Tax Credits Expired? You Can Still Save Money.
When the real estate market suffered massively, the government took many steps to revive the market, one of which is the offer of federal tax credits. The federal tax credits were provided for the market to recover and encourage more purchases. These credits accounted to $6500 for move-up buyers and about $8000 for first-time ones. The condition for eligibility was that the purchase contract was to be signed on or before April 30, 2009 and the closing was on or before June 30, 2009. These credits had helped the market and brought in several purchasers, who believed this to be a golden opportunity.
Since these credits were provided for a limited time, every individual was unable to take advantage of the situation. These people need not regret and the reason behind this is as follows. An analysis proves that those individuals who waited for purchase later saved far more than those who obtained the tax credits. For better understanding, let us look into an example. If you are a typical home buyer, who took advantage of the tax credits and locations like Charlotte real estate, you would have obtained a 30-year fixed rate mortgage. Suppose your home was purchased for $350,000 and the mortgage was obtained for $280,000. You would have probably obtained April’s average rate of 5.34% for your loan, which means a monthly payment of $1561.82.
Unfortunately, the interest rates fell sharply only after April 30 and it came to around 4.625% in May. Hence if the same purchase was assumed to have occurred in May with the same type of mortgage being obtained, the monthly payment accounted to just $1439.59, thus resulting in an annual savings of $1467. Over the 30 years, this savings totaled to $44,003, which is a big sum really. Thus the tax credit benefits were nothing comparatively and couldn’t be used to purchase rentals like Charlotte investment property.
The drop in interest rates was the main advantage in this case, that the home buyers would have profited better if they had purchased in May rather than in April. Hence it is necessary to evaluate things from a different point of view to look into all advantages of a scheme.