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  • Early Bird Gets The Worm As Far As Mortgage Discounts Go

    December 3, 2015 | Blog Housing
  • mortgage discount

    Although the term “season” might seem a little out of place when talking about real estate, any agent will tell you that there are hot periods during the year when business picks up.

    For sellers, the traditional peak season starts in early spring. Subdivisions all across the country are scattered with Open House weekends. Saturdays and Sundays on a beautiful spring day can produce masses of potential customers, all perusing the streets to see which house matches their dream.

    But what if you’re a buyer? Is the spring a good time to be looking? Does the early bird get the worm? Does that mean that buying in January is a good thing? Of course, you will get different opinions on this issue either way. Everest Home Mortgage will outline a few of the pros and cons to being a buyer “out of season”.

    Generally speaking, the number of options available on the market during spring is going to be significantly larger than in January. There are several reasons for this. First, it is a common perception that this is the best time to sell because the weather is nicer and buyers will be out. So some families will wait until winter is over just because they think there will be more buyers out there.

    Secondly, habits are hard to break. Spring has become the traditional part of the year for people to list their houses. Most sellers want to time their offer to match when the most buyers are out and about.

    If you’re a buyer that means in January, there will be fewer options for you to consider. Fewer options mean the less likely it is you will find the home you want. Remember, when buying a home, it is the second most important decision you will probably ever make.

    Is Buying In January A Good Thing?

    Buying in January might pressure you into making a decision that you will regret later. Just imagine if you lay down your life’s savings on a house you are “content” with, only to discover a few months later that your dream home is right down the street!

    Now, what about financing? If the early bird gets the worm, does that mean your mortgage discount will be better? Are you more likely to get a better mortgage discount in January than spring?

    First, let’s use the correct terminology. A mortgage discount means you can buy the existing mortgage at a discount, less than the principal balance that is remaining. So, for example, it might be possible to buy a mortgage with a current principal balance of $40,000, but you only pay $35,000. That sounds like a good deal, but you have to be careful and read the fine print thoroughly.

    Let's Demystify The Ambiguity Of Mortgage Discounts

    Not all mortgage discounts are created equally. Most will only carry a lower rate of interest for a short period. The main benefit of a mortgage discount is that you are paying at a lower rate than your lender’s standard variable rate (SVR). Banks may be more likely to offer mortgage discounts during low periods in the season. That might be one reason to consider buying in January, when business is slow.

    However, you must be careful. Mortgage discounts, although offering lower interest rates, are not without risks. It is still a variable rate, which means that even though it is lower than your lender’s rate, that rate could still go up. And if it goes up, you still must pay.

    This means that you must make some very careful calculations regarding your financial ability to withstand an increase, combined with your sage economic predictions about the economy over the upcoming decade. Good luck with that.

    So, even though January might make a mortgage discount seem more appealing, caution is the best word of advice when making serious financial decisions.

    Aside from that, other reasons for buying out of season involve looking for deals due to rare circumstances. If a seller is trying to unload their property in January, it might be due to a unique situation that creates selling pressure. That circumstance could be the result of a divorce or just the fact that some people make big decisions about their life around the New Year.

    Whatever the circumstance might be, being a buyer out of season has plenty of advantages and drawbacks. The most important decision is not “when” to buy, but making sure the “what” you buy will make you happy.