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| Be wary of low mortgage rates http://www.hawthornevillager.com/phpbb/viewtopic.php?f=3&t=41363 |
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| Author: | PaulMeredith [ Tue Sep 27, 2011 4:48 pm ] |
| Post subject: | Be wary of low mortgage rates |
Everyone loves getting a great deal and saving money on their mortgage…and when we are facing the lowest mortgage rates in history, it makes it all that much more exciting. That’s great, right? Well, consider this pitfall before you go maxing out your budget on your dream home. We have been staring down these low mortgage rates for a couple of years now, so it can be easy to become complacent and lets say even somewhat spoiled by them. It is important that you remember that they will not always be low like this, so make sure you plan ahead. As the world economy improves, mortgage rates will increase. 5 year fixed mortgage rates are commonly between 5 and 6% in a healthy economy. When shopping for a house, make sure you take this into consideration before going with the maximum mortgage you qualify for. At the end of the 5 year term, you can be almost certain that your new mortgage rate will be higher than what you have become used to paying. For example, a $300,000 5 year fixed mortgage at today’s lowest 5 year fixed rate of 3.19%, amortized over 25 years would have a monthly payment of $1,449.14. Compare that with a rate of 5.5% you may be facing upon renewal of your mortgage and your payment jumps to $1,761.30. A difference of $312.16, all in additional interest that you are paying to your bank, I might add. (based on your renewal amount of $257,353 amortized over 20 years, assuming monthly payments and no extra lump sums). That number is of course substantially higher for those going with a 4 year fixed at 2.89%. If you are already stretching your budget to afford the mortgage payment at today’s lowest mortgage rate, then that extra $312 is really going to put you over the edge. Trust me, you don’t want to be in this situation. It’s not fun! Make sure you plan for future mortgage rate increases before you start searching for a home, rather than just going with the most expensive home you can afford right now. |
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| Author: | JTP [ Tue Sep 27, 2011 5:00 pm ] |
| Post subject: | |
Why are you re-borrowing the full $300 000.00? The low interest rate allows more to be paid toward principle during the 5 year life of the mortgage. Your numbers MUST be different at renewal time. You wouldn't be borrowing $300 000.00 again. You'd be "renewing" for less. |
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| Author: | PaulMeredith [ Tue Sep 27, 2011 5:17 pm ] |
| Post subject: | |
Yes, you're right, thanks for pointed that out. I was comparing the two loans as if they were both taken out today. I have made the adjustments using future numbers. |
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