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Securing your home from future inflation. Hi there, I hope you’re having a terrific summer thus far! I wanted to touch base with you to talk a little about where we are in the mortgage market, where we’re heading, and what you can do to curb the risk of your future mortgage…let’s call it “securing your home” from future inflation… It would be an understatement to say that mortgage rates WILL go up…that much we know. What we don’t know is how much they will go up, and WHEN. Does this panic you? Let’s say in a couple years time, your mortgage is up for renewal and we’re staring down the barrel of interest rates that are 2% higher than what we see today…let’s say around 6.50% for a discounted “wholesale” rate. What does that do to your pocketbook? Are you going to be cash strapped?? I’m willing to bet that you WON’T be. Now, before you close this article down from your computer screen, let me explain something… Let’s take the following example (Based on a 4.50% interest rate over 25 year amortization): Today: Future Estimate (Based on 6.50% interest rate with a 20yrs amortization remaining) : The difference: $241.65 / month in mortgage payments. Now consider this – if you don’t have an extra $241.65 per month, I’m going to assume that you will be gainfully employed in the coming years, and working on a progressive pay structure. What you’re looking for to NOT feel the pinch, is an increase in pay of $2900.00 per YEAR. Although we’ve experienced our incomes fall behind of rising house prices (for the most part), we’re going to be in one of a few different boats: 1.) You are strapped for any extra cash at the end of the month and can HOPE that you will get your raises during the next few years, or Ultimately, I think most of us will find ourselves in one of those boats! I’d like to focus on the one point above that we have the MOST control over, and that’s point number 3. “Make provisions in your mortgage payments to take the sting out of what’s coming”. Let me start by asking you this; have you ever looked at your account at the end of the month and asked yourself “where did it go”? (C’mon…we’ve all done this at some point!). What if you took your prepayment privileges on your mortgage, and MIRRORED your payment for what’s coming with future mortgage rates? Let’s take a closer look… OK – we know that the example monthly mortgage payment from above is $1383.68. What if you took advantage of your prepayment privileges based on the allowance of 15%? So next mortgage payment instead of making your $1383.68 payment, you make it $1591.23 (an extra $204.55/month). Some of you can do this, but don’t. And instead – panic about what the future brings. How about a different strategy; If you DID mirror your payments to reflect a higher interest rate, you’re already starting to eliminate any payment shock that may occur. So what would that do to your next term? Let’s take one last example: Increased payment/month: $1591.23 Now we’re talking about a mere $34.10 in “payment shock”. Nothing shocking about that. The argument that I may hear however, will be that you don’t have the extra $204.55/month to practice this strategy! My answer to that is simple; do what you can to lessen the blow for future interest rate hikes, because I think it’s safe to say that they ARE coming. I hope this newsletter finds you well, and enjoying the summer time! Please let me know if you have any questions at all. Until next time, take care!
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