As mortgage rates continue to hit record lows, people who are in a position to buy now are probably already taking action. But what about people who are just shy of being ready to buy a house? Are today's mortgage rates so low that they should push their timetable a little bit?
Sometimes, an extraordinary opportunity calls for extraordinary action. For example, compared to mortgage rates at just 1 percent higher, today's mortgage rates could save you over $40,000 in interest on a $200,000 home with a 30-year mortgage. So if there is anything you can do to get into the housing market a little early, it may be worth it -- if you don't overreach. The following are some dos and don'ts for acting on today's mortgage rates.
- Redirect some savings. Normally, having some emergency funds is a good idea; but if redirecting these toward a down payment gets you into the housing market a little earlier, it may pay off in the long run. Just be sure you use the mortgage savings to start rebuilding those emergency funds.
- Downsize your dreams. Instead of holding out for your dream house, could you live with something a little less grand? After all, if mortgage rates rise, your dream house might be out of range in a year or two anyway.
- Go into emergency savings mode. Tighten the household budget as if you were in emergency mode. If six months of sacrifice helps you capture a low interest rate, you'll be able to live better over the long run.
- Withdraw from a qualified retirement plan. Today's mortgage rates are great, but still not worth the 10 percent tax penalty.
- Overreach on the assumption you'll be better able to afford the mortgage in the future. The job market is weak and pay raises have been meager. Don't take on a mortgage if it's a stretch to keep up with payments.
- Gamble on an adjustable or balloon-rate mortgage. If it takes some sort of gimmick to make the initial payments affordable, you are putting yourself in a position to get burned when higher payments kick in.
In short, today's mortgage rates represent an extraordinary opportunity to save money -- so long as you do it the right way.