A lot has been made of the recent Federal Government home purchase tax credit and its' recent expiration as of April 30, 2010. There were record numbers of new home purchase contracts executed in time to leverage this federal stimulus incentive. Many purchasers were excited to gain the advantage of today's housing markets low pricing structure along with the government's $8,000 tax credit. This tied together with attractive mortgage rates of 5.25% gave many new home purchasers tremendous leverage in the housing market.
Fast forward 3 months to August 2010. The interesting aspect of the market is that the $8,000 tax credit isn't available anymore but is the money lost? It's being argued by industry professionals that you may be doing better having passed on the tax credit in April and purchasing now. How can this be? Well, the economy has bounced along and the fed has been trying to keep things moving in a positive direction. Consequently, interest rates for home mortgages has dropped to record lows with fixed rate mortgages offering 30 year payouts and rates under 4.5%. According to a recent article from Michael Murphy, editor of the New World Investor stock newsletter, "Mortgage rates are at their lowest level in 40 years. If you believe inflation is inevitable, lock in now."
What does this mean to the average consumer? It's all about how long you plan to keep the property. In other words if you bought your house with the tax credit in April you received an $8,000 incentive. If you are buying your house in August you are receiving a 3/4% lower interest rate on average. The savings on a $300,000 mortgage with a 30 year fixed rate of 4.5% in August as opposed to a 5.25% interest rate in April allows for a savings of $136.55/month. You will achieve a savings in excess of $8,000 with your 59th payment (just under 5 years). However, if you stayed in the property for the whole 30 years you'd save an additional $41,158 on top of the $8,000 from the first 59 payments for a near $50,000 savings! WOW! That sure beats the $8,000 doesn't it?
Well, the opportunity to leverage this market stays as long as the economy lingers in the doldrums. As soon as we get an uptick in the financial sectors the interest rates are sure to inflate. So, the onerous is on the purchaser to make the right purchase decision for them in the timely manner of today's economy to leverage the market for the greatest savings! Happy house hunting!