Many are waiting for Fed Chair Jerome Powell to announce a ¼ point reduction in interest rates in September.
This will assist those who have the money to afford to buy a home, condo, or even a coop. But that small decrease won’t be that substantial, as prices continue to increase here in Long Island.
As I mentioned many times in my past columns, with historic lows in inventory (as of July, there were three months of available housing), there is still consistent demand, and some bidding wars are gobbling up homes; even some buyers are offering above the asking price.
My real concern is that by lowering rates, inflation will begin to escalate again away from the 2% target that the fed chair is so focused on achieving. Will the Fed again begin adding more currency to the market, also adding more pressure to inflation?
Rates have decreased (as of 8/18/24) to 6.51% for a 30-year fixed-rate mortgage. According to Bankrate’s latest survey of the largest mortgage lenders, the average refinanced fixed-rate mortgage is 6.59%.
However, borrowers who have pristine credit, sufficient income, and low debt/income ratios will qualify for those rates. Secured loan rates can also be attractive to those with substantial liquid assets in savings accounts, investment or inheritance accounts, or special client accounts. There are creative ways to borrow, but that is a topic to be discussed with your lender or your financial advisor.
Some homeowners may have gained huge appreciation over the years and will have to pay substantial capital gains taxes, even after taking the deductions of $500,000 for a married couple ($250,000 if single), plus any capital improvements made during the ownership of the home, plus the original price paid for the property.
To defer or reduce those capital gains, the seller could provide the prospective purchaser with a mortgage, saving them some closing fees. Moreover, you might get a better rate than the bank would offer without any points.
Also, the capital gains taxes the seller would need to pay are the incremental payments made each year, solely based on the current tax bracket each year when receiving those monthly payments.
Currently, this amount can range from 0% to 20%. To be clear, I cannot provide legal or financial advice, so you must consult your CPA or your financial advisor for details on your situation.
He or she will be able to create a solid plan that will hopefully help you reduce your taxable income. Also, setting up an irrevocable trust can defer and, in some cases, minimize and eliminate taxes. Again, consult your advisors for the best way to approach your finances.
Some financial experts explain to the public that paying an additional principal payment once, twice, or even three times per year will enable you to pay off your mortgage earlier. However, with 70% of homeowners having refinanced at considerably lower rates, prepaying your mortgage earlier might not be the most logical path to pursue.
One must consider the tax deductions for interest paid yearly. Depending on your tax bracket year over year, you would need to propose a hypothetical situation to see if paying off your mortgage earlier would benefit you.
Now that you have no additional interest deductions, you might have to pay more income taxes. However, you might be better off just making your normal monthly payments over time.
No one can predict what the government will do concerning taxes, but you should prepare and plan for what could be and then take a calculated risk based on your situation.
The best way to begin your journey to homeownership is to search for a qualified mortgage consultant who will assess your finances.
Having that commitment letter in advance before you begin searching for your next place to call home would be most prudent. You would be in the most advantageous and strongest position to pull the trigger and make offers on a home you are considering purchasing. If you ever need any advice, feel free to call me.
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck.
For a free 15-minute consultation, value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: Phil@TurnKeyRealEstate.Com or via https://WWW.Li-RealEstate.Com