Refinancing at today’s fixed rates can offer more benefits than just lowering your monthly payments. Owners with adjustable-rate mortgages can gain peace of mind by knowing their new payments won’t change in the future. Some homeowners are refinancing into a 15-year, fixed-rate mortgage now. Doing so allows you to build equity in your home faster.
Home prices probably won’t be rising as quickly as they did earlier this decade anytime soon. But you still can enjoy a good profit when selling if you build equity by paying down your mortgage as fast as possible. A 15-year home loan helps in this regard by devoting more of your payments to the balance owed, and less to interest. Because you’re paying for financing over 15 years rather than 30, your total interest payments are much lower with a 15-year mortgage.
Someone with a new $300,000 home loan at today’s rates will see their balance drop to around $222,000 after five years if they have a 15-year mortgage. Once they’ve made payments for eight years, they’ll owe just $166,000. If they sold their house then for $366,000, they’d earn a profit of about $200,000. And that’s just assuming their property’s value rose modestly over that period.
Another owner with a 30-year loan for $300,000 will reduce the amount due to roughly $276,000 in five years, and $258,000 after eight years. If they sold for $366,000 at that point, their gain would be just $108,000. You may find that using extra funds to reduce your loan amount over time earns you more than investing in stocks or bonds does.
A 15-year loan also gives you a lower rate than a 30-year mortgage does. However, the monthly payments are higher, since the loan is repaid over a shorter period. If you like the benefits a 15-year mortgage provides, but aren’t sure you can afford the higher payments, a different strategy can work to your advantage. Refinance into a 30-year loan, and then make voluntary extra payments to reduce your principal. You can discipline yourself to do this by refinancing into a 30-year mortgage with lower payments than your current loan. And then continue paying the same amount every month, with the excess used to cut your loan balance.
One important aspect of America’s recent economic stimulus package is that it sets conforming loan limits back to the same level as last year. Conforming loans are eligible for purchase by Fannie Mae and Freddie Mac, and they offer lower rates because of government backing for those firms. In many areas those loan limits dropped at the start of 2009, making today’s low rates available to fewer borrowers. But fortunately that situation has changed for the better. Call us soon to find out how you can save by refinancing now. We’ll help you fashion a borrowing strategy which fits your financial circumstances.
Economist Robert Samuelson recently wrote, “Here’s a little-known fact: Housing may be more affordable now than at any recent time, thanks to lower prices and falling mortgage rates.”
Americans who plan on living in a home for years are starting to take advantage of today’s emerging opportunities. And great rates now let you lock in low monthly payments. One advantage of today’s market is that you don’t have to make any snap decisions. Plenty of properties are available, and owners will listen to reasonable offers. Homeownership costs have fallen dramatically since 2006, while rents have continued to rise. Right now the difference between the cost of renting and owning “is swinging back in favor of homeownership,” reports The Wall Street Journal.
In more than half of the 50 largest U.S. housing markets, the difference between what it costs to rent and own is closer than its 18-year average, the Journal adds. Some buyers are finding they can purchase a home with more space than their current rental, and yet pay less every month. Real estate owners also receive attractive tax breaks which reduce the cost of ownership. However, it pays to look carefully at a neighborhood before purchasing. Some areas have remained stable, while others have experienced a rash of distress sales. Purchasing on a street with numerous foreclosures is riskier than buying in an established neighborhood whose value is likely to remain steady.
Almost three out of four American homeowners say now is a good time to buy a house, according to the Pew Research Center. And despite housing’s woes, homeowners remain happy. Ninety percent of owners “say their home is a source of comfort in their life,” notes the Pew survey. Just six percent see their house as being a burden. Buying a home is a long-term financial commitment. Contact us when you’re considering a purchase, and we’ll go over today’s positive borrowing options with you.
Many forecasts call for America’s economy to shrink slightly this year, before resuming growth in 2010. Returning to expansion could push interest rates higher, however. Heavy government bond issuance to cover growing debts will compete with the borrowing needs of individuals and companies for funds. Rates for everyone could be pushed upwards as a result. Currently mortgage borrowers are enjoying some of the lowest rates seen in a generation. Yet like all great deals, this will last for a limited time.
Some potential buyers are concerned that home prices could be lower in the future. However, it’s important to take into account all the relevant factors. Higher mortgage rates could more than offset the possibility of lower purchase prices. We can help you evaluate the current market, and select a rewarding strategy. Talking with us early in the buying process also gives us time to go over your credit report. We then can correct any errors, and take other steps to help you benefit from a better rate. First-time buyers who act before December 1 also can lower their tax bill by up to $8,000 this year, with the help of a new tax credit. Lenders are looking closely at mortgage applications now, so it’s in your interest to give yourself adequate time in order to obtain the results you want. Let our experience and enthusiasm for helping households gain attractive financing be on your side as you enter the real estate marketplace this year.
