Lower Your Interest Rate

The Mortgage Interest Deduction is available to homeowners for up to $1,000,000 of acquisition debt on the combination of their first and second home.  They can also deduct interest on up to an additional $100,000 of Home Equity debt.
While Acquisition Debt is used to buy, build or improve a principal residence, the Home Equity Debt can be used for any purpose.  It can be used for educational or medical expenses, to purchase a personal car or boat, consolidate debts or pay off credit cards.
A homeowner with $15,000 of credit card debt at 19% and sufficient equity in their home could replace it with a home equity loan at much lower interest rate. Not only would the interest rate on the home equity loan be about 1/3 of the rate paid on the credit card, it’s would now be tax deductible.
If the taxpayer was in the 28% bracket, the net interest on a 6.5% loan would be 4.68% after tax benefits are considered.
Shifting personal debt to Home Equity debt can result in an interest deduction and probably, a lower interest rate. For more information see IRS Publication 936 page 10 and consult your tax professional.

FDR's New Deal

A 30 year fixed-rate mortgage hasn't always been the standard. As part of FDR's New Deal in 1934, the Federal Housing Administration was created to help Americans purchase homes with affordable terms.
Prior to then, many loans had an amount due at the end of the term called a balloon. Most mortgages had adjustable interest rates even though some might be fixed for a short time. While banks would loan money on a home, they retained the right to call the note due at any time which could exert considerable stress on borrowers.
FHA, during this time, introduced mortgages that offered a fixed rate of interest to the borrower for a 30 year term. This fully amortized loan provided borrowers a financial vehicle that would help them achieve the American Dream while minimizing the risk of having a loan called without the resources to pay it off. It brought long-term stability to the housing market and helped stimulate the economic recovery at a very difficult time in our nation's history.
Roughly, a third of the mortgages created in 2011 were less than 30 year terms. Many homeowners, similar to those after the Great Depression, would like to get their home paid for as soon as possible. Shorter term mortgages typically have a lower interest rate but higher payments due to fewer years to amortize the mortgage.

Flood Insurance on Your Home

A number of things can cause water damage to a home and it's important to know whether they're covered by your insurance policy. Some water damage may be covered and other may not be. Generally, you need an incident to invoke coverage rather than something gradual due to lack of maintenance.
However, some incidents are specifically exempt from homeowner policies such as floods. A flood can be described as rising water due to overflow of inland or tidal waters or unusual and rapid accumulation or runoff of surface water from any source.
Homes in designated high-risk flood areas with mortgages from federally regulated or insured lenders are required to have flood insurance.
Even if you don't live in a dedicated flood zone, you could be affected by flood damage. Review your policy about water damage and call your insurance agent to get a better understanding. Ask if you need to purchase additional coverage or separate flood insurance along with other questions.
Flood insurance can be purchased for the building and the contents. The average flood insurance policy costs about $600 per year. For more information, see the National Flood Insurance Program.

The Value of Your Home

Knowing the current value of your home is important when you're considering a move, refinancing or getting a home equity loan. Prices are determined by recent sales and the supply and demand of current inventory.
The process of selecting comparable properties involves matching similar features like bedrooms, baths, square footage and updates. In addition to price, there are other factors that affect the value and ultimately, the sale of a home.
Location plays a significant role because by the unique combination of improvements and land. Beneficial considerations would be convenience to schools, shopping, transportation and proximity to freeways. Undesirable concerns could include being in the vicinity of busy streets, high-tension lines, commercial property and other things.
To receive a computerized estimate on the value of your home that includes prices of comparable homes that have sold recently and homes currently for sale, click here.
Value is not totally objective and does require a certain amount of subjective considerations. If you have questions after you receive your report by email, contact us and we'll be happy to talk to you about your concerns.

Insurance: Why Should We Have It

The purpose of insurance is to shift the risk of loss to a company in exchange for a premium. Most policies have a deductible which is an amount the insured pays out of pocket before the insurance starts covering the cost of the loss.
In the process of managing insurance premiums, policy holders often consider adjusting their deductibles. Lower deductibles mean less money out of pocket if a loss occurs but obviously, results in higher premiums. Higher deductibles result in lower premiums but require that the insured bear a larger amount of the first part of the loss.
A small fire in a $300,000 home that resulted in $2,500 of damage might not be covered because it is less than the 1% deductible. If the homeowner can afford to handle the cost of repairs in exchange for cheaper premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible could be considered.
It is a good idea to review your deductible with your property insurance agent so that you're familiar with the amount and make any changes that would be appropriate.

Refinancing

Some people believe they shouldn't refinance more often than once every two years. The determining factors are if you'll lower your payments and plan to stay in the home long enough to recapture the cost of refinancing. If so, you should consider refinancing.
Interest rates have actually come down significantly in the past 12 months and even more in the past 24 months. According to the Freddie Mac Primary Mortgage Market Survey®, rates on a 30 year fixed rate mortgage are down to 3.6% in August, 2012 compared to 4.27% one year earlier.
Refinancing in the example below would save the homeowner $67.04 per month and they would recapture the cost of refinancing in 3 years and 9 months based on approximately $3,000 of closing costs.
Click Here to make your own projection on a Refinance Analysis calculator.

Benefits Of Having a 2nd Home

While a principal residence and a second home have some similar benefits, they have some major differences. A principal residence is the primary home where you live and a second home is used for personal enjoyment while limiting possible rental activity to a maximum of 14 days per year.
The Mortgage Interest Deduction allows a taxpayer to deduct the qualified interest and property taxes on a principal residence and a second home. The interest is limited to a maximum of $1,000,000 combined acquisition debt and a combined $100,000 home equity debt for both the first and second homes.
The gain on a principal residence has a significant exclusion for taxpayers meeting the requirements. The gains on second homes must be recognized when sold. Even if you sell a smaller second home and invest all of the proceeds into a larger second home, you'll need to pay tax on the gain.
Tax-deferred exchanges are not allowed for properties having personal use including second homes.
If the home is owned for more than 12 months, the gain is taxed at the long-term capital gains rate. If the home is owned for less than 12 months, the gain is taxed as ordinary income which would be a considerably higher rate.
The article is intended for informational purposes. Advice from a tax professional for your specific situation should be obtained prior to making a decision that can have tax implications.

Single-Family Homes

Single-family homes used for rental property have distinct advantages over other types of investments.
An investor can borrow 75-80% at fixed interest rates on appreciating assets with definite tax advantages and reasonable control. The financing alone is attractive compared to some investments that require 50% cash and have floating rates at prime plus for one or two years.
Home prices have adjusted 30-40% around the country, mortgage rates are incredibly low and rents have risen in the past two years due to more demand and shorter supply. Indicators like these point to a strong and sustained rental market.
Consider you bought a $125,000 home for cash that would rent for $1,250 per month. With $15,000 income and allowing for property taxes, insurance and maintenance, it is still reasonable to expect $10,000 net income. You'd have an 8% return on investment without considering tax savings or future appreciation compared with 5-year CDs paying less than 1.5% and a 10-year Treasury yield at 1.65%.
The reasonable control has a lot of appeal to many investors who find the volatility of the stock market unacceptable and don't want the risk associated with some of the alternative investments. Please contact us if you'd like to know more about available opportunities.

Buy Now! or Wait?

Uncertainty as to whether prices will continue to fall has to be one of the most common causes of buyer procrastination.  Of course paying too much wouldn't be a smart thing, but price isn't the only factor to consider.  Interest rates have as much effect on housing costs as price.

A small increase in mortgage interest rates can offset a significant drop in home prices.  If the price of the home were to come down by 5% but the interest rates were to go up by .5%, the payments might be close to the same.

For example, if the price of a $175,000 home went down 5% but the interest rate went from 4.75% to 5.25%, the payments would actually be $4.98 more at the cheaper price.  If while the buyer was waiting for the home to decrease 5% and the interest rate increased by 1%, the payments would actually go up by $55.30.

Then, of course, there is always the possiblility that the price of the home doesn't go down but the rate does go up by 1%.  The payments would be $104.58 more per month, each and every month for as long as you have the mortgage on the home.

Our local and knowledgable real estate agents at Triplett can provide solid information that will help you make better buying decisions.  A home is a place to feel safe and secure, to raise your family, share with your friends and an investment.  It's an investment in your marriage, your family and your future.  You owe it to yourself to check out the real numbers in your market.