Take Advantage of Low Interest Rates
By JD Esajian on September 25, 2013
New investors don’t realize how good they have it. Instead of lamenting the lack of fewer investment programs, focus on how low interest rates can still be taken advantage of. It wasn’t too long ago that interest rates were in the double digit range and even more recently hovering around seven percent. While there are certainly much fewer mortgage programs available, those who can qualify are being afforded a terrific opportunity to generate short and long term wealth.
We have been at or near record low mortgage rates for nearly two years now. With increased down payment guidelines, you are now walking into your property with equity and the lowest possible payment options you can have. This provides you immediate cash flow and gives you options for the future. This increased cash flow can be used to increase your reserve fund, pay down debt, save for another property or pay down your mortgage balance. All of this is due to historically low interest rates you are paying on your money.
When it comes to your interest rate, know that they will almost always go up much quicker than they will go down. There are a few key factors that affect what interest rates do. When negative news breaks, it is not uncommon for rates to shoot up a quarter to a half a point or more in one day. One bad housing report, or higher unemployment numbers, can leave you paying $150 dollars or more a month just by not locking your rate when you could have. You can speculate and play the rate lock game, but often times the risk is greater than the reward.
The higher the loan amount, the more your payment changes every point the interest rate goes up. If you have a loan under $100,000, the change from 4.25% to 5.25 % is only $61 a month. Conversely, if the loan is $300,000, the same change in rate costs you almost $200 a month. That $200 a month could mean a new hot water heater at the end of the year or one extra mortgage payment that could knock years off your mortgage. If you have the chance to lock, and you are comfortable with the terms and conditions, don’t wait. Lock your rate before it goes up.
There are additional mortgage programs, other than the standard 30 year fixed, that you can explore. The rate on the 15 year fixed and various adjustable rate programs are down accordingly as well. If you know you won’t be in the house for more than a year, an adjustable rate mortgage near 3% could be the way to go for you. If you found the perfect rental property, and can’t see yourself selling any time soon, you could look at the 15 year fixed with an eye on owning it outright as soon as possible.
If you ask most investors whether or not they would rather have more mortgage programs or keep rates low, they would almost all prefer the low rates. Once more programs are introduced, rates will undoubtedly rise and all the investors that left the business some five years ago will find their way back in. These low interest rates will not last forever, but while they do, you should take every advantage of it.