Linh Nguyen

Forbes contributor Michael Chamberlain wrote a very timely article this week entitled “Refinance Your Home Loan Now“, and I wanted to share it with all of you:

The mortgage payment is one of the biggest items in most homeowners’ budgets. A smaller payment means more to spend elsewhere.

Interest rates on home loans are at the lowest level in 60 years. This is an opportunity to save on interest payments and use the saving to finance other goals.

Consider a homeowner who has a mortgage of $250,000 with a current interest rate of 5.5%. The monthly payment would be $1,419 a month. If, however, the loan was refinanced to current levels of 4.2%, the payment would be $1,222 a month. This is a savings of $2,364 a year. That saved money could be used for retirement, for kids’ education, or other budgetary needs.

Mortgage rates are lower now because investors are seemingly worried about the US economy. More people are investing in US Treasuries. Mortgages tend to track the yield of the 10-year Treasury note, which is close to an all-time low.

There are factors to consider when refinancing other than the rates. You should talk to your mortgage banker about the cost of the refinance, which is typically referred to as “closing costs.”

Other considerations are going to a 15-year loan rather than 30-year, which has even lower rates. This could be important if you are over the critical age group of 45 to 50, since having a mortgage in retirement stretches the retirement dollars.

Another option is refinancing your home to a 30-year loan but continuing to make your current payment. The net result is that the loan would be paid off in a shorter time period but with the flexibility of paying less when cash is short.

This may be the best time to refinance your mortgage. It would be worth your while to consider the benefits now rather than in a month or two.

I completely understand your situation and ALWAYS support the idea of paying off debt and saving more of a down payment so that your new home payment is comfortable. However, I also think it is important to fully understand the uniqueness of the opportunity that we have in front of us today. This opportunity might be here next year; I don’t know, but I do know someday soon rates will rise, real estate will become popular with investors and prices will go up making homes MUCH less affordable.

Today in 2011 housing is more affordable than EVER in the history of the USA. Affordability is a combination of average US wages, average home sales prices and average 30 year fixed mortgage rates. It’s NEVER been this affordable to own a home.

This second chart shows just where we are in the real estate market. You see in 2006 everyone THOUGHT it was safe to buy and was comfortable overextending themselves. Today folks are scared and are making decisions out of fear, not the numbers, not the facts.

This might not be the right time for you or your family; the reality of your finances might not allow it. But if you are making a decision based on fear and not the facts, you could be making a mistake by waiting.

(Thank you to Josh Mettle for this great post.)

With market volatility as it is, it is not a surprise that people are considering a change when it comes to their investments. The following is an article recently published in the Washington Post that describes the sentiment that many Americans share:

Wayne Cummins’s stock portfolio took a huge hit during the financial crisis, so he has been hanging on to more cash than usual instead of investing it. But with the balance slowly building up and interest rates only going down, something had to change.“I’m just looking for a better return . . . than .0003 percent on a savings account,” Cummins said. But he wasn’t yet ready to jump back into the stock market, which this week posted some of the worst returns since the financial crisis. And with gold near record highs and a U.S. credit downgrade still threatening the bond market, there seemed no safe place to go.

Except next door.

In July, the Arlington resident put some of that spare cash toward the purchase of a $490,000 townhouse across from his own. Now, he hopes to rent out the home and watch its value appreciate as the years pass.

With mortgage rates at their lowest level of the year and home affordability at a 40-year high, the idea of investing in real estate is appealing to a growing number of people. Investors have purchased about 20 percent of the existing homes sold this year, up from 17 percent last year and the highest level since 2008, according to the National Association of Realtors. While many are probably seasoned investors chasing after cheap foreclosures, some are people like Cummins who are dabbling in real estate because they think it makes good financial sense.

Chris Cormack, a Keller Williams real estate agent in Ashburn, said many of her clients have recently expressed interest in buying for investment purposes. “We’re seeing regular people, customers, saying, ‘I want to buy a townhouse,’ ” Cormack said. “And they’re not professional companies. They’re not looking to own 10. They just want one.”

Cummins certainly doesn’t consider himself a professional investor. He describes himself as a small-business owner who figured he had a good shot at finding reliable tenants and collecting a decent return on rental income. “The idea is to rent the thing out, take care of our tenants and they take care of us,” he said.

A recent survey by Fannie Mae suggests that Cummins is not alone. The poll found that Americans expect home rental prices to rise 3.9 percent on average over the next year, the highest level since the company started tracking the monthly data in June 2010. This phenomenon is already playing out in the Washington region. The latest inflation-adjusted census figures show that area rents soared to the highest level measured in at least 20 years, with rental prices surging 22 percent in 2009 from a decade earlier. The rates jumped in part because 10,000 single-family houses that were occupied by their owners two years ago are now rental properties; those houses tend to be larger and have higher rents than apartments.

Later in life, Cummins may consider selling the townhouse (hopefully at a huge profit) and using the cash to invest in more properties or to help pay for his three kids’ college tuition. If the kids, now in middle school and high school, choose to go to college locally, maybe he can rent the townhouse to them.