Low Rates Create Golden Opportunities for Home-Owners

04/06/2003

Here's a neat mortgage idea. Let's say you're not in the market to move but have a home you purchased at least two years ago. Let's also say, you have some debt you'd like to get rid of and are paying a mortgage with a rate of 7% or more. Since the market has gone up, your home is worth more money, as much as 40% more if you purchased in '97-'98. That means there is equity sitting in your home that is ripe for the picking. Interest rates are lower than they've been in over 40 years (as much as 3 or 4% lower than in '97-'98) that means you could refinance your home, eliminate extra consumer debt and still be paying substantially less per month than you are now. Sound too good to be true? It's Not! Now is the time to change your financial life and take advantage of both, your home's increase in value and the low interest rates.

Here's How the Numbers Work:

Let's say you bought for $125K in 1998 and you put 5% down. You now owe about $110K (assuming a 25 year amortization) but your home is now worth approximately 40% more or $175K. That means that you now have about $65K in equity of which approximately $18k could easily be pulled out in cash, not to mention your monthly mortgage payments will be almost $100/month than you're paying now.

Simply, refinance your home to 75% of the new market value ($175k x 75% = $131k). Your new mortgage will pay out your existing $110k mortgage plus $3k (on the high side) for penalty, appraisal and legal fees. That leaves you with Eighteen Thousand Tax-Free Dollars ($131k – $113k) for you to do with, whatever you please.

Here's the best part. Your original mortgage was costing you about $854.00/month (based on 7%, 25yr amort.) but your new mortgage which includes the $18 grand in your jeans only cost you $755.00/month (4.85%, 25yr amort.) – That's $99.00/month less. Now, lets say, with your windfall of $18k, you pay off a car loan for $10K that cost you $250.00/month and $8K in credit card debt that costs you $320.00/month - just for the minimum payment.

Now what does your financial life look like? You've got an extra $669.00/month in your pocket. Is that cool or what? It's almost like winning the “Cash For Life” lottery. Of course this is just one scenario. How effective this plan will be for you will depend on when you bought your home, how your job situation has changed since you bought and how clean your credit is. But I want to stress, the scenario I have laid out above is not far from being realistic for most people. This is not an isolated incident, given the current market climate this will work for most people.

To find out how this might work for you call “The Mortgage Magician” Jason Kelly on his direct line, 860-1119 at The Mortgage Center. Thanks for listening.

This is Rob Thompson saying, “Good Luck and Good Selling”!

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