Low Mortgage Rates & You

Real estate mortgage rates are very low as I write this in August of 2010. There are some folks who can take advantage of it, and they probably should. Are you one of them?

If you'd like to buy a home and can qualify for a loan, you are one of them. If you're concerned about inflation, you really should buy a home. If you're right about inflation, you will pay off your loan with money that's worth less and less, and the value of your home will go up over time. If you don't buy a home and you're right about inflation, your rent payments will go up and up again. There are no guarantees in life, but the government borrowing and its practice of "monetization" of debt make some of us believe inflation is almost inevitable, so if that describes you, you have your marching orders.

There are some other influences that make now a good time to buy a home. Labor Day and back-to-school are just around the corner. This has not been a strong selling season for real estate in most of the United States, and now we're moving into the time of year in which sales typically slow. That situation makes would-be sellers more likely to negotiate. Low interest rates, historically low home prices, and sellers who are apt to be willing to negotiate all combine to make this a good buying time.

Now then, there is another group who can take advantage of low interest rates from a different perspective. The easiest way to outline this is to tell you about a very thoughtful and financially disciplined couple. This couple recently refinanced their home and pulled some of their equity out. Their new loan is at 4.25%. They used the equity to pay off loans on several rental properties which were financed at much higher rates. This maneuver has noticeably reduced their monthly mortgage payments and the amount they will pay overall for their real property purchases. However, that's not the end of the story. They have several more rental properties that will be paid off in a few years. Their plan is to increase their payments on their home when this happens so that their home is paid off ahead of schedule. When they retire, all their real estate will be paid for. They'll have some fixed income from retirement plans, and they'll have rental income that, presumably, they can increase if inflation is a problem. Not a bad way to use real estate in a long term financial plan, is it?

Read about:   5 Steps to Getting on Top of your Mortgage

If your situation resembles this couple's, you might want to do something similar.

If it doesn't, you might want to position yourself more like they have. As we've observed, there are no guarantees, but we can each take actions that are designed to make us as invulnerable to financial strain as possible, and real estate ownership can be a very useful tool in this effort.

Raynor James

August 2010