Steps to take if you feel like a ‘mortgage prisoner’ trapped in a home you don’t want at a low interest rate – you can get out – The US Sun

A FINANCIAL planner has set out steps for homebuyers who want to sell but feel trapped by low-interest mortgage rates and a terrible housing market.

Homeowners who purchased homes with low-interest mortgages are now trapped in “golden handcuffs” as the move could mean seeing their mortgage charges double or triple.

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O Wise money showorganized by Korhorn Financial Group, launches a series of videos to help people increase their financial literacy.

Mike Bernard, one of the show’s three financial experts, addressed the issue of selling in today’s market, specifically when it comes to feeling trapped in a low-interest mortgage, in a recent video.

“Do you need to move but are feeling trapped in your current home because of its low interest rate and can’t believe that’s all there is to it?” he presented the video.

He explained that some of his customers are experiencing this same issue; Even a co-worker is starting to get worried because his family is trying to upsize to accommodate their growing numbers.

While some may argue that people who sell in this market will earn more on their homes; Bernard says the mortgage rate a person faces when purchasing a new home can negate any profit from the previous property.

Bernard then explained that high interest rates, which are around 7% instead of the 3% that many currently have, are preventing individuals from selling.

This in turn increases housing prices because there are so few on the market; compounding the issue, so that low interest rate mortgage holders face high house prices and high mortgage rates.

He then revealed three tips for dealing with such a situation.

GET THE FACTS

First, he says potential homebuyers need to focus on planning by seriously considering how much a new mortgage would cost in interest.

“The first thing you should do if you’re looking and saying, ‘This isn’t the house we can stay in.’ We need to move’, is to calculate what your new mortgage will be”, advises Bernard.

While the financial planner acknowledged that this step may seem like skipping steps, he responded that it prepares buyers for the reality of how much a home would cost in total.

He suggests going to the home search site of the buyer’s choice and using the homes they would be interested in to estimate the outcome of a mortgage.

“If, for example, your current home costs maybe $225,000 and the new home will probably cost around $325,00, then what would that new mortgage be?” he proposes.

From there, the potential buyer must subtract the cost of paying in full on their existing mortgage from the proceeds from the sale of their current home in order to calculate how much money they will have left to invest in the home.

Then, subtracting that amount from the cost of the new home gives the buyer an amount to plug into a mortgage calculator to see how much it would cost.

Taking these steps and then exploring different mortgages, with different payment plans, gives buyers more solid information to plan with; Which leads Bernard to tip number two.

BUDGET, BUDGET, BUDGET

“Once you do that calculation, here’s how much the new payment would cost, here’s how much the new payment would be with this higher, more expensive interest rate. You then open a savings account and incorporate it into your existing budget,” he explained.

He advises that potential buyers essentially start making the anticipated payment into the new savings account to save for when that becomes a reality.

“Not for your current mortgage, because that would mean paying extra at a very low interest rate,” he clarified.

You can be agile if you need to”

Mike BernardoKorhorn Financial Group

“Instead, continue to make your normal monthly payment, but open a new bank account called, you know, ‘House Savings’.”

Bernard explained that doing this also starts to build the payment increase into the buyer’s lifestyle and budget, so it won’t be a huge shock when it comes to fruition.

“I really believe in the famous The Rock analogy, made famous by Stephen Covey,” explained the financial planner.

“Basically, what are your biggest priorities? What are your goals or, financially, what are your biggest priorities?” He continued.

“Put these rocks in first and then the other important things will fit around it and then all the gravel or sand.”

BE READY TO SELL

The last piece of advice he has is for homeowners to make sure their home is ready for purchase.

Since the real estate market is so variable and subject to change with each tax legislation or major historical event, it is important to be prepared for when the market is ideal for selling.

“You can be agile if you need to,” Bernard said simply.

This planning could mean completing repairs that are piling up on the to-do list or even recruiting professionals.

“Even if it means talking to a real estate agent today to say, ‘Hey, can you come by my house and point out the issues that might not help our house sell very quickly right now and talk about some things we could do,’” Bernard scripted.

He guarantees that this is a service that real estate agents provide, called market analysis.

The potential buyer may also contact housing inspectors or other professionals, but this may increase the cost.

Bernard, true to his financial planner title, also suggests hiring a certified financial planner to help navigate the real estate market as it applies to the buyer’s specific situation.