If you have been hoping interest rates would drop your prayers have been answered. Interest rates plummeted over half a point last week falling from 6.35 to 5.78. The last time mortgage interest rates fell this fast this quickly was the beginning of 1995 when rates fell from 8.32 to 7.57. Rates have basically fallen following the government takeover of Freddie Mac and Fannie Mae. Below are the rates for the major mortgage products for the last few weeks.
September 18, 2008 30-yr 5.78 15-yr 5.35 5-yr ARM 5.67 1-yr ARM 5.03
September 11, 2008 30-yr 5.93 15-yr 5.54 5-yr ARM 5.87 1-yr ARM 5.21
September 4, 2008 30-yr 6.35 15-yr 5.90 5-yr ARM 5.97 1-yr ARM 5.15
August 28, 2008 30-yr 6.40 15-yr 5.93 5-yr ARM 6.03 1-yr ARM 5.33
August 21, 2008 30-yr 6.47 15-yr 6.00 5-yr ARM 5.99 1-yr ARM 5.29
August 14, 2008 30-yr 6.52 15-yr 6.07 5-yr ARM 6.02 1-yr ARM 5.18
30 Year mortgage rates fell less this week (.15 points) compared to last week (.42 points). 15 year and 5 year arms both fell about .2 points this week. 1 Year arms which was the only major product to not fall last week fell .18 points this week. The other interesting point is that because interest rates were falling before the Fannie Mae and Freddie Mac takeover (based on rumors of the takeover) rates have fallen an incredible amount (.74 points for 30 year rates) over the last month and a half.
Ok so let's see what these drops mean as far as a mortgage payment. Using our free mortgage calculator lets look at a payment based on a 200k loan. We will run the numbers based on today's mortgage rates and rates on September 11, September 4th and July 24th.
September 18th 30-yr $1170.96 15-yr $1618.29 5-yr ARM $1157 1-yr ARM $1077.31
September 11th 30-yr $1190.11 15-yr $1638.41 5-yr ARM $1182.43 1-yr ARM $1099.45
September 4th 30-yr $1244.47 15-yr $1676.92 5-yr ARM $1195.24 1-yr ARM $1092.05
July 24th 30-yr $1281.28 15-yr $1707.22 5-yr ARM $1219.75 1-yr ARM $1134.32
So the obvious thing to see here is that the now lower interest rates have had a large effect on mortgage payments. A mortgage with a 30 year interest rate dropped from 1281.28 to 1170.96 (9.1 percent) in the last month and a half. So that brings up the point that it's probably a good point to start looking at refinancing your mortgage even if you received a mortgage somewhat recently.
So what is in store for the market in the next few weeks? It's hard to tell but the market is very volatile. One day the stock market drops 400 points because Lehman Brothers goes bankrupt. Then the government proposes to takeover the bad mortgage debt and the market rises. Because of this volatility if you are thinking of refinancing I might lock in to an interest rate now because its hard to know what rates are going to be like in a few weeks.
Because of the need to get more out of less, it is increasingly necessary to take maximum advantage of every financial strategy that holds the possibility of increasing your wealth – safely. Real estate has long been considered one of the best investments for retirement and investment portfolio funding. Real estate is still a fantastic investment, if you are willing to explore different strategies for wealth building. Let’s take a look at how you can create FAR greater wealth.which will mean you have a significantly improved piece of mind.
Assets – Is what you consider an asset really an asset?
Equity in a house is no longer the best wealth-building tool. It is no longer considered an asset, but more of a liability. Housing values are going down currently and it is now being predicted that the decreasing value trend will continue into 2009 (Reuter’s prediction). When you separate your equity from your loan amount you are now creating an asset. Let’s look at how to turn your equity into an earnings powerhouse.
Interest Earnings – Make sure it’s you earning interest and not someone else!
You don’t earn interest on a down payment or extra monies applied to principle. The lender is earning the interest. You can take the equity in your home and convert it into a passive revenue stream for you instead. The interest you are earning is now considered a passive revenue stream, meaning your money works for you with no effort on your part. A conservative estimate of interest earnings is 6-8%. Increased earnings from being able to earn more interest than you are paying out is one way to benefit from taking the equity out of your house; the other way to gain is by keeping more of Uncle Sam’s money.
Double Bonus Earnings
Perhaps I should say double bonus savings. The interest you are paying out is completely tax deductible. For example, if you are paying $10,000 a year in interest payments on your home, you can then deduct that $10,000 from your taxable earnings. I don’t know about you, but I’d like $10,000 in deductions so I can keep a lot more of my earnings in my pocket!
If the idea of making money with your current equity sounds good then you will want to pay attention to what I’m about to present to you. Yes, it’s a different way to look at mortgages than you may be used to, but bear with me while I unfold the concept of using your equity to create greater wealth for you.
The Plan
A homeowner can safely borrow money at today’s interest rate of approximately 6 to 7%. You, the homeowner, can then invest your now liquid (spendable) equity money in an investment vehicle earning 6% or higher. There are two ways to win here. One, you could actually earn higher than 6% interest. Two, you will be able to now deduct the interest payments on your taxes.
Example – You have $100,000 in equity in your home and you owe $100,000 in principle. You could refinance your home for the $200,000, which will enable you to take out the $100,000 in equity. The new mortgage is at 6% and you invest the $100,000 in something yielding 6% or higher. Let’s say you are paying $12,000 a year in interest on the loan you now have. You now have a $12,000 deduction on your taxes. If you are in the 33.3% tax bracket that, equates to $3960 in tax savings per year. You can clearly see how you can be working smarter not harder.
Learning to maximize what you already have is easier than having to constantly worry about earning more money. Now that is the stuff stress is made of.
What if you are Renting Now?
Many times individuals are paying as much in rent as they would be in an interest-only loan. What makes the most sense- the renter if paying equal rent versus a mortgage and is actually losing significant money in tax savings – or – buying a property, pay the same in a mortgage as rent, gain the tax advantage and also gain the appreciation on the property? The person paying rent could be saving thousands of dollars!
Taking the Fear out of the Method
Your home can be considered paid for if you have sufficient money in your investment portfolio to pay off the mortgage. You can see that your investments have the distinct possibility of earning much more than you are paying out. Your mortgage consultant/advisor can educate you on the pros and cons of available mortgage options. Like the healthcare industry, the financial industry is creating new and innovative solutions at a rapid rate. If you haven’t consulted with your lending agent within the last year you very well may significantly benefit by having a phone or coffee meeting with him or her.
Alleviating the fear of a financial setback can also happen by having investments that are liquid (assessable). You will now be able to weather a financial setback if needed.
Just as you would go for a physical check-up each year to safeguard your physical health, you should also see your financial consultant/lending agent to make sure you have strong financial health.
Both Ki Gray & Rosemarie Mandel are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Ki Gray has sinced written about articles on various topics from Debts Loans, Real Estate and Food And Drink. Ki is a realtor down in Austin Texas. His website provides information on current . He also has a. Ki Gray's top article generates over 110000 views. to your Favourites.
Rosemarie Mandel has sinced written about articles on various topics from Current Affairs, Computers and The Internet. Rosemarie Mandel has been providing outstanding lending service to her hundreds of clients for over 5 years. Her clients span the United States from coast to coast. Rosemarie may be reached by calling 818-444-4788, by visiting her website at www.innovat. Rosemarie Mandel's top article generates over 1900 views. to your Favourites.