The rise of equity through the surge of demand and the decline of mortgage rates have showcased an eye-opener for potential real estate investors. People have assumed that since the pandemic has peeved its way through the freezing of the economy and the growing rate of unemployment, it would affect the real estate industry.
Truth is, it’s the complete opposite. Buyers are now taking control of the rise in equity since they aren’t paying as much for the property itself and they are capable of shelling out more than the initial down payment needed for the investment. The decline in mortgage rates allows buyers to claim expensive properties with ease.
Let’s take a closer look at what the benefits of rising equity can provide to buyers in today’s market and how lower mortgage rates can be utilized to your advantage.
As a buyer, you would want to ensure that as you purchase a property, the return of investment reflects in the rise of your equity. This is due to the idea that you are aware of the money that is being put in the investment which was from your pocket. Real estate investors utilize the concept of rising equity to their advantage wherein they would purchase the property with the lowest market value. Then they would shell out an amount that would guarantee an increase in equity. After such, they would apply renovations to the said property, calculate the expenses made then add this to the down payment needed for purchasing, making sure that the return is bigger than the initial output.
To make it clearer, an example wherein your equity would rise can be purchasing a property that would cost $300,000. To apply for a mortgage, they will require you to pay at least 20% of the property as they would cover the rest. You have $80,000 on hand and would want to invest the entire budget, paying $60,000 as the down payment and $20,000 in equity.
You may be wondering where would your equity grow from this form of investment? And how the real estate industry is thriving in this concept?
Since the mortgage will shoulder the remaining amount after the down payment, your task would be to pay off more than the required amount to settle your mortgage adding up to the equity that you have already initiated. Buyers in these tough times are willing and able to invest their savings for them to earn the long term.
The Decline of Mortgage Rates
Now it is inevitable that the mortgage rates have gone drastically low with a 2.25% 30 year fixed loan according to the Mortgage Bankers Association, allowing buyers to apply for a loan at the most affordable rate possible and homeowners to easily refinance their property gaining in equity.
With the mortgage rates dropping early this year, current property owners are finding it difficult to pay their dues. Refinancing properties have also been a challenge as the result of the rise in unemployment. Buyers are then enticed to start investing in real estate these days.
Learn more about refinancing in our blogs.
Lower rates reflect feasible payment, therefore, as a buyer, you can easily purchase properties that were beyond your reach before the pandemic. Homeowners who have kept their employment are encouraged to refinance their properties to further gain in equity.
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The overall benefits of purchasing a property amidst the pandemic is undeniably surprising. No one has forecasted the recent events that we have been through and even seasoned investors over the years in the real estate market have not prepared for such a rise in the demand. Given the idea that it may be a fresh start to embark on a journey such as real estate investing, it’s always going to be a risk worth taking.
The blog articles are intended for educational and informational purposes only. Nothing in the content is intended as legal or financial advice.