Home Mortgage Rates Have Never Been Better -Talk About Your Options

Almost daily, a past customer, or new referral is calling my office to ask about a refinance. They usually begin the conversation with, "Is now a good time to refinance?" There will likely never be a better time than now.

With refinance rates around the 4% mark, this is a great opportunity for so many mortgage options (i.e., refinance, buy a second home, home improvement, debt consolidation, rate reduction, term reduction, purchase an investment property, etc.). Rates have never been this low in my lifetime.

If you look at buying power, a 4% rate on a $200,000 loan will save a customer about $88,000 over the 30 year life of the loan, versus a similar 6% rate. What could you do with $88,000? For investors, people purchasing residential properties for rental purposes, the cash flow potential for their property is significantly better.

The rental market, or fair market rent of a property, is driven by two factors, what the market will bear, and what a similar house could be purchased for at prevailing rates. If an investor purchases a home with a 4% rate, and then the mortgage market moves to 6.0-6.5% for new home buyers, then that investor will typically increase his monthly rent. If the renter can’t buy for what he is paying in rent, then the rental market remains strong. Although the property owner’s costs remained the same, he can typically charge more for the property and increase his profit margin.

Second homes are another strong market when interest rates get extremely low. Buyers are able to maximize their buying power, or minimize their monthly payment for a second home. Using a $200,000 loan at a rate of 4% versus 6%, the average borrower will save about $250 on the monthly payment at the lower rate. The monthly savings can be the decision maker about whether a second home is affordable or not.

While mortgage rates are low, many credit cards are still charging 18-22% for balances carried to the following month. Borrowers can consolidate debt and pay off those bills in a fraction of the time, saving thousands of dollars in monthly fees and interest.

If you have considered a refinance or purchase of real estate, now is the time to get off the sofa and make a call. While rates could drop in the future, you have definitely lost the opportunity if they go back up.

© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.