Real Estate Information

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 be 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 not only how they work but 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 break-even 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.

Forced Savings

One of the big banks has a voluntary program available that transfers $100 each month from your checking account to your savings account. In five years, the account owner would have over $5,000 because of a type of forced savings. 

Similarly, when a person buys a home with a standard amortizing loan, each month, a part of the payment is used to reduce the principal loan amount. Amazingly, over $4,000 would be applied toward the principal in the first year of a $250,000 mortgage at 4% for 30 years. In five years, the loan amount would be reduced by almost $25,000 through normal payments.

The other dynamic that is in play is that while the unpaid balance is being reduced, appreciation causes the value to increase. The difference between the two makes the equity grow even faster. Three percent appreciation on a $250,000 home would increase its value in five year by almost $40,000.

A 30-year mortgage of $250,000 will be paid for in 30 years. At an average of 3% appreciation, the asset would be worth about $600,000. If you continue to rent, the asset belongs to your landlord instead.

Many experts believe that the homeowner benefits from the forced savings of amortization and the leveraged growth that takes place in the investment. It has been observed in the tri-annual Consumer Finance Survey by the Federal Reserve Board that homeowner’s net worth is considerably higher than that of renters.

Pay Yourself First

The principle to pay yourself first has been referred to as the Golden Rule of Personal Finance.

The concept is that one of the first checks you write each month is for your own savings. The rationale is that if there is no money left after a person pays their bills, there is nothing to contribute to savings or investments that month.

By establishing a priority to save, a person realizes that the balance of their monthly income must cover living expenses and other discretionary spending. This is a much different strategy than saving what is left over from monthly expenses and other spending.

Many financial experts have likened an amortizing mortgage to a forced savings account because a portion of each payment is applied to the reduction of the principal amount owed. Some homeowners have taken that concept further with a shorter term mortgage to build equity faster.

In the example below, a $250,000 mortgage at 4% interest is compared with two different terms. The 30 year mortgage would have payments of $1,193.54 each month with the first payment having $360.20 being applied to the principal. Each payment would have an increasingly larger amount applied to the principal.

The 15 year mortgage would have payments of $1,849.22 each month with the first payment having $1,015.89 being applied to the principal. The $665.68 difference in payments goes toward reducing the loan amount and acts like a forced savings.

A homeowner might opt for the longer term and intend to put the difference in the two payments in a bank savings account each month or make an additional principal contribution to pay the mortgage down. However, as any person responsible for paying household bills knows, there will always be something that comes up that could hijack your intentions.

By committing to the shorter term mortgage, a borrower is committing to make the higher payment each month and the benefit is that it will reduce your principal balance faster.

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 be

It's Your Advantage

Published on Feb 23, 2016

RE/MAX researches 53 major metropolitan markets and analyzes the data to get a pulse on the US housing market. Here are some highlights from this months report. To download the full report visit http://www.remax.com/c/about/newsroom. For more information about your local real estate market and what these trends mean for you, contact a local RE/MAX agent. http://www.remax.com

The Pride of Homeownership 

 

Homeownership has long been a part of the American Dream.  To have a place of their own to call home, raise a family and to share with friends

Among the benefits of homeownership is the financial security and investment aspect. No longer would the homeowner being obligated to a landlord.  They would be slowing paying off their mortgage and eventually retire.

There is a responsibility that comes with homeownership, however.  These responsibilities can be broken down into the 3 M’s of homeownership;

1. Maintenance – this is something every homeowner has to deal with.  Simple routine maintenance can go a long way.  By changing filters, touching up paint, and cleanings will help keep the home livable and maintain value.
2. Minimizing expenses – by having reputable service providers, keeping the temperature set at a reasonable number and understanding when a repair is appropriate instead of a replacement.
3. Managing debt – taking advantage of low interest rates, paying on time, and making a little extra payment each month can save a great deal of money in the long run.  Also, having service contracts and the proper insurance to save a homeowner a good deal of money.

And let’s not forget the memories and good times the home brings to the family.  These can be priceless…

We look forward in assisting you or your family or friends in finding the pride of homeownership here in the resort areas of Bethany Beach and Fenwick Island, Delaware.

Audrey & Frank Serio, CRS

REMAX By The Sea

Bethany Beach DE 19930

Direct: 302.537.3171

Frank@TheSerios.com

A Daily Email List of New Homes for Sale as they Hit the Market in Bethany Beach – Fenwick Island and the Resort’s Surrounding Areas!

Just Click Here…

June marks the start of summer – a time when Delawareans and folks from across the country flock to our state's pristine 5-star beaches of Bethany Beach, Fenwick Island and outdoor spaces surrounding our resorts. As we prepare to enjoy all that summer has to offer, it's important to remember that June also marks the start of the Atlantic hurricane season.

Those of us in the resort have witnessed first-hand how destructive severe tropical weather can be. In 2012, Superstorm Sandy, forced evacuations across the state and inflicted tens of billions of dollars in damage to our neighboring communities along the East Coast. Superstorm Sandy reminded us of the threats associated with living in the lowest-lying coastal state – and why it’s so important that we prepare for hurricane-related hazards.

In Delaware, even communities miles inland from the coast can experience the threat of powerful winds, rainfall and flooding when hurricanes or severe storms hit. Here are some tips to remember during hurricane season:

Prepare. Learn more about the potential hurricane-related hazards in your area from wind, rainfall and flooding. Assess potential flooding risks nearby and learn accessible evacuation routes for your family and community.

Plan. Talk to your family and strategize methods of communication, transportation, and shelter for potential disasters. Maintain a supply kit that includes water, food, flashlights, batteries, and other materials that you and your family will need if you lose electricity.

Stay Informed. Familiarize yourself with the risks that coincide with tropical storm systems and learn terms to help identify hazardous situations; like storm surge, wind-scale or short-term watches and warnings. Stay current on weather reports and sign up for Wireless Emergency Alerts on your mobile device.

I hope that you, your family and your friends stay safe and enjoy the start of summer. For more information on hurricane preparedness, check out www.ready.gov/hurricanes.

Audrey & Frank Serio, CRS

REMAX By The Sea

Bethany Beach DE 19930

Direct: 302.537.3171

Frank@TheSerios.com

A Daily Email List of New Homes for Sale as they Hit the Market in Bethany Beach – Fenwick Island and the Resort’s Surrounding Areas!

Just Click Here…