Make The Recession Work For You
Those interested in the housing market continue to talk about how low interest rates are bringing the first home buyers out of the woodwork and how this is driving the re-sale market. That’s a great upside to the recession. What if you are an existing home owner, what about you? Well the great news for those of you on variable rates or coming off a fixed rate (and therefore able to negotiate again) is of course, you are also able to benefit from the low rates. Lets look at some examples. Two years ago, prime was at 6.25%, one year ago 4.75%, and today 2.25%, so if you had a mortgage of say $200,000 two years ago (25 year amortization, variable rate) your payments would be $1309, a year ago $1134, and now $871. That’s a saving of $438 per month, or 1/3rd cheaper now than two years ago, fantastic! Now traditional thinking is that you take the opportunity to lower your payments and put some extra cash in your pocket. But what if you left the payment the same? Assuming you could afford the payment two years ago and assuming all is equal you should be able to afford the payment now. By keeping the payment the same you will see the real benefit of the recession. If you leave that payment at $1309 (instead of lowering it to $871) you would shave 10 years off the term of your mortgage saving $157,000 in monthly payments. Imagine paying your mortgage off ten years earlier. Now in the real world interest rates will rise again and this scenario is unlikely to fully play out, however you will certainly make gains and shorten the lifespan of your mortgage. Just imagine being mortgage free even a year or two sooner and you literally didn’t have to do anything, worth a thought.