From the course: Economic Tips for Everyone
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How to respond to a housing crisis
From the course: Economic Tips for Everyone
How to respond to a housing crisis
- Even if you find yourself in a housing crisis, you still have options and one of those is to refinance your home in order to improve your cashflow situation. Let me give you an example as to how this works. During a housing crisis, central banks lower interest rates and mortgage rates also fall. In this case, let's say mortgage rates fall from 4% to 3%. And let's say your original mortgage was $500,000 for 30 years at a 4% interest rate and you've paid down $100,000 in principal over the first 10 years of that mortgage. If you refinance, or refi, the mortgage, you would be starting a new 30 year mortgage for the outstanding $400,000 at a 3% interest rate. This refinance will lower your monthly payment in two ways. First, you're going to be spreading that $400,000 you pay back over a new 30 year period, not just over the remaining 20. And second, you'll be paying a lower interest rate on the money that's outstanding.…
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