Making Sense of 2020’s Record Low Mortgage Rates

Navigating our way through 2020 was difficult, even on a good day. First and foremost, our professional responsibilities began to mix with our home lives. The mixing of these two worlds made it all too easy to overlook notable changes that affect our finances.

Mortgage rates underwent a significant change in 2020. The Federal Reserve lowered the rates last year in response to the coronavirus pandemic. In 2019, the average 30-year fixed mortgage rate with a 20% down payment was at 3.66%. A year later in November 2020, the rates dropped to record lows, reaching 2.72% according to Freddie Mac.

If you missed that piece of information, you may have a few questions on your mind. We will break down the basics for you.

What Influences Mortgage Rates?

There are a number of factors that influence mortgage rates. One of the components is supply and demand. If mortgage lenders have an overwhelming amount of business, they will raise rates to lower the demand. Alternatively, lenders cut rates to draw in customers.

Another factor for fluctuating mortgage rates is price inflation. Rates often stay lower when inflation is low. Similarly, fixed mortgage rates will rise in tandem with inflation increases.

How Do Lower Mortgage Rates Affect Me?

When mortgage rates drop, so does the interest that you are paying for it. While that lesser interest payment can be beneficial, it is also important to realize that you will have less of a write-off available in your future taxes. Ultimately, the number of years you have spent as a homeowner plays a significant role here.

The mortgage interest deduction lets homeowners deduct only the interest that they pay on their mortgage. It does not include the principal payment. The mortgage interest deduction will save you more money in the early years. Therefore, relatively new homeowners will feel the effect of eliminated deductions much more than those who are now making higher principal payments.

 

Why Accounting Software Helps with Your Mortgage

If you file your own taxes, you should already be familiar with accounting software. Doing your taxes by hand opens you up to avoidable hardship. Rather than worry about making careless mistakes or forgetting to write something off, you should invest in a comprehensive accounting software tool.

When choosing a software, look for something that supports e-filing options for year-end tax forms. Once you determine what you can write-off, your software should assist you in making sure you meet all the important deadlines. After all, there are few things worse than waiting until the eleventh hour and not getting as much of a write-off as possible.

Title Insurance

An insurance policy which protects the insured against loss arising from defects in title. Title insurance policies are typically obtained for the buyer and the lender.

Types of defects title insurance can cover include but not limited; to errors within the public records, unrecorded or unknown liens on the said title, illegal deeds on the title, forgeries done on, against or even pertaining to the title, boundary disputes if the title is for a property, and such extremes as a false impersonation of the previous owner/owners. If an owner shall encounter any of these title defects without title insurance, it is assumed that the court hearings pertaining to the dispute of the title will often be long, complicated, and the verdict in favor of the plaintiff. Lawyers from all over the country and many different firms often seek to avoid said court cases because they are proven to be the most problematic.

Real Estate Investment Trusts (REIT)

A Rall Estate Investment Trust is a security that uses investors’ money to purchase and invest in managed real estate. Investors realize many of the tax advantages of owning real estate. Instead of outright purchase of real estate, which requires a lot of capital and makes you responsible for repairs, upkeep and rent collection, REIT’s give you the opportunity to pool your money with other investors, participate in a diversified portfolio of properties, and passively receive rental income.

Since their inception, REIT’s have offered outstanding returns for investors, and represent the easiest and most liquid way to participate in the real estate markets. Most REIT’s payout a much higher level of dividend income than most other investments. Many investors use REIT’s to diversify their overall portfolios, which also contain stocks, bonds and precious metals. REIT’s are available for rental properties, timber, commercial real estate and many other types of real property investments.