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Cost of Waiting

Should you purchase a home now, or should you wait? Like most big decisions in life, answering that question depends on a lot of factors such as the economy, real estate market, finances, and personal life. If you are now in a position to responsibly take on a mortgage payment after considering those factors, and are instead waiting for the absolute lowest price on a home, read on to learn more about why you should act now to avoid the potential cost of waiting.

Low Interest Rates

The average 30-year fixed mortgage interest rate about a year ago was 3.75% according to Freddie Mac’s Primary Mortgage Market Survey. Today’s average comes in at 3.01%. Interest rates for mortgages are currently at all-time lows, and lower interest rates mean greater home affordability for potential home owners. To give you an example, a borrower with a $475,000 loan amount and 3.75% interest rate on a 30-year fixed mortgage would have a monthly principal and interest payment of $2,200. If the same borrower now had today’s lower rate of approximately 3%, their loan amount could increase to $520,000 and they would still have a lower monthly principal and interest payment of $2,192. That’s an increase in purchasing power of $45,000 because of today’s lower interest rates than a year ago. With uncertainty in the economy, there is a potential that interest rates will rise again at any time.

Home Values Continue To Rise

Demand for housing in the Seattle metropolitan area remains very strong and property values continue to appreciate at a fast pace. We’ll use a $500,000 home purchase price and conventional financing to illustrate how home appreciation will require more additional cash at closing. Conventional financing typically requires a minimum 5% down payment. If the home is valued at $500,000 today, that would require a $25,000 down payment. At the current appreciation rates projected by MBS Highway for King County, the same home would be valued at approximately $529,028 in a year and would then require a higher 5% down payment of $26,451. Other monthly costs would also rise accordingly such as mortgage insurance and the principal and interest payment.

Loss In Property Appreciation

In a market with high appreciation rates and rising home values, it can be difficult to out-save the appreciation you would be earning on your home. In our previous example, the $500,000 home would appreciate to an estimated $529,028 after one year in King County. That’s $29,028 in lost appreciation value over a year, or about $2,419 in savings per month.

Benefits of Refinancing

RECORD HIGH REFINANCES

Refinance applications have surged to decade highs over the last few months and rightfully so. According to Freddie Mac’s Primary Mortgage Market Survey, average mortgage rates have also set new all-time lows within the same period and many home owners are hoping to take advantage of these lower rates. So what are the benefits of refinancing and should you start the process now? Read more to find out!

BENEFITS OF REFINANCING

There are multiple benefits to refinancing your mortgage. We’ll dive into some of them below:

  1. Lowering your interest rate. If you qualify for a new mortgage, lowering your interest rate will reduce the overall interest charged on the loan and can save you thousands of dollars over the life of the loan.
  2. Eliminate mortgage insurance. If your current mortgage includes mortgage insurance, and you have 20% equity in your home’s current value, you can refinance to remove the mortgage insurance and potentially save hundreds off your monthly mortgage payment.
  3. Cashing out your equity. On a cash-out refinance, lenders will generally limit you to borrowing no more than 80% of your home’s value to ensure you maintain 20% equity in the home. You can use the cash from the refinance to fund home improvements or consolidate high interest debt.
  4. Shorten your mortgage term. Pay off your home quicker by refinancing into a shorter term length. A 15-year term mortgage typically offers lower rates compared to a 30-year term, so your monthly payment might not increase by much. 

IS IT THE RIGHT TIME FOR YOU?

There are many things to consider before refinancing such as how long you plan to remain in the home and if the potential savings make sense when compared with the associated closing costs. Contact us today to schedule a free consultation where you’ll work with one of our highly experienced and knowledgeable loan advisors!

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