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- Reflection No. 49
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Good morning, and happy Friday! For most people, buying a house is the biggest purchase they’ll make during their lifetime and that house quickly becomes their biggest asset. This week on Reasoned Reflections we have an article on how interest rates are currently moving, a tip on when it might make sense to refinance, and a breakdown on mortgages.
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Three Quick Hits:
Article: Mortgage Rates Dip
Interest rates have been a lot higher from their previous historic lows during, and following, the pandemic. The higher rates have left a lot of potential homebuyers on the sidelines, but luckily, rates have been moving in the right direction as of late. Even if rates are a bit higher than what we were spoiled with at the beginning of the decade, remember: you marry the house, but you date the interest rates (which can always be refinanced in the future if rates drop).
Tip: A good rule of thumb is to refinance your mortgage if rates drop 1+% from your current rate. You’ll have closing costs associated with the refinance, but you can quickly make those costs up with the money you’ll save on interest each month.
Quote: “You must gain control over your money, or the lack of it will forever control you.” - Dave Ramsey
Two Questions:
How does your social circle influence your financial habits and beliefs?
Would renting and investing the difference actually build more long-term wealth for you?
REFLECTION No. 49: Mortgages
I - Issue: What is a mortgage, and how do its key parts affect what a homeowner actually pays and risks?
R - Rule: A mortgage is a secured loan: the property serves as collateral, and the lender records a lien. Monthly payments typically include PITI—principal (reduces the loan), interest (the cost of borrowing), property taxes, and homeowners insurance.
A - Analysis: Here's what every homebuyer should know: your mortgage is "secured" by your home itself. That means if you fall behind on payments, the lender can foreclose and take the property. This security reduces the lender's risk, which is why mortgage rates are typically lower than credit card or personal loan rates.
But don't just focus on the interest rate. Your total monthly housing payment includes four components—what we call PITI:
Principal & Interest (your actual loan payment)
Property Taxes (varies wildly by location)
Insurance (homeowner's and possibly flood insurance)
These extras can add hundreds to your monthly payment, and they vary dramatically depending on where you live and what insurance coverage you choose.
Then there's PMI (Private Mortgage Insurance). If you put down less than 20%, you'll pay this monthly premium to protect the lender if you default. The upside? You can buy sooner with a smaller down payment. The downside? Extra monthly costs until you build enough equity to cancel it.
Think of it this way: your interest rate determines how quickly you pay down the loan, your loan term (15 vs. 30 years) sets your monthly payment amount, and those PITI components often determine whether you can actually afford the home.
The bottom line: Your mortgage isn't one number. Understanding each piece helps you make smarter decisions about what you can truly afford.
C - Conclusion: Given the size of the investment and asset, understanding what goes into your mortgage and how it works is one of the best things you can do.