Wednesday, February 8, 2012

Take Advantage of Record Low Rates

Fact of the matter is that record low mortgage rates have made it easier for people to get into the housing market.  But what do the low rates mean for the average homebuyer?   The low rates present an unprecedented opportunity; the ability to pay your home off much more quickly!
Let’s say you are taking out a $300,000 mortgage today.  Let’s also assume that you are getting your mortgage at the best rate, and that rate is 1% lower than it is likely to be when you renew in 5 years.  In that first five year period you are saving about 15 grand in interest!  That’s a whole lot of savings!  Most people will simply take the extra savings each month and spend it.  The smart people will take advantage of the low rates, and pay that house off more quickly.
Let’s say that instead of just taking the lower payment with the lower rate, that we ask the bank or mortgage company to increase our payment after the mortgage funds.  Most mortgages will allow you to do this.  So lets say we move that payment back up to what it would be if rates were 1% higher.  Makes sense right?  Why not pay the same payment you will likely be paying when you renew, so that you get used to paying what the mortgage would “normally” be?  The difference in the payment will only be about a hundred and sixty bucks, but the end result might just shock you.
By simply making this small extra payment on your mortgage each month, not only will you not suffer as much “payment shock” should rates rise when your mortgage renews, but you will owe about ten grand less on your house in 5 years time.  Pay your mortgage bi-weekly in this scenario, and you will increase your equity by another eight grand.  That’s right, ask to increase your mortgage payment based on a 1% higher interest rate, pay that mortgage bi-weekly accelerated, and you will reduce your 25 year mortgage down to 19 years, and in 5 years time you will owe 18 grand less on your mortgage.
Now, do this each time your mortgage renews, and you could be mortgage free sooner than you think.
So does paying rent really make any sense now? Take advantage of the low rates, and be smart about how you structure your mortgage and you could build some real tangible wealth through your real estate purchase.
Contact Amy Wilson 780-919-0475 or amy@brokersforlife.ca
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