625,500. In other words, a 0.5% increase in the mortgage rate would diminish purchasing power by $35,000. When I went in the opposite direction and lowered the borrowing rate by 0.5%, to 5.0%, buying power rose by $38,000, to just under $700,000.

If, as expected, the Federal Reserve reduces bank lending rates at their January 30-31 meeting, you'll see mortgage rates go even lower. I'm guessing the Fed will cut rates by half a percent - what do you think?