More than a few homeowners consider the mortgage they have on their house to be an important asset. Depending on the terms of the mortgage agreement in some cases they may be right. The interest rate you are paying and the term and conditions of repayment on your mortgage can be an effective way for you to structure your finances such that debt repayment can become an advantage.
Studying the bond market is a great way to learn the basics of interest rate arbitrage. In a rising interest rate environment, long-term fixed rate bonds are highly advantageous for the borrower (bond issuer) because waiting means they will pay a higher rate. If they borrow money now, it means when others are paying higher rates, they will still have their lower rate.
When interest rates fall, grabbing that long-term high-rate bond is advantageous for the lender (bond buyer). When others are looking for investments that pay a higher yield, that buyer will have a bond with increased value.
It is no different in a mortgage. The homeowner is the bond issuer and the mortgage company is the bond buyer. Higher or lower interest rates have exactly the same costs and benefits for them as they do for participants in the bond market.
Considering Long Term Repayments
Deciding to take a mortgage with a long term fixed rate is a decision that should not be taken lightly. There are a great many long term mortgage options available within a financial market that is arguably one of the busiest within the world.
There is more than definitely a deal to suit everyoneâ€™s needs out there, the big question you should ask yourself before investigating any further is â€˜can I realistically afford to pay this mortgage over the next x number of years?â€™
Though you will be paying less for your mortgage overall, the deciding factor is tied up with the fact that you will be paying for a longer period than a traditional mortgage. Long term fixed rate mortgages should only be used by those who are able to guarantee their employment and will be able to make payments. Otherwise, you may risk home repossession.
Naturally, any time you can reduce your payments and overall costs by refinancing your home, it should be something you consider. One of the best ways to analyze your future opportunities is to use a home finance tool to see how current interest rates might affect your overall costs and budget for housing.
These kinds of tools can be of particular utility if you are using your mortgaged property as a rental, or if you are attempting to obtain tax advantages. Once you have a clear picture of your actual mortgage costs, it makes it much easier to determine, on balance, the economics of your decision.
Reaching a powerful position in your debt structure takes both time and work. If you have all the relevant information, it makes your initial decisions easier and also saves you time and money by presenting you with a map of your progress. After that, knowing when to make your move is simply a question of watching the market indicators.
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