18 min read

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2 days ago

A few years ago, the COVID-19 pandemic hit. The government lowered interest rates to keep the economy from falling into recession. I noticed this and considered refinancing my mortgage, but hesitated thinking they’d go down further. This was a big mistake and the rates quickly rose again, leaving me kicking myself. In this article, I’ll explain why it was such a big mistake to not act, what I’ll be doing to keep an eye on such opportunities in the future. Reading this article should make you an absolute master of your current or future mortgage or other loan.

All images in this article unless specified are from the author.

Imagine this: the sun-drenched kitchen of your dream home, the scent of freshly baked cookies wafting through the air, and laughter echoing from the backyard. Owning a home can be a symbol of stability, achievement, and creating lasting memories. But most people don’t have enough money to outright buy a home. And this is where mortgages come in.

A mortgage is a loan (one of the most common kinds) that allows you to borrow a large sum of money to purchase a house. You then repay the loan, along with interest, over a set period, typically 15 to 30 years. You typically get a good (low) interest rate on this kind of loan because the bank can always claim your house as collateral if you default. It’s not like you’re going to run away with it (and even if you could, the land is typically a significant percentage of its value anyway).

The mortgage will likely be your largest expenditure, with a responsibility to pay the bank thousands of dollars every month. This makes it important to understand its underlying math deeply. Not only for choosing the right kind of loan, but also making good decisions and knowing when to jump on opportunities as the loan term unfolds. For example:

1. The interest rates go down. When should you re-finance? Unlike with buying stocks, you should be way more inclined towards acting quickly, as I learnt the hard way.
2. Which of the various flavors of loans available should you choose?