By: Stanley B. Greenfield, RHU
Mortgage rates are the lowest they have been in over thirty years. Yes, I know that somewhere somebody told you that you need to be debt-free and not have a mortgage. Well, that’s not the only bad advice that you ever got! Let me give you this piece of advice, and it’s not bogus, either! Mortgage money is the cheapest money you will ever buy. That is a fact. Now they have put that “cheap money” on sale! If you have a mortgage, maybe it’s time to dig out your papers and see what your existing rate is currently. I will bet money that you can save right not by re-financing your mortgage.
Yes, I know that there are closing costs involved with a mortgage; but if you are going to stay in this house for the next few years, you will re-coup these costs and also save on the interest payments. Some mortgage companies are offering mortgages with no points being charged. Now is the time to “shop the market” for the best deals available. It is a competitive market.
You say you have an adjustable rate mortgage, and it has saved you some money? That’s fine, but maybe it’s time to see if the rate for a fixed rate mortgage is even cheaper than the adjustable rate that you currently have. It never hurts to check it out.
If you have a home equity mortgage in addition to your regular mortgage, you might be able to combine the two and really save some money. I will repeat my original statement: “Mortgage money is the cheapest money you will ever buy.” Why? Think about it for a moment. Let’s assume that you have a mortgage with a 7% interest rate, and it’s a fixed rate that is guaranteed at that rate for 30 years. As you know, the interest for a home mortgage is still fully deductible. If you are in a combined tax rate of 30%, that 7% mortgage only costs you 4.9% after taxes. The combined tax rate is for both federal and state taxes. If your combined rate is 40%, then the cost for the 7% mortgage just went down to 4.2%.
Now you can see why I say it’s the cheapest money you will ever buy. Where else can you get long term dollars that cheap? It’s becoming rare to find any money that you buy that the interest is tax deductible. With that in mind, why on earth would you want to pay this off and eliminate a good tax deduction with such a cheap rate of interest? Interesting question, isn’t it?
By the way, if you currently have a $100,000 mortgage on your house at 8.5%, your monthly payments are around $769.00 per month. If you re-finance to a 7% mortgage, the payment will go down to $665.00. That saves you $1,248 per year, which over the life of the mortgage is $37,440.00. If you were really nice, you would send some of the savings to me! I get no respect!
Ready to save some more bucks? Still got your money in the local bank? Are they still paying you a rate that is currently below the inflation rate? Do you realize that low rate is still subject to income taxes? In other words, if they are giving you 3% and you are at a combined tax rate of 40%, your net rate is only 2.1%. Isn’t that wonderful? If you kept your money there long enough, it would all disappear! Oh well…
Do you have any loans or large credit card balances? Do you have any “credit” life or disability coverage on those loans? Unless you have one foot in the grave and the other on a banana peel, get rid of that junk! It is by far the most expensive coverage that anyone can buy. By the way, they cannot make you keep the coverage as long as you have other coverage that you can use to cover the loan. Check ALL loans for this stuff, including your mortgage, too. They make more money on this coverage than they make on the loan.
About the Author
Stanley B. Greenfield, RHU, has been engaged in the fields of Financial Management and Insurance for almost 40 years. Mr. Greenfield is a Registered Financial Consultant, and was awarded the designation of RHU, Registered Professional Disability and Health Insurance Underwriter, in 1979, as one of its Charter Members.