October 11, 2019

What To Do When Interest Rates Drop?

Whenever interest rates fluctuate, it’s news. And inevitably, a stern-looking financial analyst will be given a guest spot on the news to talk about how interest rates impact the country at large. But the bigger question is, how do changing interest rates affect you?


Here’s a rundown of what to expect when interest rates drop, and what it means to you based on your current situation.


Current homeowners


Co-investment – Whether interest rates drop or skyrocket, your co-investment isn’t affected. It’s not a loan and doesn’t carry an interest rate at all because it’s not debt.


Refinance – This is the biggest benefit to lower interest rates: the potential to lower your monthly mortgage payment. If you have a fixed-rate loan, consider refinancing if the new interest rate is at least one point less than your current interest rate. Refinancing does carry costs (typically similar to the closing costs you initially paid for your house), but those costs are absorbed into the new mortgage amount. Refinancing lowers your monthly mortgage payment and you can even elect to change your mortgage from a 30-year loan to a 15-year loan, which dramatically decreases the amount of interest you’ll pay over the duration of the loan. It’s important to note that if you have a home co-investment from Unison and you are looking to refi you need to reach out to the Unison Home Partnership Team (homepartners@unisonim.com) before you get the process started.


Adjustable-rate mortgage – If you have an adjustable-rate mortgage, this is a perfect time to refinance and get a fixed-rate mortgage at a lower rate. But even if you don’t refinance, the new lower interest rates will automatically impact your monthly mortgage payments the next time your rate adjusts.


A word of warning: When interest rates drop, lenders will push home equity lines of credit (HELOC). A HELOC allows homeowners to borrow against the equity in their home. A HELOC is NOT your best option for freeing up cash. That’s because the rate is variable and can change as frequently as daily. While it may seem like a tantalizing option while rates are low, the cost of the line of credit will increase as soon as interest rates rise. If you want to access the equity of your home, consider a HomeOwner co-investment, which allows you to utilize up to 17.5% of your home’s current market value.


Future homeowners


Buy a house – When interest rates are low, this is the time to buy your first home. At the low interest rate, you’ll pay less for your house over the duration of the loan, which means a lower monthly mortgage amount and a lot of money saved. Of course, buying a home is a huge cost, and if you don’t have 20% of the home’s cost for a down payment, you’ll be paying PMI (private mortgage insurance) and may not qualify for the lowest interest rates. A solution to that is co-investing, which allows you to put in as little as 5% for a down payment while a co-investment company contributes the remaining 15%. Co-investment is a great option when interest rates drop suddenly and you want to take advantage of low rates.


Whether you’re a prospective homebuyer or a current homeowner, you can save a great amount of money in the long run when interest rates fall. And if you’ve used a co-investment to help buy your dream home...well, you can keep blissfully drinking your coffee knowing that even the highest interest rates won’t affect your co-investment.