Tuesday, August 31, 2010

Taking Advantage of Low Rates

Unless you live in a cave (no mortgage on that cave), you have heard everywhere that rates are at historic lows. "Lowest Rates in 50 years... 100 years ... since the birth of Christ!" Yes, we all know that rates are really, really low. So what does that do for you?

If you don't already own a home, then it means this will probably be the best home-buying opportunity of your life. Not only have home prices been reduced by 50% (more or less) in the past few years, but the financing rates are lower than anything your parents or grandparents ever witnessed.

Consider this example. A $200,000 home loan may carry a rate today of 4.375% on a 30 year fixed (4.488% APR). A principal & interest payment in this example is $998.57 per month. This same loan with a 7% rate (an fairly average historical rate) carries a monthly payment of $1330.60. That is a 33% increase in payment when the rate is 2.625% higher.
If you or someone you know is in a position to purchase their first home, please call me.

Now, for those of you that already own a home, the obvious way to take advantage of low rates is to refinance. There are three basic strategies to refinancing.

  • Lower the monthly payment & improve cash flow.
  • Reduce the term on the loan (e.g. 15 year loan)
  • Take cash out to pay off other debt or make a large purchase

I like to work with my clients to come up with the best strategy that fits their needs. Sometimes their best strategy is to not refinance, and I will often tell clients that. Please contact me to discuss your opportunities.

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