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September 30, 2019

A Penny Saved Is A Mortgage Paid

I was notified by one of my long time clients that he was sending his last payment that day and paid off his mortgage. He had a great rate, under 3% to help him pay it off quicker, but the question is, how did he get such a great rate?

I would say 80% of it was being savvy, the other 20% was having a scenario that allowed for the lowest rates, like high credit score, 40% equity, single family home and shorter term than the standard 30.

How was he savvy? If he could get a lower rate for free, he took it, and instead of  just paying the minimum payment at the new rate, he paid the same higher payment that he used to pay. Basically taking the savings and using it to pay off the loan faster. He accelerated his payments with as much as he could monthly.

Now, he says, instead of making payments to the lender, he makes payments to himself and it's just as easy as it sounds. 

Is The Economy Headed Towards A Depression?

Almost every client that talks to me lately asks, what is going on with rates? Are they going down, up or flat?

I believe when a group of individuals averages their guesses, the result is more accurate than an experts opinion. There was a study conducted that showed a group of people that don't know anything about guessing a cows weight, was able to guess a cows weight whiten 95% accuracy, while a single individual who was an expert at guessing a cows weight varied but was off by more than 20% in many cases.

Most of the people that call in about mortgages believe that rates are going to fall for the rest of this year and possibly late into the first quarter of next year. If that's true then you're best bet is to refinance now at the lowest rate for free, if you can get one lower than what you have now by at least 0.25%. Since if you wait until the end of the year to refinance, and rates are at the lowest in the first quarter of next year, you will be waiting for your 6th payment to post before you can refinance your loan and you could miss out on the lowest rates in history, at least until the next rate drop. 

There is even speculation that we will be in a depression during the year 2021. One major factor contributing to this would be incomes not able to meet the requirements to afford a home for new home owners, and jobs being lost to mass automation. Uber is preaching that they will be completely free of human drivers that year. Tesla is advertising that the buyers who paid for the upgrade when purchasing the car, around $4k-$6k and going up in price, will be able to drive fully autonomously on January 1st, 2020.

There are billions of jobs that will be replaced in the next couple years, the world is changing and the market will be changing with it. I predict that rates will continue to fall with small pockets of rising until they are negative. Negative rates, how is this possible, you ask? The same way 0% rates work on BMW's.

It's that easy and there is already trillions of dollars in debt being borrowed all around the highly developed world.

I would like to end with the note, that although this sounds like great news for us home owners who love to see their equity rise, and we know how lower rates helps that happen, it also may not. I would not bank on lower rates happening, they could go up for years to come and paying for a lower rate could be your best move right now.