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Low Mortgage Rates: Will They Last? Do They Matter?

Thursday, August 27, 2015

Low Mortgage Rates: Will They Last? Do They Matter?


You know the saying: “Timing is everything.” This is certainly the case when trying to determine the best time to purchase a new home. There is a cacophony of speculation over whether or not the Federal Reserve will raise interest rates during the Sept. 16 meeting. Wall Street's top economists vote “yes” on the probability that we’ll see the first rate hike in nine years, albeit “a very close call.” Other financial forecasters predict that if rates are not raised in September, they will most certainly climb above zero after December’s meeting. It’s no longer a question of “if,” but “when.”

Fed-Funds-Projections_March-2015Even if mortgage rates do increase as expected, buying a home remains a very smart financial decision for many Americans. A CoreLogic report showed that national home prices rose 6.5 percent from June 2014 to June 2015. Home values in Colorado Springs have enjoyed a steady and consistent increase of 6 percent to 7 percent a year. Combine that with the recent study showing that Colorado Springs ranked 1st among 62 cities with a population of at least 300,000 as the best location for first-time homebuyers – the time to buy is now. Here are a few more motivating reasons to seal your home buying deal.

Inventory is low

Active listings in June in Colorado Springs were down 25 percent compared to 2014; July’s were 19.4 percent lower. As Colorado’s economy continues to prosper and the state remains one of the top five nationally for “population growth, employment growth, wage and salary growth, and personal income growth," demand will only increase.

Buying is more economical than renting in the long run

Even though you may believe renting saves you money, rents have risen nationally by 15.2 percent since 2009 and show no signs of slowing, according to the Wall Street Journal. The median gross rent in Colorado Springs was up 13.62 percent in 2013 from 2010, as reported by the Department of Numbers. Factor in that you are not building any equity for yourself, only for your landlord, and that you derive no tax benefits from renting – you are both losing money and not amassing wealth when you rent.

Homeowners enjoy tax benefits

Homeowners often see significant tax advantages in the first few years after buying a home. The higher interest paid in the early years of a mortgage is deductible, and the loan origination fees and property taxes are also deductible.

The Residential Renewable Energy Tax Credit in effect through 2016 allows homebuyers to deduct 30 percent of the cost of home energy-saving improvements for items such as solar water heaters and solar panels. Remember: if you need to pull cash equity out of your home for an emergency or large purchase, the interest paid on your home equity line of credit is also tax deductible.

Homeowners benefit from “forced saving” for retirement

Paying a mortgage every month is a type of forced savings plan because with each installment, your equity grows and your interest decreases. In addition, you’ve invested a chunk of money with your down payment. Despite the housing market fluctuations in recent years and two recessions, the net worth of homeowners is significantly greater that of renters.

Even though you might vow to put an amount of money equal to a down payment into another investment vehicle and add to it monthly with your rental savings, most people cannot maintain this discipline over time. A home purchase provides you with long-term, low-risk, stable appreciation while also providing you with a stable place to live.

A recent editorial in the New York Times titled "Homeownership and Wealth Creation" confirmed that:

“Renting can make sense as a lifestyle choice or because of income constraints. As a means to building wealth, however, there is no practical substitute for homeownership.”

Contact Travis Turner for more information on purchasing your new home.
 

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