Interest rates take roller coaster ride through the years and as of recently have remained historically low. In the past they have gone up only to come back down. Because of the tremendous effect that interest rates have on the growth of our nation’s economy, the government is continuously adjusting them up and down. They tend to raise them when inflation climbs, and lower them when the economy threatens to go into a recession.
This manipulation of interest rates may benefit the economy, but it is a mixed blessing to the home buyer. During recession when interest rates are lowered, you, the home buyer and existing homeowners enjoy the advantage. However, the person who buys in time of inflation is forced to pay higher interest rates. These rates have gone as high as fifteen percent in the past.
When a person is forced to buy a home with very high interest rates, he or she should seek relief from them as soon as possible. When interest rates go down, get out of that high interest rate and get into a lower on. Paying attention to current market and interest trends is a must.
Even One Point Is a Big Savings
Points are something that most people are not familiar with. The difference that just a one point drop in interest makes on a thirty year mortgage is huge. Do a little research with on-line calculators and you will be shocked at the difference one point drop can make. These points can also be purchased and could be beneficial when getting into a new 30 year mortgage.
Drop the Old Rate but Keep the Old Payment
Here is a strategy that will cause you to pay of your home even faster. Notice that the payment on your old, higher interest loan will be quite a bit more than your than your new payment on your lower interest loan. Continue to pay the same amount as you have been and divert the savings directly toward your principal.
It will be very tempting to just pay that lower payment and put the savings in to your pocket. Do not even think about that thought. Remember, you are getting out of debt by quickly paying off your mortgage. Just plan on making the same, old payment on the new, lower interest rate mortgage. If you do this, you will drastically knock off many years.