Ryan Zupan here with City Wide Financial, I want to talk about a strategy that we’ve been using with just about all of our clients over the past few months. It’s called the Inflation Hedge strategy.
The biggest problem I see right now is that, b/c interest rates have been at historical lows for the past 3 years, there has been an influx of buyers entering the market who, when rates return to a more normal level, a higher level, they’re going to be in a lot of trouble. All of a sudden, from one month to the next, their mortgage payment is going to rocket up by $5-6-700 when their mortgage is up for renewal.
Now, some ppl say, well, in 5 years I’ll be making a lot more money so that won’t be a problem but as we all know, the more money we make, the more we spend & the more expenses we’ll have. You really don’t want to be a situation where you have that payment shock.
So this strategy is designed to prepare your mortgage for the higher rates of the future & eliminate that payment shock. How do you protect a mortgage from this type of inflation? What do we do that eliminates this shock?
There are a few key values that factor into this strategy. First, we calculate what your outstanding balance will be at the end of your term, then based on where we expect interest rates to be at that time & what we expect your payment to be, we determine what steps we need to take to get your mortgage payment to that level.
In a nutshell, the inflation hedge strategy adjusts your mortgage marginally each year to account for updates to interest rate forecasts. Because these marginal payment adjustments result in you paying down more principle, you’re going to save thousands in unpaid interest costs.
The results of the inflation hedge can be tremendous. The savings range from as low as a few thousand up to $15-$20K and all this is by doing very little.
The beauty of this strategy is that you can start it at any point in your mortgage so if you already own but want to find better ways to manage your debt or if you know of friends or family that may benefit from this very simple, yet effective strategy, contact Ryan @ City Wide Financial.