The average monthly rate for a mortgage in the United States is around 1300 dollars. When you take into consideration that this amount needs to be repaid every single month for the next 15 to 30 years, the end result can be quite staggering.
For the past couple of decades, real estate has been the most expensive purchase of the average household. The second most expensive purchases have been new cars. The reason why real estate is more lucrative than a new car is simple.
If you get a large enough home or two apartments, you can rent out empty rooms and get some passive income on the side. This makes it perfect for people who want to expose themselves to a bit more risk in their investments. However, there are a couple of things that might help you on the road.
First things first, at the moment, the interest rates on mortgages are the lowest they’ve ever been. If you have a great credit score, you can get an apartment or a house in your name for as little as 2 percent interest throughout the next thirty years.
That’s a complete bargain. When this situation presents itself, it’s wise to take a look at your current plan and see whether you need to refinance it. In the past few weeks, the United States packed on even more debt than it already had. In September, the national debt was 28.4 trillion. To make it a bit clearer, that’s 28 400 billion. That’s a lot of money.
Well, a couple of weeks ago, the government found out that the country is in a lot of debt, and the only way out of that hole is to print more money. That’s why now the national debt is 28.9 trillion since 480 billion were just added into the economy. This doesn’t look good for people that are holding all of their assets as cash.
You need to diversify as fast as possible. This means that you need to look into precious metals, cryptocurrencies, stocks, bonds, and, most importantly, real estate. In the near future, interest rates are going to rise again, and if you already have a mortgage, it makes sense to opt for a better one.
However, sometimes it pays off to stick to your older agreement since it has better conditions. Now, we’re going to look at both the advantages and the disadvantages of refinancing. This could save you a lot of money in the future, and that’s why it’s important to think long-term. Here are the most important things that you need to know.
Is it the right choice?
Every individual is different from everyone else in one way or another. When it comes to taking out a loan, you should never do what everyone else is doing. That’s because those agreements are signed based on your credit score, as well as your financial situation.
This makes them unique. Going for a refinance is something that you should think about and calculate. You shouldn’t sign new documents and go through an entire bureaucratic process just because the rates are going down. However, if you can get a better deal and improve your net value, that’s a big plus.
On top of that, if you can combine an increased cash flow momentarily by maintaining lower rates, there’s no reason to have doubts. Those are the best advantages, and you should focus on maximizing them. However, it’s not all sunshine and rainbows down at the bank.
There are hidden fees on every corner. The worst of all is the closing fees because they can decrease your net worth and prove to be a complete disadvantage. Finally, there are programs such as the VA, FHA, Freddie Mac, and Fannie Mae, which can assist you if you would like to obtain an inexpensive deal.
Should you be thinking about it?
Whenever people see that low-interest rates are trending, they’re quick to rush and spark a frenzy. That has happened too many times in the market. It always makes sense to look at things objectively and use online calculators to see whether these new changes will benefit you.
Most people don’t come from an economic background. This means that they’re bound to make mistakes. Spending a little bit of time and learning about the basics will pay off huge dividends in the future.
For you, that money is not necessarily going to come as dividends, but it’s going to help you in the way that you’re not going to be stuffed to your neck with payments. That’s why it makes a lot of sense to talk to a financial advisor who can help you and guide you through the process.
What are the questions you should be asking?
There are some basic questions that you need to take into consideration. Places like Refinansiere.net/ have useful information. First of all, you need to compare the current rates with your own. Are they substantially lower? How big of a percentage is that going to be in the long term? How much is it going to save?
Let’s say that you have a loan for half a million dollars. If there is a one percent decrease, then you’re going to save a lot of money down the line. If your entire mortgage was close to 100 000, then the difference wouldn’t be as stark. It’s going to be a couple of hundred dollars. It doesn’t make sense to go through an entire refinancing process for a few hundred dollars.
How much time do you have left on the mortgage?
It might surprise you to find out that you’ll have to pay closing fees on your refinancing just like you did when you bought your house. Additionally, if you expect to sell that piece of real estate in a couple of years down the line, then you might break even on your entire borrowed amount.
In some cases, that might be putting you in the red. Why does that happen? Well, when you’re calculating your break-even amount, you’ll need to incorporate the expenses of closing. If you don’t pay them right at the start, they’re going to roll inside your mortgage. This means added interest, which means more money is burned and given to the bank.
What if you want a shorter-term?
Going for a shorter term is something that always makes sense. Here’s why. Whenever you decrease the timeframe of a loan, the interest decreases too. When you’re up against the bank, you can never come out victorious.
However, you can try to get as close as possible to a draw. In the end, you’ll always need to pay interest since you’re borrowing a lot of money upfront. The goal here is to make that interest as low as possible. Shortening the timeframe cuts that amount and lets you buy the property for much less than you anticipated.
What are the pros and cons?
If you decide to go with this step, you’re going to feel an initial boost in your cash flow. On a month-to-month basis, you’re going to have more money that can be used for investing or for starting a side business. If your hobby can generate you money, that’s a jackpot.
That extra income can cover your investments while you keep slowly and steadily paying back the credit union or the bank. When you’re relieved of financial stress, you’re free to think of investing in other areas.
Additionally, there’s a boost in your net worth. Long-term financial goals such as retirement programs are a great way to increase your wealth down the line. Since you’ll be spending less, you can save and reinvest.
On the other hand, there are some drawbacks that are not easily seen unless you shine a bright light on them. First of all, a lot of new variables will be added to your financial picture. Closing costs can become a burden, and you can also lose a bit of the equity that you’ve gained over the years.
In the end, the most important part of real estate investing is equity. It increases slowly until you start owning the entire plot of land and could collect all of the earnings if you wished to sell it. Well, cashing out early or deciding to change terms might prolong the duration of the loan and decrease the part of the house or the apartment that you own at the moment.