Mortgage Planning Tips

Sure, housing’s in a hole but there’s potent case for buying now! Ignore the headlines. That’s no easy thing. How do you tune out all the chatter on recession, housing woes and the credit crunch? When prices are falling, few people have the discipline to buy stocks, a house or other assets. But those that do pull the trigger excel in the long run. As John D. Rockefeller famously said, “The way to make money is to buy when “blood is running in the streets.”

Let’s assume you’re emotionally ready to be a homeowner. You have god credit, plan to stay in the home for five years and have been waiting for the perfect entry point. Its time to get serious—before an inevitable rise in interest rates wipes out your advantage. The market forces that will make home prices stop falling are the same forces that will push mortgage rates higher. So anything you gain by a further drop is prices may be offset by rising financing costs.

Consider a typical home that sells for $400,000. You put a down payment of 20% and get a 30 year fixed rated at 4.5%. Monthly principal and interest come to $1,621.39. Let’s now assume that 12 months form now the same house goes for 10% less, or $360,000. But by then the FED is raising rates to stem inflation and mortgage rates rise to 6%. Your monthly payment would be $1,726.00 and you will actually pay much more over the life of the loan!

In conclusion, if you had waited a year to buy, you would have actually paid more, and missed out on a year’s worth of tax benefits from owning real estate. The housing correction won’t last forever. Ricks always seem most acute when the headlines give you ulcers. But that’s exactly when you should think long term and get off your thumbs.

    The upside of the housing slump has been that potential homeowners previously priced out of the market are finding that they can afford the American Dream thanks to a combination of lower resale and new home prices along with record low interest rates. The national average interest rate on the benchmark 30-year, fixed-rate loan averaged 4.78% in the week ending May 1, 2009, down from last week's 4.80% and the year-ago 6.06%, according to Freddie Mac's weekly survey.

    In order to take full advantage of this wonderful opportunity, it is important to contact a knowledgeable and reputable mortgage professional who can evaluate your current financial situation. A Certified Mortgage Planner can help.

    There is no universal, optimal choice of mortgage product and potential borrowers are advised to consider their goals and capabilities, and take these factors into account when evaluating potential mortgage options. For example, when evaluating a specific type of loan, there is more to consider than just the monthly payment and interest rates. It is necessary to always consider the tax deductibility of mortgage interest, your spending habits, capacity to save, risk tolerance and future goals. A good loan choice is the one that is designed to integrate into your short and long term financial goals.