|
Interest rates on home mortgage have fluctuated over a large range in the last
thirty years. With interest rates at their lowest level since the early
1960s, the housing market has been garnering headlines as a great opportunity
and safe haven. Investors have been rocked by a slowing economy, stock
market slide, and world events. So, safety for your principal and a
reasonable return are more important than ever.
Albert Einstein was quoted as saying that the greatest discovery of his
lifetime was compound interest. The magical way that money saved can grow
over long periods of time impressed him. It impresses bankers and
borrowers everyday. Mortgages work exactly the opposite, with the amount
owing seeming to shrink very slowly for the first years of the mortgage, and
faster at the end.
What actions might you contemplate in today's financial climate?
Consider:
SELL YOUR HOME
Why would you want to sell your home
in a low interest rate environment? Well, there are many buyers who are
willing to pay what it takes to get into a home and lock in low rates. So
you may profit on the sale. And since you are likely buying another home,
you'll benefit by locking in low rates on that purchase too. If you've
been thinking of replacing your current loan with one that offers a lower rate
or different features, and you've considered moving, then why not combine the
new home and the new loan all at once?
Your monthly payment may be the single largest part of your monthly
budget. If you've owned a home and paid a mortgage before, you probably
know that the early years of a mortgage are mostly interest. Later years
are mostly principal. The term amortization refers to dividing the total
debt into equal monthly payments
.
REFINANCE YOUR HOME
If you could get a lower interest
rate, would you? Deciding about refinancing requires an analysis of your
situation, and an understanding of the costs and impact of replacing your
current loan with another one. Let's start with your personal
situation. Are you planning to stay in the house for at least three to
five years? If so, your interest rate savings from a lower interest rate
of 1.0 to 2.5 per cent will most likely be greater than the costs of
refinancing.
Specifically, there are costs for points, appraisals, title insurance and
all government recording fees that have to be paid every time a loan is
refinanced. Different provinces may impose recording fees or mortgage
taxes that must be repaid with a new loan. A few loans have prepayment
penalties, meaning that a consumer has to pay a fee if the loan is paid off
within the first few years.
Are you seeking to replace a variable rate of interest with a fixed rate
loan? If you are currently on a variable rate mortgage, a dip in interest
rates will save you a little if you don't refinance, but more if you do.
And you'll have the benefit of a fixed rate going forward. Some lenders
charge a fee to switch an existing fixed-rate mortgage to a variable
rate. If the loan has that option, it's termed a modification - not
refinancing. Only taking out a new loan, whether with the same lender or
another lender, qualifies as refinancing.
|
Do you need a lump sum to fund remodeling, college costs, or
retirement/ If you have a need for $10,000 or more, your home can be like
a treasure chest. Just reach in and tap the buried equity in your home by
obtaining a new loan for the current loan amount, plus the amount you need,
plus the costs to refinance. With interest rates lower, your payment may
increase only slightly. However, you should keep in mind that the balance
has increased, and that as a new loan, your payments will be mostly interest in
the beginning, which will slow your payoff.
Lenders are in favour of refinancing, even at lower rates,
because it generates income from origination fees and other charges. The
structure of the home lending business today often includes one bank
originating, selling the loan to an investor such as another bank, and the loan
being re-sold to another investor.
PAY IT OFF
When interest rates on
mortgages are low, it probably means that rates on your savings are also
low. If you have excess cash or securities that you are considering
selling, it might make sense to pay off a loan in order to earn the interest
saved. If you are paying 7% on a loan and elect to pay it off, you will
save all that interest. IF your alternative investment rate is a mere two
or three percent, and you elect to pay off a higher interest loan, then you are
thinking like a banker. Your cost of the money is what you could have
earned, 3%. Your return on the money is the interest you saved, or
earned, 7%. The difference is 4%, and that's substantial!
The total interest on a loan over a thirty year term adds to
the total cost of your purchase. You could easily end up paying double or
more times the original sticker price. For example: a $100,000 loan
made today for 7% interest would have a payment of $665.30, and would involve a
total of $239,510.98 in principal and interest payments if you held the home
for the full thirty years. Of that amount, $139,510.98 is for interest,
and $100,000 is for principal.
An option to paying off your home early is to pay a little
extra each month. In the example above, adding $100 per month to the
payment has the effect of reducing the amount of interest over the term
substantially. Since you may not be in the home in thirty years, your
actual savings may vary, but if you did stay full term, you could cut about
nine years off your loan, and save almost $50,000 by paying $100 extra each
month.
Even if your decision isn't driven by money or profit alone,
it's simplifying to eliminate a credit card payment, a car payment, r certainly
a home loan payment. You are then free to save or invest the money
elsewhere. Oh a shopping spree is an option too.
DO NOTHING:
Maintain Your Present Course
If you choose to
maintain your current mortgage and payment, you can always look at your options
next year!
Be advised that whether you are moving up, moving down,
refinancing, remodeling, or just staying put, your professional advisor for
real estate is right here, and right at hand. Feel free to call anytime,
won't you?
|
|
April's Foolery
Unlike most of the other "non-foolish" holidays, the
history of April Fool's day is not totally clear. There really wasn't a
first April Fool's Day that can be pinpointed on the calendar. Research
indicates that it may have evolved from as far back as the early Romans
and their winter festival of Saturnalia. It is clear, however, that the
source of the celebration in various cultures was the first day of spring.
The closest point in time that can be identified as the
beginning of this tradition as we know it today was in 1582 in France.
Prior to that year, the new year was celebrated for eight days, beginning on
March 25. The celebration culminated on April 1. With the reform of
the calendar under Charles IX, the Gregorian Calendar was introduced and New
Year's Day was moved to January 1.
As news at this time traveled by foot, many people did not
receive then news of the calendar change for several years. Others
refused to accept the new calendar and continued to celebrate the new year on
April 1. These backward folk were labeled as fools by the general
populace and were subject to some ridicule, often sent on fools errands and
made the butt of practical jokes.
This harassment evolved, however time, into a tradition of
prank-playing on the first day of April. The tradition eventually spread
to England and Scotland in the eighteenth century. It was later
introduced to the American colonies of both the English and French. April
Fool's Day thus developed into an international fun fest with different
nationalities specializing in their own brand of humour at the expense of their
friends and families.
In Scotland, April Fool's Day is celebrated for two days.
The second day is devoted to pranks involving the posterior region of the
body. Known as Taily Day, this tradition saw the origin of the "kick
me" sign. 
The Mexican counterpart of April Fool's Day is actually
observed on December 28. Originally the day was a sad remembrance of the
slaughter of the innocent children by King Herod. It eventually evolved
into a lighter commemoration involving pranks and trickery.
Pranks and practical jokes are a common practice on April
Fool's Day. Sometimes, elaborate jokes are played on friends or relatives
that last the entire day. The news media even gets involved. For
instance, a British short film once shown on April Fool's Day was a fairly
detailed documentary about "spaghetti farmers" and how they harvest
their crop from spaghetti trees.
The calendar change theory as the source of April Fool's Day
might provide a reason for why April 1st specifically became the date of the
modern holiday, but the idea of a springtime festival honoring misrule and
mayhem had far more ancient roots. In addition, the process by which the
observance of the day spread from France to protestant countries such as
Germany, Scotland, and England is left unexplained by this theory. These
nations only adopted the calendar change during the eighteenth century,
at a time when the tradition of April Foolery had already been well established
throughout Europe. As the holiday was largely celebrated by the kind of
people who did not keep records of what they did, the true source of the day
and it's evolution may remain a mystery - or the source of a truly great April
Fool joke!
|
