Most investors have focused on the soaring stock market, but recent moves for interest rates have a lot more impact on the decisions mortgage borrowers have to consider. Whether you're in the market for a home now or looking for cheaper alternatives to a home mortgage you already have, it's crucial to be aware of the conditions in the mortgage market going into 2018. The following three issues are worth a closer look before the end of the year.
1. Buying big? Get your $1 million mortgage now
For most Americans, the idea of ever owning a $1 million home might sound like an impossible dream. Yet in some high-priced real estate markets, even entry-level homes require you to think about a high six-figure mortgage.
The reason to get a move on and lock up financing on high-priced homes now is that potential tax changes could take away a key deduction on large mortgages. Under current law, you can take mortgage interest on loans as high as $1 million as an itemized deduction on your tax return. However, lawmakers are currently taking a closer look at that provision, with some looking to cut that amount to $500,000. Most of those watching tax reform in Congress believe that existing mortgages of $1 million will be grandfathered in, allowing them to claim their larger deductions even after the new rules affect those taking out new mortgage loans in 2018 and beyond. To be as certain as possible that you'll be able to get your full deduction, take a look at accelerating the buying process if you expect to borrow more than $500,000 on your mortgage.
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2. Consider a reappraisal if it can save you on private mortgage insurance
Conventional wisdom used to say that you should expect to have to make a 20% down payment when you bought a home. Times have changed quite a bit, and it's now common to see much smaller down payments. However, the lenders who make loans with low down payment provisions also typically require borrowers to have private mortgage insurance. This coverage protects lenders if the value of the home goes down, but it's also costly, requiring an additional monthly premium payment from the homeowner. Typically, you'll have to keep the insurance open until your equity exceeds 20% to 25% of the value of your home.
In the rising real estate market of recent years, it's possible that even if your down payment was less than 20%, the value of your home might have gone up enough to make your outstanding mortgage less than 75% to 80% of its current market price. An appraisal involves additional cost, but if it helps save you from having to pay mortgage insurance sooner than you otherwise would, then it can be worth it to get the appraisal done.