With fixed rate mortgages as low as they are, most purchasers or owners wanting to refinance might not even consider an adjustable rate loan. The determining factor should be how long the person plans to be in the home and which mortgage will provide the cheapest cost of housing.
For instance, if you compare a $300,000, 30 year term mortgage with a 4.125% rate on the fixed and a 3.25% on the 5/1 adjustable, the breakeven point would be almost seven years assuming the rates adjusted the maximum that they could in each year.
Therefore, if a person is going to stay in the house less than 7 years, the ARM would provide the cheapest cost of housing. This example shows that at the end of five years, the ARM would generate almost $13,000 savings over the fixed-rate.
On the other hand, this could be a good time for homeowners with an existing adjustable rate mortgage to consider refinancing into a fixed-rate mortgage. The longer that they intend to stay in their home, the more advantageous it might be for them to convert their mortgage to lock-in their payment and fix their housing costs.
A trusted mortgage professional can analyze the alternatives to provide you with the information necessary to make a good decision. You can try the Adjustable Rate Comparison with your own numbers to see the effect.
A homeowner’s tax saving benefit is generally realized when they file their federal income tax return after the money has been spent for the interest and property taxes. Some people look forward to the refund as a means of forced savings but some people need to realize the savings during the year.
It is possible to adjust the deductions being withheld from the homeowner’s salary so they realize the benefit of the savings prior to filing their tax returns in the form of more money in their pay checks. Employees would talk to their employers about increasing their deductions stated on their W-4 form.
By increasing the exemptions or deductions, less is taken out of the check and the employee will receive more in each pay check. If a person over-estimates their exemptions and therefore, underpays their income tax, they might incur interest and would have additional tax to pay when they filed their tax return.
Buyers considering this strategy should seek tax advice and discuss it with their human relations department at work. Additional information is available on the Internal Revenue Service website about Completing Form w-4 and Worksheets.
A list of talking points can be very valuable to guide the conversation with an agent that will lead to a decision to have him or her represent you in the sale of your home. If you haven’t been through the process before or it has been a while, the answers to these questions can reveal things about the experience and where-with-all of your candidate.
Even if you only intend to interview one agent and maybe they are a trusted friend, it is appropriate to understand how different issues will be handled. Professionals should not feel challenged to discuss these important concerns.
1. Tell me about your experience and training.
2. Do you work real estate full-time?
3. Are you a REALTOR® and a member of MLS?
4. What is the average price of the homes you have sold and how many did you sell last year?
5. Which neighborhoods do you primarily work?
6. How many homes have you sold in my neighborhood?
7. What is your list price to sales price ratio?
8. How many buyers and sellers are you currently working with?
9. Tell me about the positives and negatives of my home?
10. Describe your marketing plan for my home and if you will use outside professionals.
11. Specifically address Internet exposure, open houses and showings.
12. Describe how you’ll keep me informed all along the way.
13. Will I work directly with you or with team members?
14. Can you provide me with three recent references?
You might have noticed that price was not in the list of talking points. The seller sets the price but the market and the buyer determine the value. The agent can advise you about the proper range that will insure activity and ultimately affect your final proceeds. The advice should be based on facts that are available to all agents as well as the prospective buyers and the appraisers.
The decision to list a home with a particular agent and company should never be based on the listing price suggested by the prospective agent.
Is the stock market keeping you up at night? Are you consuming more antacids than ever before? Are the ups and downs causing more stress than you want or need? There is a simple alternative in rental real estate.
Single family homes for rental purposes offer an excellent rate of return in an investment that most people understand better than other investments. The concept is simple: stay with predominantly owner-occupied homes in a slightly below average price range. In most areas, tenants are easy to find and they’ll usually stay two to three years or more.
For the person who doesn’t want to be bothered with calls from tenants, professional management is available and commonly won’t dramatically affect the rate of return. Managers can achieve economies of scale that individuals can’t due to managing multiple properties and having good connections with the best workmen.
Unlike most commercial property, single family homes are much more liquid because of the higher demand for residential property. Single family homes offer the investor the opportunity to borrow high loan-to-value mortgages at fixed interest rates, for long periods of time on appreciating assets with tax advantages while providing the investor a higher than normal level of control.
Spend an hour investigating the benefits and you might sleep better at night, eat less antacids and find yourself more mellow than you’ve been in years.
If you invest in a savings account, you’ll make less than 1% and would have to pay income tax on the earnings. On the other hand, contribute something extra to your house payment and you’ll earn at the mortgage interest rate which is certain to be more than you are earning in the bank.
Making additional principal contributions on your mortgage will save interest, build equity and shorten the term. An extra $100 a month in the example shown will save thousands in interest and shorten the term of the mortgage as well.
Reducing your cost of housing is another way to improve the investment in your home. Becoming debt free is a worthy goal that is achieved with discipline and good decisions. Suggestions like this are part of my commitment to help people be better homeowners when they buy, sell and all the years in between.
Check out what would happen if you were to make additional payments on your mortgage.
Homeowners can raise the basis or cost in their home by money spent on capital improvements. The benefit is that it will lower their gain and may save them taxes when they sell their home.
Improvements must add value to your home, prolong its useful life or adapt it to new uses. Repairs are routine in nature to maintain the value and keep the property in an ordinary, operating condition.
Additions of decks, pools, fences and landscaping add value to a home as well as new floor covering, counter-tops and other updates. Replacing a roof, appliances or heating and cooling systems would be considered to extend the useful life of the home. Completing an unfinished basement or converting a garage to living space are common examples of adapting a portion of the home to a new use.
Other items that can raise the basis in your home are special assessments for local improvements like sidewalks or curbs and money spent to restore damage from casualty losses not covered by insurance.
Here’s a simple idea that could save you money years from now.
Every time you spend money on your home other than the house payment and the utilities, put the receipt or canceled check in an envelope labeled “Home Improvements.” Regardless of whether you know if the money would be classified as maintenance or improvements, the receipt or cancelled check goes in the envelope.
Years from now, when you’ve sold your home and you need to report the gain on the property, you or your accountant can go through the envelope and determine which of the expenditures will be adjustments to your basis.
Some people disregard this idea because of the generous exclusion allowed on principal residences. At the unknown point in the future when you sell your home, circumstances may have changed and the proof of these expenditures will be valuable. The tax laws could lower the exclusion amount or eliminate it altogether. Your marital status may change because of death or divorce. The market value of your home may skyrocket.
Since the future is unknown, it is better to keep track of the improvements as they are made and how much is spent on them. Download an Improvement Register and examples or read more in Publication 523 on Increases to Basis.
Sometimes, there are costs associated with not taking a particular action. If a person left their money in a certificate of deposit earning 2% when they could have made an investment that earned 8%, the difference is the opportunity costs associated to not taking action.
If a couple has a down payment and good credit, locking in a low interest rate mortgage for 30 years could easily provide their lowest cost of housing. If that couple waits three years to purchase a home, the price would probably be higher as would the mortgage rate.
However, assuming the price and interest rate remained constant, look at what the opportunity costs might be compared to doing nothing.
If their money was invested in a certificate of deposit at 2.00%, in two years their $8,750 would have grown to $9,104. They would have earned $354 and had to pay ordinary income tax on the interest.
If their money was invested in the stock market that had increased 7%, in two years they would have a profit of $1,268 which would be subject to long-term capital gains tax.
On the other hand, it the same investment was used to buy a home that increased in value at 3% annually, the equity would be $31,938 or an increase of $23,188. Tax would not be triggered until the home is sold and may not be due then based on their homeowner’s principal residence exclusion.
The home goes up in value due to appreciation and the unpaid balance goes down because of amortization. The dramatic difference in growth in the equity of the home is effected by leverage: the use of borrowed funds controlling the asset.
A home is a place of your own where you can feel safe and secure, to enjoy with your family and friends and in many instances, a very good investment. It is difficult to measure the opportunity costs of intangibles but not necessarily money.
Make your own projections with Your Best Investment.
An agent was presenting a contract to a single, senior woman who was moving into a retirement home. It was a full price offer with reasonable terms and timelines but the seller wouldn’t accept it. When the agent probed deeper, she discovered that the seller was concerned with her dining room table.
It had been the first piece of nice furniture that she and her husband had purchased and they had literally spent a lifetime celebrating and making decisions at that table. It troubled the owner to think that the table would go to strangers who might not appreciate it as much as her family had.
The agent told the elderly seller that she knew of a church nearby that had a community room filled with lovely tables like hers. If she liked the idea, the agent would call the church to see if they’d like to have it. Once a new home for the table was found, the sale of the home went smoothly.
Lower inventory and increased demand in certain price ranges have increased the frequency of multiple offers on the same home. Sellers are frequently faced with a decision dilemma on which offer to accept and the price may not be the most important factor.
Sellers generally need the equity from the sale of their home to purchase another one but they also don’t want to have to temporarily move if they’re not able to get into the home they’re purchasing. Flexible buyers have discovered the value in coordinating the sale and possession of the homes.
Sellers want to know when they make a decision on an offer, that the buyers will be able to perform as the contract is written. The more contingencies that can be eliminated or minimized, the more comfortable a seller will feel about the certainty that it will close according to schedule.
The buyer should be pre-approved with all verifications and credit reports having been done. Simply having a loan officer’s opinion is definitely not the same thing as a pre-approval.
There is a unique dynamic to every transaction because the parties are individuals with infinite priorities and values. The art of the deal takes place when these unique variables are considered to define a mutually acceptable offer involving price, terms and conditions.
The role and experience of the agents contribute to the successful outcome.
September is REALTOR® Safety month when special attention is focused on the security of having a home on the market and the concerns for the well-being of owners is a day-to-day effort. The following list may help sellers secure their home and minimize risk.
- Locks – doors and windows should be locked at all times. Additional locks like deadbolts or safety locks can provide a higher level of security.
- Home lighting - turn on the lights prior to purchasers arriving to improve the showing. Not only will they be able to see things better, it could prevent them hurting themselves unnecessarily. Outdoor motion-sensor lights provide additional security.
- Eliminate the possible hazards – try to identify anything that might cause a person to trip and fall such as loose objects on the floor or floor coverings that aren’t properly secured.
- Security system – If you have a security system, it should be monitored and armed, especially when you’re away from home. Most systems will allow you to program a temporary code that agents will be able to use based on your instructions.
- Prescription medications – remove or secure the drugs before showing the home.
- Secure valuables – jewelry, artwork, gaming systems; mail containing personal information like bank and credit card statements, investment reports; wine and liquor can also be a security issue.
- Remove family photos –pictures can be distracting to prospective purchasers but the concern at hand is to eliminate photos of a wife, teenage daughter or children that might provide information to a possible pedophile or stalker who could be posing as a buyer.
- Remove weapons – the reason to remove guns should be obvious to everyone but a knife block on the kitchen counter can become an opportunity of convenience.
- Unexpected callers - when some people see a for sale sign in the yard, they think that it’s an invitation to look at the home immediately. Keep your doors locked so that people can’t let themselves in. If they ring the doorbell and want to see the home but aren’t accompanied by an agent, ask them to call your listing agent.
These precautions should be taken before the photos or virtual tours are made. Having these items in plain sight in the pictures posted on the Internet can unwillingly provide prospective criminals with a menu of what is available.
Agents cannot protect a seller’s valuables other than to inform the owner of potential threats to their security. In most cases, the seller’s agent will not be present at home showings and even if they were, it is not always practical nor desirable to follow the buyers and their agent through the home.
A common expectation of homeowners is to want the components and systems in their home to work when they need them. Periodic maintenance is just as important as having a trusted service provider to make necessary repairs.
Victims of Murphy’s Law can attest that their air conditioner goes out on the hottest day of the year or the water heater fails when you have out of town visitors.
If the convenience of having things work doesn’t justify maintaining your home’s systems, consider that it can be less expensive than the results of neglect causing repairs or replacement.
- Replace burned-out, dim or missing bulbs in light fixtures and lamps. Consider switching to LED bulbs.
- Dryer exhaust vents build up lint even though you may be cleaning the filter regularly.
- Fire extinguishers need to be recharged or replaced after expiration date.
- Establish a recurring appointment on your calendar to change filters in your HVAC.
- Replace missing or damaged caulk around sinks, bathtubs, showers, windows and other areas.
- Clean gutters.
- Schedule an inspection with a pest control a minimum of once a year unless you have a service contract.
- Schedule a chimney cleaning prior to using the fireplace for the first time in the season.
- Keep all tree branches and shrubs trimmed away from the home.
- Pressure wash exterior, deck, patio, sidewalks and driveway.
- Keep levels of insulation in the attic above your ceiling joists.
- Check appliances with water lines for leaks or worn hoses.
• ice maker • washing machine • dishwasher • others
- Test all GFI breakers and reset.
- Inspect all electrical outlets for broken receptacles, fire hazards or loose fitting plugs.
- Have furnace and air conditioner serviced annually.
- Test smoke and carbon monoxide detectors and change batteries.
The early fall is a great time to take care of these items before the weather becomes harsh.