Sep 13, 2019 | Mortgage
It is a major life decision to buy a home and yet many do not consider how much they will pay on the interest over the life of the loan. All they usually think about is if they can afford to pay the monthly mortgage payments.
It is helpful to learn how different loan structures impact the amount of money wasted on the interest paid for a home loan. Here is a comparison of different loan lengths and payment options to show some helpful ways to reduce the total interest paid.
Standard 30-Year Fixed Mortgage
For a buyer who has a good credit history, purchasing a median-priced home with a significant down payment usually helps get the best mortgage financing. A standard 30-year mortgage on a home requires 360 monthly payments to pay off the loan.
The total cost of the loan includes paying back the principal amount borrowed and all the interest. Over 30 years, the total interest paid can be as much as one-third or more of the principal amount borrowed, depending on the loan interest rate.
Standard 15-Year Fixed Mortgage
Comparing a standard 30-year fixed mortgage with a standard 15-year mortgage shows a surprising result. The differences are that the length of the loan term is less and the monthly mortgage payments are higher. A standard 15-year mortgage on a home requires 180 monthly payments to pay off the loan.
The shorter loan period may reduce the total interest paid to less than one-half of a 30-year mortgage, depending on the loan interest rate. The savings can be in the tens of thousands of dollars.
Payment Techniques That Save Money
A simple way to save money is to pay an extra monthly payment each year and ask the lender to apply the extra payment to reduce the principal amount owed. On a 30-year mortgage, the loan pay-off date is more than two and one-half years sooner, reducing the total interest paid by about 10% percent.
A smaller savings amount is possible without even needing to pay more, just by paying more frequently. Instead of paying a mortgage once per month, make arrangements with the lender to pay half the monthly mortgage payment twice per month. The amount the lender receives monthly, in the two payments, totals the same amount that the lender would receive in one payment.
This technique works because there is a daily calculation of mortgage interest. By making payments more frequently, there are fewer days of use for some of the loaned funds. This tiny change in periodic repayments can be a nice way to save a few thousand extra dollars over the life of a loan.
In addition, since there are 26 two-week periods in one year, you’re getting an extra payment in over the longer months in the year. So you’re paying the equivalent of 13 monthly payments instead of 12. You might not feel it as much since you’re likely making more money in the longer months as well.
If you’d like to do this strategy and the lender won’t accept bi-weekly payments, then just divide the principal and interest portion of your mortgage payment by 12 and add that amount to each regular monthly payment. You’ll save a ton of interest over the life of the loan!
Summary
Think about interest paid as money that could have a better purpose. Choosing a shorter loan period for a home mortgage and increasing the mortgage payment frequency are important things to consider for the savings that they can produce.
If you are in the market for a new home or interested in listing your current property, be sure to contact your trusted real estate professional.
Sep 12, 2019 | Mortgage
Sometimes, things don’t go as planned. Despite the best intentions, there are times when it’s impossible for homeowners to fulfill their mortgage obligations. When your misfortune turns into a foreclosure notice, these tips will help you control the situation and realize the best outcome.
Work With Your Lender
Open the lines of communication with your lender to stall the foreclosure process.
- Call your lender and explain your predicament. Give them specific details about the nature and estimated length of your circumstances. Many lenders are willing to temporarily modify payment terms to temporarily accommodate certain hardships.
- Apply for a loan modification. If your credit rating has improved or market values have shifted in your area, it’s possible to negotiate friendlier terms that lower your monthly payments.
- A forbearance allows you to pause or drastically reduce your mortgage payments for a short period. However, you’ll have to pay everything owed in a lump sum or via larger monthly installments.
It is in your lender’s best interest to keep you in your home. Contact them early to avoid unnecessary issues.
Take Legal Action
Keep the law on your side to ensure you have the best chance at keeping your home.
- If you believe your foreclosure is unlawful or in error, you will have the chance to present your case in court. Respond in writing to the official foreclosure complaint as soon you receive it. This eliminates quick default judgments.
- Talk to a lawyer about your case. Even if you can’t afford to retain one for the trial, invest in a short sit-down session with a knowledgeable legal representative to get the facts straight and ensure you’re ready to present your defense.
- Personal bankruptcy is a final strategy for saving your home. Most chapter 7 and 13 filings allow you to keep your primary residence while reorganizing your debt.
Foreclosure is less of a threat when you understand the laws and procedures that govern the process. Educate yourself on your legal options.
A temporary setback doesn’t have to ruin your entire life. With these tips, you won’t have to lose your dream to foreclosure.
If you are in the market for a new home or interested in listing your current property, be sure to contact your trusted real estate professional for assistance.
Sep 11, 2019 | Mortgage
A reverse mortgage is a way to use the equity value that built up in a home to improve the quality of life for those who have appropriate circumstances when they reach the retirement age of 62 or older. With a reverse mortgage, a person continues to live in their own home and retains the title to it but does not have to make any monthly reverse mortgage payments.
A reverse mortgage may be helpful; however, not everyone qualifies for one. The benefits come with disadvantages as well. Here is a list of the advantages and the disadvantages for reverse mortgages.
Be sure to discuss this option with a qualified professional when thinking about a reverse mortgage before making any commitment.
Reverse Mortgage Advantages
- Reverse mortgage funds may be used to pay off an existing home loan balance. The funds may be taken out in a lump sum or paid in monthly installments for a certain period.
- The reverse mortgage creates a lien on the home but does not require any monthly loan principal or interest payments. This continues as long as the person lives in the home and takes care of it (paying the property taxes, home insurance, HOA fees, etc.)
- Usually, a reverse mortgage has no effect on social security payments or Medicare benefits. It does not usually cause any tax consequences because it is a loan structure, not income.
- If repayment of the loan happens at some point, any equity remaining is still available to the homeowner for any purpose, such as giving something to heirs.
- It is a non-recourse obligation. There is no personal liability to repay the reverse mortgage loan if the equity value in the home is not sufficient to pay it off.
Reverse Mortgage Considerations
- Since a reverse mortgage has no payments, the loan balance increases and the interest accumulates over time.
- A reverse mortgage reduces the equity in the home that would otherwise be available to heirs. If the remaining equity exceeds the loan, the home can be sold off to repay the loan and the balance can then go to the heirs.
- Medicaid eligibility or disability payments (SSI) may be affected.
- A reverse mortgage loan becomes immediately due if certain things happen, such as the death of the homeowner, the homeowner vacates the house for six months or more for a non-medial reason and 12 months or more for a medical reason. It becomes due if the home is no longer the principal residence of the reverse mortgage borrower.
- The loan is immediately due if the homeowner does not pay the property taxes, home insurance premiums, HOA fees, and other things necessary to maintain the home.
Summary
A reverse mortgage is a special financial tool that needs to be used only when appropriate. Typical rates for these loans may be higher than standard home equity lines of credit and other traditional home-refinancing options. Consider all the details very carefully before and as always, consult with your trusted home finance professional to get the best advice for your unique situation.
If you are in the market for a new home or interested in listing your current property, be sure to contact your trusted real estate professional.
Sep 10, 2019 | Real Estate
The rapidly rising home prices currently found in many parts of the United States make it seem like the Great Recession of 2008 never happened. It took approximately eight years for home prices to recover the values that were equivalent to those they had before the recession.
After reaching this point of recovery, since around 2016, real estate prices have been going up very quickly in many cities.
The Best Recovered Housing Markets
Here are the fully-recovered housing markets analyzed by ATTOM data service for the second quarter of 2019 that have exceeded the peak valuations from before the recession.
This list of winners shows the percentage that they are now above their pre-2008 peaks:
- Greeley, Colorado (87% up)
- Shreveport, Louisiana (81% up)
- Denver, Colorado (80% up)
- Austin, Texas (77% up)
- Fort Collins, Colorado (76% up)
- Dallas-Fort Worth, Texas (72% up)
- Nashville, Tennessee (71% up)
- San Antonio, Texas (58% up)
- Houston, Texas (54% up)
- San Jose, California (54% up)
It took quite a while for homes to have this much appreciation in value, which in most cases meant that the homes, first, had to increase significantly to overcome the lowered values from pre-recession peaks.
Homeowners Waiting Longer To Sell
Homeowners, who were wise and able, waited for this to occur. This accounts for the median of eight years that homeowners waited before selling now. Before the Great Recession, the median holding period for selling a home was only four years after purchase.
Homeowners who were able to hang on to their homes after the Great Recession hit, and then ride it out until now, are, in general, being rewarded for waiting to sell.
The Hottest Markets For American Cities
Most American cities are hot real estate markets. The appreciation rate for annual increases is up 89% of all the metro market areas.
Cities showing the greatest annual appreciation rates are:
- Atlantic City, New Jersey (16% increase)
- Boise City, Idaho (14% increase)
- Chattanooga, Tennessee (13% increase)
- Mobile, Alabama (11% increase)
- Madison, Wisconsin (11% increase)
- Milwaukee, Wisconsin (9% increase)
- Boston, Massachusetts (9% increase)
- Salt Lake City, Utah (9 % increase)
- Columbus, Ohio (8 % increase)
- Birmingham, Alabama (6% increase)
Summary
Whether this a continuing boom or an early indication of another real estate bubble that might eventually burst is anyone’s guess. It is a decent time to sell if selling a home is in the plans. It is a more challenging time for home buyers. However, the one thing the Great Recession taught us all is that housing prices do not always go up.
If you are in the market for a new home or interested in listing your current property, please consult with your trusted real estate professional.
Sep 9, 2019 | Financial Reports
Last week’s economic reports included readings on construction spending, public and private-sector jobs and the national unemployment rate. Weekly reports on mortgage rates and first-time jobless claims were also released.
Construction Spending Rises in August
Construction spending rose 0.10 percent higher than in July according to the Commerce Department. Analysts expected construction spending to increase by 0.60 percent based on June’s reading of -0.70 percent. Construction spending was -2.70 percent lower year-over-year based on revisions to data going back to 2008.
Construction spending was impacted by multiple factors including costs of labor and building materials and inclement weather in some areas of the United States. As peak home buying season winds down to fall and winter, builders are expected to reduce spending. Builder concerns over the impact of tariffs on imported building materials continued to affect builders’ budgets.
Mortgage Rates Fall, Weekly Jobless Claims Rise
Freddie Mac reported lower mortgage rates last week; the average rate for 30-year fixed rate mortgages was nine basis points lower at 3.49 percent. Rates for 15-year mortgages were six basis points lower and averaged 3.00 percent.
Rates for 5/1 adjustable rate mortgages averaged 3.30 percent and were one basis point lower. Discount points averaged 0.50 percent for 30-year fixed rate mortgages, 0.60 percent for 15-year fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.
First-time jobless claims rose by 1000 claims to 217,000 new claims filed. Analysts expected 214,000 initial jobless claims based on the prior week’s reading of 216,000 first-time claims filed. No signs of layoffs were indicated in relation to the higher reading for new jobless claims.
The monthly reading for new jobless claims showed 216,250 new claims filed and was higher by 1500 new claims filed. The monthly reading is considered more stable than week-to-week readings for initial jobless claims.
Public and Private-Sector Jobs Reports Mixed, Unemployment Rate Holds Steady
ADP reported 195,000 private-sector jobs added in August. The Commerce Department reported 130,000 public and private sector jobs added; analysts expected 170,000 jobs added in August. The national unemployment rate was unchanged at 3.70 percent.
What’s Ahead
This week’s scheduled economic news includes readings on inflation, retail sales and consumer sentiment. Weekly readings on mortgage rates and initial jobless claims will also be released.
