“Happy New Year!” Three words that inspire optimism, endless possibilities, and a fresh start. It’s also a time of reflection, planning, and the changing of habits. A time to renew our commitments to live healthier, smarter, and happier. 2017 also represents a great opportunity to renew your mortgage.
In the past I have written that your mortgage is a “living” document. It’s not something to be put away and ignored until you’re sent a renewal notice from the lender. It’s part of your overall wealth management plan, and should be reviewed regularly. Much like your will, or your investment portfolio, it should change when it makes financial sense to change it. For a lot of people, this year is going to be a year where renewing their mortgage early could save them significant money.
While you can’t guarantee what is going to happen to the mortgage rates in the future, you can look at recent trends and make an educated guess. In the last six months, housing values increased at an incredible rate, the federal government instituted new mortgage regulations, and fixed five-year rates increased by .50% with many lenders. These things may make this an excellent time to save money on your mortgage over the long term.
You may be asking yourself, “How can breaking my current mortgage to take on a higher interest rate save me money?” It’s a fair question. But one of the great things about a sound mortgage strategy is; the numbers are the numbers. If the math says you save money, then you save money.
I recently did an exercise to examine what kind of impact renewing early would have. For it, I used a $350,000 fixed five-year mortgage obtained 2015 at 2.49%. I looked at what it would mean to renew now at an average advertised rate of 2.69% versus waiting until the end of the five years to renew. In the end, whether you would save money comes down to one question. Do you think mortgage rates will be above 3% when it comes time for your renewal? If so, then the three years at the slightly higher interest rate is more than offset by the saving you get in the last two years.
Renewing now may also allow you to take advantage of the recent spike in property values much of the country experienced. You could capitalize on the equity before the values potentially plateau. This could help save you even more money by consolidating higher interest debt into your low interest mortgage. Plus, in most cases, breaking your mortgage to go into a higher interest mortgage usually means lower penalties. These factors were all considered when running the above exercise.
Ultimately, you would want a mortgage professional to look at your specific situation to see how much savings could be there for you. One of the great things about a better mortgage partner is, to do that exercise for you doesn’t cost you a thing and it could save you thousands.
Call or email me to find out more, or for your free evaluation. As always, please “Like” and “Share”, you never know who it may help.