Happy fall, everyone! Again, I find myself thinking about how to write a blog post that balances everything that is going on in the world with the best personal finance information I can give you. So, this month I thought I would spend some time talking about real estate mortgages and how they are being affected by our wobbling economy.
As a homeowner and real estate investor, I find myself watching mortgage interest rates carefully and wondering if now is a good time to re-finance or to advise folks to buy property. Just like anything in 2020, the answers to those questions are complicated. I have a few thoughts on the topic, starting with the question of mortgage loan interest rates, since this topic applies to folks who are thinking about buying AND considering re-financing. Are the current interest rates really all that good or are we just seeing what amounts to a minor drop?
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In my opinion, mortgage interest rates haven’t changed dramatically in the last six to nine months. They may have dropped a bit but they are still hovering around the 3% mark. If you are considering re-financing, you should consider all the things you would normally think about in a normal situation. Check your current interest rate and compare your savings if you re-financed with the new interest rate then factor in the actual cost of re-financing. If you can’t offset the cost of re-financing enough to make it profitable, don’t re-finance. I think interest rates have been low enough for long enough that many of us already have the best interest rate we’re going to get. The savings you would get by re-financing to get a slightly lower interest rate would probably not be enough to cover the cost of re-financing.
What about buying? Is it a good idea to buy in today’s real estate market? I think that question depends on a couple of things. First of all, it depends on the market you are looking in. Some real estate markets are seller’s markets because of the lack of inventory, a factor driven by low interest rates for the last few years. Around me, the prices of homes are going up and up and up. I don’t see it slowing down any at all. In fact, houses around here are selling in record time and with buyers having to do more than just pay the asking price.
Second, do you have enough of a down payment saved to avoid mortgage insurance or to purchase points up front? These expenses can drive your mortgage payment up a fair amount so if you are thinking about buying, you want to make sure you are getting pre-qualified for a mortgage and factoring those mortgage expenses.
Third, in this crazy economy, I think it’s a very smart thing to look carefully at your monthly income and ask yourself if your industry is secure. I try very hard to stay upbeat and to give people hope in these difficult times but, the reality is that we are still in very uncertain economic times. Now, more than ever, we need to make sure we are doing our very best to live within our means and avoid taking on debt that we can’t reasonably expect to pay back. Make sure you are building up your emergency fund and saving for a rainy day because lately, it’s been either pouring rain outside or burning to the ground. Now is the time to try your best to stay financially prepared for every possible outcome.
Finally, I want to take a minute to advise you against using your house as a bank, if you can help it. I’ve heard about people taking cash out of retirement accounts and depleting the equity in their homes in order to maintain their current lifestyle. If you don’t think you’ll be able to replace that value (and even if you can, you’ll lose out on time and compounding), don’t tap those funds. Instead, think about what you can do to pivot in your finances to stay solvent. One thing we do know for sure, hard times don’t last forever. Sooner or later, we’ll be back to stoking the economic engine of this country and moving forward from the nightmare that has been 2020!
Sincerely,
The Dollar Lama
P.S. Make sure you check out my online courses, books and resources, too! Investing in your money management education is an investment in yourself. That’s the best investment you’ll ever make, I guarantee it!. Don’t forget my weekly Facebook live videos on Facebook.com/newcashview, Instagram @joyalfordbrand and on my YouTube channel NCVTV. You can catch me Thursday evenings between 7:00 and 9:00 (Eastern Standard time), for my weekly NCVTV episode. They are packed full of useful and entertaining money management information! If you’ve missed any NCVTV episodes, you can see the latest on newcashview.com