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If you were hoping that the mortgage rate trend would reverse and head down, you might have missed the boat. The three decade downtrend that began back in 1982 looks to be bottoming out in the years from 2002 to 2009. This will help to keep rates low now, but eventually, when the dollar gets devalued even more, we are going to see an inflationary period that includes much higher rates.
The Fed continues to shell out billions of dollars to buy up mortgage backed securities. If this trend continues, we could see the 30 year fixed mortgage rate over 6% before we know it. As the US dollar drops in value, the 10 year yield increases which causes overall interest rates to move higher.
A more realistic measure to value the actual benefit the taxpayer receives is the difference between their itemized deductions less their standard deduction multiplied by their average tax rate. The mortgage interest amount usually is a large portion of the itemized deductions. The payments are the same amount each month, however, an important concept to understand is the interest portion decreases over time and the principle portion increases over time.
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It is more than likely that the tax rules and regulations will change over time. Many taxpayers believe the benefit to the itemized deduction is the entire amount. Other itemized deductions include, but are not limited to, state and local taxes paid (state income tax, personal property tax, ad valorem tax, real estate taxes, etc.), medical expenses, charitable donations, investment advisory expenses and unreimbursed employee expenses.
Once you are familiar with the types, you need to get to do your homework on the cost of each. This is advisable when interest rates have subsided. Refinancing simply means that the home owner takes another loan to clear off the existing mortgage loan and is left to deal with the new creditor, who, in most cases offers lower interest rates as well as a longer repayment period, allowing you to pay as little as you can afford.
Home owners should however be careful not be lured so easily, otherwise they may remain in a cycle of constant borrowing every time the rates go down. Too many refinance loans may create a bad image about the borrower and he may appear as an opportunist who is out to evade the interest rates that come with the mortgage loans. This is advisable when interest rates have subsided.
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