Cut Mortgage Insurance

Making additional payments toward the principal of your mortgage will do three things for the homeowner: save interest, build equity and shorten the term on fixed rate mortgages.

These things should be beneficial enough to justify the extra payments but another huge advantage is available to those who have private mortgage insurance on their loan. Mortgage insurance rates vary but can range from seventy-five to two hundred dollars a month on a $200,000 mortgage.

Lenders are required to automatically terminate mortgage insurance when the principal balance reaches 78% of the original value of the property. It is important for homeowners to monitor their balance because sometimes lenders may inadvertently fail to terminate the coverage.

Mortgage insurance is a necessary but expensive requirement for many people who are limited to a down payment of less than 20%. Eliminating the need for it can save thousands of dollars over time.

The Consumer Financial Protection Bureau, CFPB, issued a compliance bulletin on August 4, 2015.

Lower the Rate & Deduct the Interest

A home can easily be a person’s largest personal asset and it can be a powerful tool to increase financial stability also.

Since most mortgages are amortizing, the loan becomes a forced savings account that reduces the unpaid balance with each payment. The equity could be used to improve a homeowner's financial position involving other loans.

While every homeowner recognizes that they can deduct the interest paid on their mortgage, it is surprising how many don’t know that they can write-off the interest on up to $100,000 of home equity debt assuming there is sufficient equity in the home.

The real advantage to a homeowner is that the money borrowed can be used for any purpose and the interest is still deductible. Homeowners could payoff high-interest rate credit card debt or student loans with a considerably lower rate on a mortgage and deduct the interest on the home-equity debt.

Replacing debt with lower rate loans that have deductible interest can be a strategic decision to financial stability and a debt-free environment. A trusted mortgage professional can help you analyze your individual situation to determine if it would be better to refinance with a cash-out first-mortgage or a dedicated home equity loan.

Things That Kill Your Credit

Some people take their credit for granted and don’t start paying attention to it until they need it. The problem with this is that it could delay if not altogether cause the loan to be denied.

The most common issue is not correcting items on your credit report. A large majority of credit reports have errors but not all of them are critical. Since it takes time to remove them, it is a good practice to review your free credit reports from each Experian, TransUnion and Equifax once a year at www.AnnualCreditReport.com.

Another problem is making late payments. One 30-day late payment could be enough to cause a borrower to pay a higher interest rate or even be denied a loan. Payments have a due date and even when they allow a few days before a late fee kicks in, if it isn’t on-time, it is late.

Maxing out credit cards is another big problem. Ideally, a person wants to have an outstanding balance of no more than 30% of their available credit. As the percentage of available credit decreases, the credit score will go down.

Bad credit can not only keep you from getting the loan you want, it can raise your rates on the insurance you buy. In a study released by the Consumer Federation of America, people with good credit paid less than people with average and poor credit. Their results indicate that some customers with poor credit scores were charged about twice as much as those with excellent scores.

A prudent idea if you are going to be moving to a larger home is to get pre-approved with a trusted mortgage professional before you sell your current home. Occasionally, sellers find out after they’ve sold their home that they can’t qualify for another mortgage.

Checking for Water Leaks

An unexpected, larger-than-normal water bill could lead a person to think that they might have a leak. Before incurring the cost of a plumber, it is fairly easy to run your own test.

Locate your water meter. They’re usually in the front of the house, near the street. In some cases, you might need a meter key to open it; they can be purchased at Lowe’s, Home Depot or other hardware stores.

Step One - Write down the numbers on the meters to get a current reading. Don’t use any water for thirty minutes. If the meter shows water usage during the test period, proceed to step two.

Step Two - Shut off the valves to all of the toilets. If you have a pool with an automatic filler, it has a similar device. Repeat the test again for the same thirty minute period. If the numbers haven’t changed this time, it indicates that the toilets probably need servicing.

If the numbers have changed during step two, it is an indication there may be a leak and it will need to be tracked down. This could be the time to call a plumber or plumbing leak specialist. Your water department may have a consumer help line that can offer suggestions also.

More Home for a Lower Cost of Housing

What if you could live in a larger and possibly newer home for less than you are currently? Would you consider moving? Do you want to hear more?

Interest rates, while they’re expected to go up, actually took a small dip and are still hovering at the 4% or below mark for a 30 year mortgage and almost one percent less for a 15 year term.

Let’s assume that you have a $225,000 mortgage currently at 6% which has a principal and interest payment of $1,348.99. With a 4% rate, you could have a $282,561 mortgage with the same payment. A $57,000 more expensive home could help you get what you need most such as more square footage or a different location or a newer home.

If you’re going to be making that payment for years to come, why not allow lower interest rates to help you get the features you want without having to necessarily pay a higher payment. Taking that logic a little bit further, let’s see how utilities can make a difference too.

A newer home could easily have lower monthly utility costs than your current home due to being more energy efficient. Construction materials, windows, doors, insulation, modern HVAC systems and energy efficient appliances all contribute to lower utility costs. A new home with these advantages could easily save a homeowner up to 25-50% on utilities for the same size home.

The concept is simple: get the most home you can for the amount you spend on the payment and utilities. It will take some investigation and your real estate professional can help.

Get Ready for College

One of the important things as a parent is to plan for their children’s education. Let’s look at two different approaches: a savings account or investing in rental real estate.

Assuming your child is five years old and you start putting $250 a month in a savings account earning 2%, in 13 years you’d have $44,497.41 to pay for their college. Anticipating that isn’t going to be enough, you’d have to save $500 a month to end up with $88,995.

Another way would be to make a lump sum contribution of $20,000 today in a mutual fund earning 5% that would be worth $37,713 in 13 years. You’d have to make a $47,196 initial contribution to end up with the same $88,995.

An alternative to savings would be to invest in a $100,000 home in a good area. Assuming a three percent appreciation and rent of $1,000 a month, an initial investment of $23,500 could have a future wealth position of $83,838 at the end of 13 years.

Obviously, this is just an example of why rental homes are the IDEAL investment providing Income, Depreciation, Equity build-up, Appreciation and Leverage. While rentals certainly have more risk and management than a savings account, they do provide an opportunity for a higher rate of return.

If you’re concerned about paying for college tuition in the future, it is certainly worth investigating the possibility of investing in rental homes today.

Wait a Year...It Won't Matter?

There is a frequently quoted expression “more money has been lost from indecision than was ever lost from making a bad decision.” Regardless of the extent of its accuracy, most people can recall when procrastination has cost them money.

There are markets so short of inventory that buyers have become frustrated after losing bids for several homes and have decided to wait until more homes come on the market. In the meantime, the shortage of homes is driving the prices up more by the month.

There are buyers who can’t find what they want for the price they want to pay and think that waiting will somehow change things. In some cases, what they want just keeps moving farther and farther away from them.

The other dynamic in play is, of course, the mortgage rates. While they’ve remained low for several years, most experts agree that they’re going to rise; it’s just a matter of when. If you look at what positive increases in both of these would do, it becomes apparent that waiting will matter.

A $250,000 home purchased today on a FHA loan at 4% for 30 years will have a principal and interest payment of $1,151.76. If a buyer were to wait a year and the price increased 5% and the rate went up by 1%, the payment would increase by over $200 a month. In a seven year period, the increased payment alone would cost the buyer over $17,000.

Use the Cost of Waiting to Buy calculator to see how much it will matter based on the home you want to buy and what you think the prices and rates will do in the next year.