You’ve likely heard about low mortgage interest rates for quite some time now.
In fact, since 2011, mortgage rates have consistently been at levels below what they were in the 30 years prior to the recession. While we’re no longer experiencing rock-bottom rates, the environment is still favorable for borrowers.
If you haven’t already, now might be time to take advantage of the low mortgage interest rates. But, before you dive into the process, it pays to know what you have and what you’re up against.
If you’ve decided you have the finances and the knowledge to take advantage of low rates, there are several ways you can leverage your borrowing power.
Renovate or upgrade your current home. Maybe you already have a great interest rate on your current home and little interest in moving. But you’d love to expand or redo the kitchen. Consider getting a home equity loan at a low fixed rate to complete those longed-for improvements.
Move to a more expensive home. With low interest rates, if you’re thinking of upgrading to a larger home or a more expensive neighborhood, now may be the time. With a fixed rate loan, you can lock in relatively low monthly payments while rates are favorable. Use an online payment calculator to determine what your monthly payment would be, and see if it’s time to go house shopping.
Buy a housing investment property. Vacation and rental properties can supplement your income as a housing investment. It’s a big, bold way to capitalize on low interest rates. Speak with a real estate agent, and perhaps an attorney, to devise a clear goal since the investment and effort involved is substantial.
Finding the right property at the right price is crucial when investing in housing. That said, if found, there is real opportunity: While monthly mortgage payments on fixed-rate loans stay constant, rental rates typically go up over time. If you can afford the initial investment and the upkeep of the property, a second property can be a long-term source of passive income.
Speculate on a neighborhood. If you don’t own a home and don’t want to commit to something permanent, consider buying a low-priced property in an area that you think will appreciate in value, with an eye toward selling in a few years. Since you’ll be paying a relatively low interest rate, and you’ll be buying in that area’s bottom of the market, the cost to you is relatively small — with a high upside for gain.
Here are three types of opportunities:
While speculating has risks, if you’re careful to minimize them by doing your homework before purchase — and you don’t overextend yourself financially to buy — it ultimately might be worth the chance at a substantial reward.
A fixed-rate mortgage locks in today’s low interest rates for the life of your loan, which is what you’re trying to do.
But, you’ll also need to choose the length of the loan. Traditional mortgages are 30 years, but shorter terms, like 15 years, are also available. A shorter term offers a better interest rate. And, because you’re also paying for fewer years, you’ll end up paying substantially less in interest over the life of the loan.
The disadvantage of shorter terms (and the reason most people stick with the 30-year option) is that the monthly payments are substantially higher.
There’s always more you can learn about mortgage rates, so please continue reading at usbank.com and enjoy!