As investors we're always on the lookout for the next LinkedIn or Berkshire Hathaway. It requires skill, patience, and hard work to find great investments, but there's one relatively simple opportunity out there right now that many Americans are missing out on.
Now it may surprise you to hear that the single best investment you can make this year might not even be in a stock. If you're a homeowner, the best opportunity at the moment might be in refinancing your home's mortgage.
If you own a home and haven't refinanced recently, you need to make a call in order to investigate the possibilities. Current rates on 30-year fixed-rate mortgages are around 3.5%. If you opt for a 15-year fixed-rate mortgage, you'll be paying even less than 3%. Of course, rates can fluctuate, and it's unlikely they'll stay this low for much longer. I can't imagine a bigger slam-dunk investment opportunity for ordinary individuals.
How much will you save?
Depending on the size of your mortgage and the time you have remaining, you could save hundreds of dollars per month. On a $300,000 loan, if you reduced your current rate from 5% to 3.5%, it would save you $263 per month. That's $3,156 per year or $94,680 saved over the 30-year life of the loan.
How much will it cost?
Closing costs vary by lender, so it pays to shop around. You'll typically be looking at a range of $2,000 to $3,000 to refinance your loan. Often they can roll that cost into your loan, so it won't cost you much out of pocket.
Things to consider
Investigate your existing loan and determine how much of your current payment is going to principle versus interest. If you're in the last few years of mortgage payments, it may not make sense to refinance. Also, consider your payback time. To figure your payback, just divide the cost of refinancing by the monthly savings. The shorter the payback, the better.
Back in 2005 I warned investors about the real estate bubble. This time I'll go on record as saying it's a good time for first-time homebuyers to purchase a home. The costs of homeownership have declined as a result of lower interest rates and lower home prices. If you're looking for a house, have a 20% down payment, and plan to stay in that area for at least seven years, go ahead and go shopping. In many places it's now cheaper to buy than rent. When considering home purchase prices, a good rule of thumb is to consider paying less than 200 times the monthly rent.
Whither the housing market?
The overall housing market may or may not have bottomed. One thing we do know, however, is that now is a very attractive environment for homeowners to refinance their mortgages. If you think you might qualify for a lower monthly mortgage payment, you should learn about your possible options. Otherwise, you'll be leaving money on the table. And who wants to do that?
Refinancing your home is just one step on the road to taking greater control of your financial future. For more useful advice, check out our special report: "3 Stocks That Will Help You Retire Rich." Get your free copy now.
The article The Slam Dunk Investment You Shouldn't Miss originally appeared on Fool.com.
Buck Hartzell owns shares of Berkshire Hathaway. The Motley Fool owns shares of LinkedIn and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of LinkedIn and Berkshire Hathaway. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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