Effects Of Low Mortgage Rate

Effects Of Low Mortgage Rate



Effects of​ Low Mortgage Rate
Recently we have witnessed a​ boom in​ the​ mortgage industry .​
With increasing real estate values and a​ very low inflation,​ interest rates have touched an​ all time low .​
Since inflation is​ running extremely low at​ present,​ economists feel that mortgage rates will remain low in​ the​ near future also .​
As an​ obvious consequence homeowners are giving serious thoughts to​ the​ effects of​ low mortgage rate.
Usually,​ mortgage lenders offer a​ variety of​ combinations of​ interest rates and points .​
For example,​ 6.0% and 2 points,​ 6.5% and 1 point or​ 7.0% and no points .​
Points are a​ one-time upfront payment that the​ borrower makes to​ the​ lender at​ the​ time of​ closing the​ mortgage .​
It is​ a​ fee like the​ interest and not a​ part of​ the​ down payment .​
a​ drop in​ mortgage interest rates reduces the​ cost of​ borrowing and should logically result in​ an​ increase in​ prices in​ a​ market where most people borrow money to​ purchase a​ home (for instance,​ in​ the​ United States),​ so that average payments remain constant.
One of​ the​ direct effects of​ low mortgage rate is​ that the​ homeowners opt for greater savings through refinancing .​
Hence the​ cost to​ savings ratio is​ exceeded .​
Refinancing can be a​ boon in​ several situations since some of​ the​ main reasons to​ refinance are: - Lower interest rate - Consolidate 2nd mortgage loan - Lower loan term - Lower monthly payments - Payoff other personal loans and - Take cash out from equity
One of​ the​ most intriguing effects of​ low mortgage rate is​ the​ dilemma faced by the​ borrowers about whether to​ reduce their payments or​ the​ length of​ the​ loan term itself .​
Lower rates allow you​ to​ reduce your mortgage from say 25 years remaining to​ 15 years remaining with the​ same monthly payment .​
The next thing you​ would like to​ do is​ refinance again so that you​ will be able to​ reduce it​ to​ 10 years.
Another common rationale for refinancing and taking the​ equity out of​ your house as​ an​ effect of​ low mortgage rate is​ to​ be able to​ pay off credit card debt .​
You can also opt for a​ debt consolidation loan .​
By reducing your payment you​ will be able to​ pay off higher rate debt like credit cards .​
But try to​ eliminate interest payments wherever possible .​
The average credit card will have an​ interest rate of​ 18% to​ 25% .​
You can actually get rid of​ those high rate credit cards by taking advantage of​ the​ low mortgage rates .​
Also by lowering your debt you​ will be actually saving for the​ future.
It is​ also vital to​ understand that in​ most cases the​ loans are adjustable rate mortgages .​
The adjustment period may vary significantly depending on​ the​ loan program you​ are considering .​
You might not realize the​ effects of​ low mortgage rate unless you​ consider the​ stability and vulnerability of​ the​ interest rate that you​ are required to​ pay throughout the​ repayment tenure .​
Hence it​ is​ important to​ bear in​ mind that not only the​ current effects of​ low mortgage rate,​ but also effects of​ any future rise in​ interest rates should be considered when opting for a​ variable rate mortgage.




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