Sure, it sounds simple enough…mortgage rates have dropped, therefore refinancing is a no-brainer. However, it’s important to remember that refinancing your home actually involves paying off your existing loan and replacing it with a new one. And like that original mortgage, it may require an appraisal, title search, and/or application fees. Plus, if you’re switching from one 30-year mortgage to another, you’ll reset your timeline to your final payoff.
Despite those costs, refinancing may still be a viable, perhaps even a wise option for many. For example…Let’s say you have a 5.25%, 30-year mortgage of $300,000. Then your monthly payment should be approximately $1,657. With just a 1% reduction to a 4.25%, 30-year term, your monthly payment drops to $1,475, saving you $180 per month, $2,170 per year. But more importantly, over the life of the loan, you would be saving more than $65,000 in total interest paid. Or better yet, a reduction to a 3.75% mortgage will save you more than $96,000 in interest over the life of the loan!
The declining interest rates have tons of people looking into their refinancing options. If you’re consider refinancing, start by talking to your lender…or one of our great lender referral partners. We would be happy to send you a list of our favorites!
The decline in interest rates is making homeownership more realistic, responsible, and a reality! Monthly payments drop along with the interest rates. For example, let’s say you find a charming 3 bed, 2 bath home for around $200,000. Your monthly payment of principal and interest could be under $1,000 per month!
Maybe you decided to take the plunge back in the spring…and well, honestly you got really discouraged. Every home you seemed to fall in love with ended up with multiple offers, selling for several thousand over asking price. It’s frustrating and fatiguing. But don’t get discouraged. Now may be your time! Moving into the fall with lower interest rates means great things for you as a buyer: 1. your borrowing potential is higher, 2. the market has slowed over the summer making sellers more negotiable, and 3. there is less competition with the number of buyers declining from spring and summer into the fall and winter.
*This chart shows the percentage of sales price to original list price which declines over the fall and winter before steeply increasing in the spring.
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With access to low interest capital, now may be the time to invest in your nest! There are several borrowing options if you’re not ready to pay for that renovation in cash. Surprisingly, credit cards come in second as the most popular method of payment for home renovations according to recent studies. Our conservative nature shrieks at this thought, especially if your card carries interest in the double digit APR…but if you have a repayment plan in place and can capitalize on a low or even zero percentage period, then perhaps you should proceed (with caution). Other options include a HELOC (home equity line of credit), refinancing (see above), or other short-term loans. Start with a local lender you trust to help you weigh the pros and cons of each option…then call us! We can help design an amazing home transformation based on your budget!
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The conservative investor in me is giddy with current market conditions for people considering entering real estate investing! And to clarify…we are not talking about fix and flips!! Making money in the short term in real estate requires a lot of time, energy, access to discounted materials, reasonable contractor pricing or the skill set to do the work yourself. So, it’s really not for everyone!
But if you have access to cash for down payments and a conservative reserve for rainy days, investing in long-term rental properties is something you should consider. Our team specializes in helping first time investors evaluate properties for the investment potential. We can calculate the estimated annual return on investment with given assumptions on rental rates, estimated vacancy, debt service and other operating costs. And as the cost of borrowing decreases, the spread (i.e. your return) increases!! A conservative analysis of a $200,000 investment property, 80% LTV 5.5% APR mortgage, and renting for $2,000 per month gives you an annual return of over 25% on your cash investment!
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Now is a unique time in the real estate market…a rare opportunity to sell in a seller’s market and buy in a buyer’s market. A general rule of thumb of evaluating whether you’re in a seller’s market or a buyer’s market is by looking at the months of inventory. Historically, industry experts have said a balanced market is one where there is approximately six months of inventory. Anything above is considered a buyer’s market, while anything less (especially less than two months like the current Metro-Atlanta supply of homes under $250k) is a seller’s market. Couple the lack of buyers at higher price points with your increased purchasing power from the decrease in interest rates…and it’s easy to see that the move-up buyers are the ones who can benefit the most in this market!!
*This chart shows the months of inventory in the Atlanta market at various price points. Notice the significant increases in months of supply as the price increases.
Access to low interest capital isn’t just limited to home purchasing or investing. If you’ve dreamed of starting a business or of taking your business to the next level, now could be the right time to borrow money to get you going. But a word of caution…because you CAN do something, doesn’t mean you SHOULD do it. Like while you can borrow against your home to start or invest in your business…you should proceed with extreme caution and evaluate other financing options before taking that plunge. Consider a small business loan through the SBA (U.S. Small Business Administration) or a business loan from your local bank or other financial institution. These types of loans may help limit your exposure on your residence. So, get your business plan together and get out and talk to an expert! We can help connect you with some financial experts if you’re unsure where to start.
Lastly, for those of you fortunate enough to have enough margin to consider the purchase of a second home, this may be the time to jump. Interest rates are so low that its likely there’s only one direction to move from here. Depending on the location and price point of the home, you may also be able to snag a bargain…but even if you can’t land an amazing deal, the timing may still be right in order to lock in these low rates.
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