Much of the world’s financial news is doom and gloom. Country GDPs dropping at record paces, businesses closing, people losing their jobs and it is seemingly never ending. However, there has been one bright spot in the US economy at least, if you are in a position to take advantage of it. Interest rates have gone to record lows and while for some of the financial interests in the country, this is negative, for anyone with a current mortgage or who may be looking to buy a home, this could be a great time to act.
So How Low Are Mortgage Rates?
While many in today’s society like to complain the good times are gone and we are all at a massive disadvantage when it comes to building careers and financial futures, one argument that does not hold water is the average mortgage rate. Sure, housing costs have increased exponentially over the last 3 decades but, one thing we rarely hear discussed is just how much mortgage rates have fallen. Let’s just look over the last 30 years.
In 1990, the average mortgage rate was 10%. A decade later in 2000, 8%. 2010, 5% and today, August of 2020, a record low of UNDER 3%. Why is this so critical? Because for many, a mortgage is the largest amount of debt a person can take on during his or her lifetime and it is often paid over a 30 year period. So, even a single percentage point can add up to thousands of dollars over the life of the loan.
Check out today’s mortgage rates here.
Reach out to our favorite mortgage broker here.
Should I Buy or Rent?
This is the question that keeps many up at night and unfortunately, there is not a single answer. It is completely dependent on a variety of factors. Have you decided where you want to live for at least a few years? Do you have stable employment without the risk of having to move in the near future? Do you have the credit and the down payment available to take advantage of the best available rates? These are just a few of the many questions to consider but, if you can answer yes to them, now may be the time to make a move.
Although due to the coronavirus there are some high rent neighborhoods losing tenants (such as Manhattan and West Hollywood), most areas still see rents that exceed mortgage payments considering a 20% down payment and today’s low rates. What that means is, you could be building equity in a home for less than it costs you per month for an apartment. Again, this is a very personal question that we cannot answer but, with the rates as low as they are today, it is a great time if you are READY to buy.
Should I Refinance My Mortgage?
This one is a bit more of a straight answer but some variables still exist. There are many refinance calculators available to understand what your breakeven point may be. The general rule of thumb is that any reduction in mortgage of .75% to 1% is worth the time and expense of refinancing. Again, things that need to be considered include time left on mortgage, balance of mortgage, any plan to sell the home in the near future, and how you may handle any out of pocket expenses related to the refinance.
But just like we discussed above, over the length of a mortgage, a refinance can save thousands, maybe tens of thousands of dollars. Additionally, refinance options can reduce your monthly payment or, reduce the number of years you have a mortgage for the same as your existing payment.
Mortgage refinance calculator here.
Should I Buy an Investment Property?
This is a fantastic question. With rates under 3%, that is possibly the lowest cost you can ever assume such a large amount of a loan. Most retirement investment calculators factor in 10% annual returns so the ability to borrow money no cheaply and put your cash to work elsewhere is very attractive when rates are so low. However, just like buying a home, investment property is also a decision that depends on so many factors. Determining what type of property, tax implications, ongoing improvement or maintenance costs, and the famous 1% rule which states that the monthly rent should be equal to or greater than the total purchase price of an investment property.
Investment property calculator here.
Final Thought
Rates are VERY low but in many cases, so are people’s outlooks for the future. Employment can be questionable, people want to hold onto their savings and they want to be flexible in their ability to uproot for a new opportunity. In the end, if you were in a position or in the process of looking for a new home, to refinance or an investment property prior to the pandemic and your situation is fairly stable, you may be able to take advantage of the current situation.
On the flip side, if things for you are a bit unsteady or you do not feel now is the time to make such a big commitment, you can stay the course and feel fairly confident while rates may pulse upwards again, we will not likely see the rates of decades’ past anytime soon.