Homeowner Advisory

Similar to an annual wellness physical, homeowners should consider an annual review of the financial elements of their home. It’s particularly valuable based on the fact that their home and its equity is generally, one of their largest assets.

• List of similar properties recently sold and currently available
• Information on challenging property tax assessment
• Refinance Analysis to:
  • lower your rate
  • shorten the term
  • make improvements
  • eliminate mortgage insurance
  • remove a person from the loan
  • eliminate credit card debt
  • combine loans
  • take cash out of the equity
• Equity Accelerator to retire the mortgage within a specific period of time
• Repairmen and contractors recommendations
• Information on rental property opportunities

We’d be happy to provide this information at no obligation as part of our on-going commitment to providing homeowner information, both in general and specifically, to our contacts. It is part of a long-term strategy whereby we hope to earn your loyalty and referrals when you do need our services to buy or sell.

It's a Big Difference

Let’s say that you just won $8,750 on a lottery scratch-off ticket. You’ve decided to be frugal and invest the money and have decided on three alternatives: buying a certificate of deposit, a mutual fund or use the money as a down payment for a $250,000 home.

To compare the three alternatives, let’s look at the equity in each one three years from now.

The certificate of deposit can be invested at 1.3% in today’s market and you believe you can reasonably earn 5% on a mutual fund. You expect the home to appreciate at three percent a year.

The certificate of deposit would be worth $9,096 at the end of three years and the mutual fund would be worth $10,129. However, the equity in the home at the end of three years would be $45,204. That is a four time’s higher yield on the home.

One of the main reasons for the big difference is that the buyer benefits from leverage: the use of borrowed funds to increase the results. The $8,750 down payment is controlling a $250,000 investment. The appreciation is determined by the price and not merely by the cash invested. Another factor is that the loan balance is smaller at the end of five years than originally borrowed due to amortization.

There are certainly other factors to consider such as maintenance and other expenses but when the financial benefits are as strong as they are, it certainly deserves a much closer investigation. One of the first things to consider is whether the borrower can qualify for a mortgage and the only satisfactory way to be certain is to get pre-approved by a trusted mortgage professional.

Use the Your Best Investment calculator to make your own projections.

Is Understanding Costing You Money?

People tend to fear what they don’t understand. Homeowners understand fixed rate mortgages and remember the horror stories of people who lost their homes because they could no longer afford them when their adjustable rate mortgages went up.

Interest rates on fixed-rate mortgages have been so low for enough years, that borrowers haven’t even given much consideration to an adjustable rate mortgage. Changes in the way adjustable rate mortgages are now made make them much safer for borrowers who understand how they work but also know they’ll only be in the home for a limited period of time.

Adjustable rate mortgages can go up or down according to an index that the lender has no control. The amount that can be adjusted is limited by caps for each period and for the life of the loan. While there are different periods for ARMs, the most popular lock the first period for five to seven years and then, can adjust annually after that.

One quick and easy way to determine whether an adjustable may be a viable alternative to a fixed would be to determine the maximum payment adjustments possible to find out when the savings from the early years are exhausted which would be the breakeven point. If the borrower is certain they’ll move prior to that date, the ARM will definitely provide a lower cost of housing.

The breakeven point for a $250,000 mortgage would be 8 years 3 months comparing a 2.9% 5/1 adjustable-rate with 1 and 5 caps to a 3.8% fixed-rate mortgage. In the initial five-year period, the payments on the ARM would be $124.32 lower and the unpaid balance would be $3,522 less than the fixed-rate to make a total savings of $10,981.

Whether you’re buying or refinancing, get some good advice from a trusted lending professional about the adjustable-rate alternative. If you’re only going to be in the home a short time after the mortgage is made and your tolerance for risk allows you to feel comfortable, the ARM may be the best choice for you. Check out this ARM Comparison to use your own numbers.