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Where was the best place to put your money last year?


Key points

  • Mortgage rates have more than doubled, from 3.11% to 6.66% since the start of the year.
  • A $500,000 mortgage at 6.66% would cost $388,000 more in interest over the life of the loan compared to a mortgage at 2.65%.
  • Combined with the home’s appreciation over the past two years, Graham Stephan says a 30-year mortgage was the best investment in 2021.

Graham Stephan, popular YouTube personality, realtor and investor, recently tweeted that the best investment to make last year was a 30-year fixed rate mortgage. “The biggest irony now is that of all the options, the best investment you could have made in 2021 was a 30-year fixed rate mortgage at around 2%.” What does he mean by this tweet?

Mortgage rates have more than doubled

Mortgage rates have more than doubled from 3.11% to 6.66% since the start of the year, as the Fed has raised interest rates five times this year. Mortgage rates hit an all-time low of 2.65% in January 2021 as the Fed grappled with the economic impacts of COVID-19. At 2.65%, the monthly cost of a $500,000 home loan is $2,015 per month without down payment and not including taxes and insurance.

At the time of Stephan’s tweet, mortgage rates were at 6.29%, nearly 2.5 times higher than the ~2% he refers to. At this rate, the same $500,000 mortgage would cost $3,092 per month, a difference of $1,077 per month or almost $13,000 per year. Over the term of this loan, you will pay approximately $613,000 in total interest. That’s 2.75 times more than the $225,300 in total interest you would have paid on the 2.65% loan, or about $388,000 more in total!

Asset class performance

The performance of different investments varies considerably from year to year. In 2021, the best performing investment was commodities, with a return of 38.5%. REITs (real estate investment trusts) followed closely at 32.5%, followed by US stocks at 27%. The worst performing investments were Chinese stocks, losing 21.6%.

If you refinanced your home in 2021 at historically low interest rates and took advantage of home prices rising 40% since January 2020, that could mean investing in a 30% fixed rate mortgage. years would have potentially outperformed commodities in 2021. the return would depend on your previous interest rate and the purchase price of your home.

Refinancing vs purchase

Stephan’s tweet most likely applies to those who refinanced their home in 2021, rather than those who bought it last year. Home prices in 2021 continued to reach all-time highs until peaking in May 2022. With the cost of mortgages so high, demand for new homes has recently fallen, leading to a slowdown in property appreciation. house prices.

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More: Our picks for the best FHA mortgage lenders

The accuracy of Stephan’s tweet depends on the stability of home prices, as well as the price you paid for your home and future interest rates. If there is a sharp drop in home prices, it may be better to buy a home at today’s higher mortgage rates. However, house prices would have to drop significantly for a mortgage with a higher interest rate to make sense. A loan of $500,000 at 2.65% would have the same monthly payment as a loan of $313,000 at 6.66%.

By locking in a low interest rate for 30 years, those who have taken advantage of it have been able to ensure that their monthly payments will remain relatively stable and that they will not have to worry about rate hikes driving up their payments. However, buying a home ties up your money. Ultimately, many variables can affect the performance of your investments. Buying a home is a big financial move and one of the most expensive purchases you will ever make. The decision to buy a home should be based on your personal financial situation. Prospective buyers should also consider other property-related expenses, including property taxes, maintenance costs, and home insurance.

Our pick for the best mortgage lender of 2022

Mortgage rates are at their highest level in years and should continue to rise. It’s more important than ever to check your rates with multiple lenders to get the best possible rate while minimizing fees. Even a small difference in your rate could reduce your monthly payment by hundreds.

This is where Better Mortgage comes in.

You can get pre-approved in as little as 3 minutes, without a credit check, and lock in your rate at any time. Another plus? They do not charge origination or lender fees (which can reach 2% of the loan amount for some lenders).

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