In some areas value of homes across the US have been increasing for 93 consecutive months, according to the National Association of Realtors data. If you’re a homeowner, particularly one looking to downsize your living space, that’s great news, as you’ve likely built significant equity in your home.
Here’s some more good news for buyers and sellers: Mortgage rates are expected to remain low throughout 2020 at an average of 3.8% for a 30-year fixed-rate loan. This will allow people to buy more home per dollar, or have a lower payment. We have been seeing the lower rates help home prices go up.
The combination of leveraging your growing home equity and capitalizing on low mortgage rates could make a big difference in your home buying plans this year.
How you can use your home equity
For move-up home buyers, the typical pattern for building financial stability and wealth through home ownership works this way: you buy a house and gain equity over several years of mortgage payments and price appreciation. You then take that equity from the sale of your house to make a down payment on your next home and repeat the process.
For homeowners thinking about downsizing, home equity can work in a slightly different way. What you choose to do depends in part upon your financial goals.
According to HousingWire, for some people, the desire to downsize may be related to retirement plans/desires or children aging out of the home. Some Retirement communities are very promising, check out Sun City West homes for sale, a retirement community in Arizona. Others may be choosing to live in a smaller home to save money or simplify their lifestyle in a space that’s easier to clean and de-clutter. The reasons can vary greatly and by generation and financial goals.
Home buyers who choose to put their equity toward a new home have the opportunity to make a substantial down payment or maybe even to buy their next home in cash. This is incredibly valuable if your goal is to have a minimal mortgage payment or none at all.
A local real estate professional can help you evaluate your equity and how to use it wisely. Then you can run those plans by your financial adviser. If you’re planning to downsize, keep in mind that home prices are anticipated to continue rising in 2020, which could influence your choices.
The Impact of Low Mortgage Rates
Low mortgage interest rates can offset price hikes, so locking in while rates are low will be key. For many downsizing homeowners, a loan with a shorter term is ideal, so the balance can be reduced more quickly.
Keep in mind when planning, Interest rates on 10, 15, and 20-year loans are lower than the rates on a 30-year fixed-rate loan. If you’re downsizing your housing costs, you may prefer a shorter-term loan to pay off your home faster. This way, you can save thousands in interest payments over time.
Although we can show you past rates, plans, buyer seller trends, anything you read should be ran by your own financial adviser.
If you’re planning a transition into a smaller home, the twin trends of low mortgage rates and rising home equity can kick start or boost your plans, especially if you’re anticipating retirement soon or just want to live in a smaller home that’s easier to maintain. Let’s get together today to explore your options.