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Is it Too Late to Refinance?

What a Difference Slight Mortgage Rate Changes Can Make!

The average single-family home in America appreciated nearly 55 percent over the past five years ending December 31, 2021.Mortgage debt, correspondingly, has also gone up. Approaching $11 trillion, mortgage debt reached an all-time high as of December 31, 2021. This makes sense, considering that you have to take on more debt to buy something now valued at a higher dollar amount.

But here’s how a slight shift in interest rates can impact mortgage payments:

The average 30-year fixed-rate mortgage rate was about 3.89 percent at the end of February 2022. For every $100,000 you borrow at this percentage rate with this type of mortgage, your monthly principal and interest payment is $471.

By comparison, the average 30-year fixed-rate mortgage rate was 2.65 percent in January 2021. Borrow $100,000 at this rate, and your monthly principal and interest payment is $403. That’s a 17 percent difference, which shows just how significant a 1.24 percent increase in mortgage rates can be.

So now that interest rates aren’t at rock bottom anymore, you might be wondering—is it too late to refinance?

There is no clear-cut answer. It’s impossible to predict what interest rates will do in the future, but know that they’re still at historically low rates. So if you’re worried that you missed your chance to refinance, the good news is it’s not too late to cash in on low mortgage rates.

What You Need to Do as an Investor in This Market

Today’s economic backdrop is shaped by inflation, largely due to the excess liquidity in the system courtesy of central banks around the world that pumped tens of trillions of dollars into the economy in response to the COVID-19 pandemic. Other factors impacting today’s market include low real valuation and a small number of businesses driving much of the performance.

What’s an investor to do in this kind of cut-throat environment? Here are three key takeaways.

1.     Be diversified.

It’s an oldie, but a goodie—diversify, and intentionally so! Currently, 2 percent of the companies in the S&P 500 are driving nearly one-third of the performance of that index. That is highly concentrated!

To determine whether your investment portfolio is diversified, add up the percentage of your assets in your top 10 holdings. How much is it?

Is it 30 percent? If so, you’re just going in lockstep with the market. Is it more than 30 percent? That means your investments are even more concentrated than the overall stock market! We like to see those top 10 holdings represent about 15 to 20 percent of the overall portfolio.

2.     Be aware of your bond investments.

The market’s real return is at its lowest rate since 1970. “Real return” is basically a nice way of saying “inflation-adjusted return” and the impact that inflation has on eroding returns. Because of this, you may want to steer clear of traditional bonds in this inflationary environment.

3.     Consider investing outside the US.

Over the past 10 years, many portfolios have increasingly concentrated on US-based companies—and understandably so! Large tech companies like Facebook, Amazon, Netflix, and Google—or the FANGs, as we like to call them—have driven a tremendous amount of the overall market’s performance for the past decade.

Still, don’t overly concentrate your investments here in the US. Consider non-US regions as a way to not just improve diversification but maybe to address the current valuation issue we’re seeing.

In short, if you’re not careful, you could end up with a serious lack of diversification. For help digging into your portfolio and optimizing your investments, please contact Nelson Financial Planning in Winter Park, FL, at 407-629-6477. We’ll help you change your life with a successful financial plan.