Better off without the Tax Credit?

Yes, you might be better off buying now than when the tax credit was in effect.  The reasons are very simple.  A historic drop in interest rates and less competition if you are buying residential property under $400,000.  If you were taking out your mortgage today, your interest rate would probably be around 4.5% for a thirty year fixed rate mortgage.   Rates in April were right around 5.25%.  You would be spending $135 less on your monthly payment, for an annual savings of $1,620 per year.

Home sales hit a wall with the expiration of the tax credit, reminiscent of how “Cash for Clunkers” sucked up a lot of future demand for car sales.  One advantage of the current market situation is that lower interest rates and housing prices are available to everyone purchasing residential real estate, whether homeowners or investors.  I have noticed an increase in savvy investors buying real estate to “fix and hold”.  They are saying the drop in demand after April has enabled them to get lower offers accepted.

Do I wish a tax credit would come back for everyone, not just first time homebuyers?  Of course I do.  Do I think it will with our record deficits?  Not likely.  If you purchased back in April, congratulations.  You are making yourself rich instead of a landlord.  Hopefully you went with a zero or low cost loan.  If so it might make sense to refinance now, saving a lot of money.  As always, have your mortgage professional do the numbers.

Remember that unless you are Warren Buffet, you can not time the market.  I have missed a lot of great deals because I thought prices were going to go a little lower.  Feel free to call or email with any questions.

Next Week: Update on FHA negative equity refinance program



Chip Allen

Crestline Mortgage Bankers

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