As investors we're always on the lookout for the next
LinkedIn
or
Berkshire Hathaway
. It requires skill, patience, and hard work to find great
investments, but there's one relatively simple opportunity out
there right now that many Americans are missing out on.
Now it may surprise you to hear that the single best investment
you can make this year might not even be in a stock. If you're a
homeowner, the best opportunity at the moment might be in
refinancing your home's mortgage
.
If you own a home and haven't refinanced recently, you need to
make a call in order to investigate the possibilities. Current
rates on 30-year fixed-rate mortgages are around 3.5%. If you opt
for a 15-year fixed-rate mortgage, you'll be paying even less than
3%. Of course, rates can fluctuate, and it's unlikely they'll stay
this low for much longer. I can't imagine a bigger slam-dunk
investment opportunity for ordinary individuals.
How much will you save
?
Depending on the size of your mortgage and the time you have
remaining, you could save hundreds of dollars per month. On a
$300,000 loan, if you reduced your current rate from 5% to 3.5%, it
would save you $263 per month. That's $3,156 per year or $94,680
saved over the 30-year life of the loan.
How much will it cost
?
Closing costs vary by lender, so it pays to shop around. You'll
typically be looking at a range of $2,000 to $3,000 to refinance
your loan. Often they can roll that cost into your loan, so it
won't cost you much out of pocket.
Things to consider
Investigate your existing loan and determine how much of your
current payment is going to principle versus interest. If you're in
the last few years of mortgage payments, it may not make sense to
refinance. Also, consider your payback time. To figure your
payback, just divide the cost of refinancing by the monthly
savings. The shorter the payback, the better.
First-time buyers
Back in 2005 I warned investors about the
real estate bubble
. This time I'll go on record as saying it's a good time for
first-time homebuyers to purchase a home. The costs of
homeownership have declined as a result of lower interest rates and
lower home prices. If you're looking for a house, have a 20% down
payment, and plan to stay in that area for at least seven years, go
ahead and go shopping. In many places it's now cheaper to buy than
rent. When considering home purchase prices, a good rule of thumb
is to consider paying less than 200 times the monthly rent.
Whither the housing market?
The overall housing market may or may not have
bottomed
. One thing we do know, however, is that now is a very attractive
environment for homeowners to refinance their mortgages. If you
think you might qualify for a lower monthly mortgage payment, you
should learn about your possible options. Otherwise, you'll be
leaving money on the table. And who wants to do that?
Refinancing your home is just one step on the road to taking
greater control of your financial future. For more useful advice,
check out our special report: "
3 Stocks That Will Help You Retire Rich
." Get your free copy now.
Buck Hartzell owns shares of Berkshire Hathaway
.
The Motley Fool owns shares of LinkedIn and Berkshire
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