Five Reasons You Should Be Ashamed of Your 5% Mortgage Rate

5-percentMortgage rates are as low as they have ever been.  As a mortgage loan officer, one of the most frustrating things that a homeowner pondering refinancing their home can say to me is “I’m going to wait for rates to go lower”. In spite of the net tangible benefit that is in from of them today, it leaves me wondering exactly what information they are privy to that I am not. In reality this statement is akin to the same flawed thinking that real estate always goes up in value and never loses value that got millions of homeowners across America into the mess that we presently find ourselves in.

We all know that hindsight is 20/20 but in reality, we cannot time any market because to do so with accuracy means that you have to have mastered the art of time travel. It requires a forehand knowledge of  future events. If you are one of the lucky homeowners who waited until December  2012 to refinance your mortgage then you timed the market right, because according Weekly Primary Mortgage Market Survey® (PMMS®) published by mortgage giant Freddie Mac, that was in fact the low. The Monthly Average of the thirty year fixed rate mortgage was 3.35% for the Month of December 2012.  But how do we know that was the bottom? Simple, it’s now part of the historical data and we are now higher than that with the weekly average for March 2013 at 3.54%.

Five Reasons You Should Be Ashamed of Your 5% Mortgage Rate

  1.  Rates have never been lower, except for December 2012! Since Freddie Mac began record keeping in 1971 they have never been even close. The closest that they ever came before the Great Recession was way back in 2005 when the annual average was 5.83%. 
  2. The Median Sales Price for a home in Wake County, Raleigh-Cary MSA North Carolina is $219,000. If your mortgage is 75% of that that and you obtained your mortgage in 2005 with a 5.83% fixed rate mortgage for thirty years, your payment is $1031 per month and you still have 23 years remaining before your home is paid for.  You have already paid approximately $80,000 interest to your lender and still have another $150,000 of interest payments alone  before you pay off your mortgage. 
    Thirty Year Fixed Rate Mortgage Vs. 20 Year Fixed Rate Mortgage

    In this example we used a mortgage of $175,200 (80 % of the Median Cost of a house in Raleigh-Cary-MSA) amortized by 30 years using the average rate of 5.88% for 2005 according the Freddie Mac PMMS Data.



  3. You should be taking advantage of this once in a lifetime opportunity to pay off your home while you still can without it costing you anymore. Financially savvy homeowners are taking advantage of today’s low rates to not only reduce their interest rate, but to also shorten the length of time remaining to pay off their home. For example, if we use the previous scenario, and you took your current loan balance of $153,230 and put that balance on a twenty year term at today’s rate of 3.375%  you would save $153 per month and approximately $55,000 worth of interest payments over the life of the loan while cutting three years off the total time to pay off your loan.
    Example of a 20 Year Fixed rate Mortgage vs. 30 year

    In this example we used the balance of remaining of a mortgage of $175,200 and amortized it over a twenty year term using the current weekly average of a twenty year fixed rate mortgage of 3.375%



  4. What would you be able to do with a $153 extra per month? Would you pay off a credit card, student loan debt? Would you plan for college or save for a vacation to Disney? 
  5. What would you be able to do with an extra $55,000? Could you fund your retirement, Kids College or fund a church missionary?

The benefits are obvious. What’s your reason for not saving money? If you’re ready to talk to an expert, click here to get started, or of you have questions about the process, you click here to Chat in Real Time with a Mortgage Expert  in our Raleigh North Carolina Branch office.