In yesterday’s post, I offered three good tips for investing your 2011 income tax refund. The number one tip was using your refund to buy a home. Not only does using your tax refund shave your “savings time” to get your funds together, but it can also save you thousands of dollars on your mortgage. Here’s how it works.
Most first-time homebuyers in Philadelphia like to take advantage of the grants available (up to $3,500) because they don’t have enough savings to purchase a home. However, the loan programs available for these grants offer an interest rate of 5.75%. For mortgages where the buyer is not receiving grants, the interest rate is 4.25%. The difference doesn’t seem like much, only 1.5%, right? But that tiny percentage adds up to a very big deal.
Using an example of a 30 year $100,000 mortgage, the monthly payment for the 5.75% rate is $583.57, whereas the monthly payment for the 4.25% rate is $491.93. This is a difference of $91.67 per month. So while the buyer receiving grants doesn’t have to save up much money now, they will spend $32,990.40 more than the buyer who saved their money and purchased with the 4.25% interest rate.
So which deal seems better for you? If you use $3,500 of your own money instead of grants, you can save almost $33,000. That’s nothing to sneeze at.
Ready to buy a home? Call me today at 215-335-6936. I’ll be happy to help you buy a home with or without grant assistance.
