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Low Mortgage Interest Rates Can Create A Better Incentive Than The 1st Time Homebuyer Tax Credit

With interest rates dipping as low as 4.75% and below on a 30 year fixed, the elimination of the tax credit should not make much of a difference in the minds of home-buyers. However, that has not been the case. Most borrowers have not yet realized that due to the low interest rates the long term benefits of owning a home can be more beneficial today than the customer who bought their home based on the tax credit. Most homeowners who took advantage of the first time home-buyer tax credit paid for mortgage rates in the ranges of 5.25% to 5.75% range.

There are a couple of examples below using a $90,000.00 loan and a $180,000.00 loan to compare the benefits of buying a home today versus the tax credit.

Example #1:

First Time Home-buyer bought a $100,000.00 home and put 10% down during the first time home-buyer tax credit. The loan was for $90,000.00 at a rate of 5.5%. That Principal and Interest payment is $511.01. This borrower earned the $8,000.00 tax credit.

vs.

The same First Time Home-buyer bought a home today at $100,000.00 and put 10% down. The loan was for $90,000.00 but now the estimated rate is 4.75%. That Principal and Interest payment is $469.08. The borrower did not earn $8,000.00 but is now saving $41.93 a month. over 360 payment or 30 years, this total: 360 payments X 41.93 = $15094.80 in payment savings.

This can be nearly 2 times more beneficial than the first time home-buyer tax credit assuming you stay in the house for 30 years.

Example #2:

First Time Home-buyer bought a $200,000.00 home and put 10% down during the first time home-buyer tax credit. The loan was for $180,000.00 at a rate of 5.5%. That Principal and Interest payment is $$1022.02. This borrower earned the $8,000.00 tax credit.

vs.

The same First Time Home-buyer bought a home today at $200,000.00 and put 10% down. The loan was for $180,000.00 but now the estimated rate is 4.75%. That Principal and Interest payment is $938.97. The borrower did not earn the $8,000.00 but is now saving $83.05 a month. Over 360 payments or 30 years, this total: 360 payments X $83.05 = $29,898.00 in payment savings.

This can be over 3.5 times more beneficial than the first time home-buyer tax credit.

The hard part is predicting the interest rates, and these rates will not stay this low forever. If you felt you missed out on the tax credit, you still have an opportunity to purchase a home with low payment and still save a good amount of money over the term of the loan.