11 Great Reasons to Carry a Big, Long Mortgage: by Ric Edelman

This information/article is provided by Edelman Financial Services

Reason #1: Your mortgage doesn’t affect your home’s value.

You’re buying your home because you think it will rise in value over time. (Admit it: If you were certain it would fall in value, you wouldn’t buy it — you’d rent instead. In fact, your home’s value will rise and fall many times during the next 30 years — you just won’t get monthly statements showing you how it’s doing.) Yet, the eventual rise (or fall) in value will occur whether you have a mortgage or not. So go ahead and get a mortgage: Your house’s value will be unaffected.

That’s why owning your home outright is like having money buried under a mattress. Since the house will grow (or fall) in value with or without a mortgage, any equity you currently have in the house is, essentially, earning no interest. You wouldn’t stuff ten grand under your mattress, so why stash $400,000 in the walls of the house? Having a long-term mortgage lets your equity grow while your home’s value grows.

Reason #2: A mortgage won’t stop you from building equity in the house.

Everyone wants to build equity. It’s the main financial reason for owning a house. You can use the equity to help pay for college, weddings, and even retirement. Mortgages are bad, many people say, because the bigger the mortgage, the lower your equity.

They’re wrong, and here’s why. Say you buy a house for $300,000, and you get a $250,000 30-year 4% mortgage. Your down payment ($50,000 in this example) is your starting equity, and you want that equity to grow, grow, grow.

Figure 8-3 shows what happens: By making your payments each month, your loan’s balance in 20 years will be just $117,886. This supports the contention that equity grows as you pay off the mortgage and that, therefore, the faster you pay off the mortgage, the faster your equity will grow.

But this thinking fails to acknowledge that this is not the only way you will build equity in your house. That’s because your house is almost certain to grow in value over the next 20 years. If that house rises in value at the rate of 3% per year, it will be worth $541,833 in 20 years! You’ll have nearly a quarter million dollars in new equity even if your principal balance never declines!

A mortgage won't stop you from building equity in the house

Reason #3: A mortgage is cheap money.

Mortgages, in fact, are the cheapest money you will ever be able to borrow. (Oh, sure, you can get a credit card that offers 0% interest for six months, but try to borrow a couple hundred thousand for 30 years that way.)

You get a loan when you demonstrate you have the ability to repay it. But how much interest will you have to pay? The more confident the lender is that it will get its money back, the less interest it will charge you. By offering your house as collateral, you agree to let the bank have your house if you don’t repay the loan. This dramatically reduces the bank’s risk, resulting in a very low interest rate. (By contrast, credit cards have no collateral; Visa can’t take the sweater you bought if you don’t pay the bill. Credit card companies know that a certain portion of their cardholders will default, so they charge 18% to most cardholders. They figure that if a third of the cardholders default, they’ll still end up with a 12% return on their money. Not a bad business.)

Reasons #4 and #5: Your mortgage interest is tax-deductible. And mortgage interest is tax-favorable.

These two points are related, and together they offer you important benefits to carrying a mortgage.

Interest you pay on loans to acquire your residence (up to $1 million) is tax-deductible. The deduction is taken at your top tax bracket. Thus, if you’re in the 35% tax bracket, every dollar you pay in mortgage interest saves you 35 cents in federal income taxes. You save on state income taxes too.

Say you’re in the 33% tax bracket and you get a 5% mortgage. That loan costs you 3.35% after taxes, as shown in Figure 8-4. Meanwhile, say you invest money and earn 5%. Your profits are taxed at only 20%, meaning your after-tax profit is 4.00%. Thus, even if your investments earn no more than what you pay for your loan, you’re still making a profit!

Your mortgage interest is tax-deductible. And mortgage interest is tax-favorable.

Reason #6: Mortgage payments get easier over time.

Carrying a mortgage actually gets to be fun. Yes, fun. My father used to love to talk about his mortgage — all $98 per month of it. You see, he and my mom bought their home in 1959 for the whopping price of $19,500! Yet, my dad used to tell how his father thought he was crazy. How in the world was my father going to be able to handle such a huge mortgage payment, Grandpop Max asked. After all, my father was earning less than $3,000 a year back then. To spend $1,200 a year on mortgage payments … Grandpop Max thought my dad was nuts!

Of course, by the 1970s, Dad was laughing about it. Why? Because his monthly payment in 1974 was identical to what he was paying back in 1959. Yet, Dad’s income had risen steadily. Thus, his mortgage payment had become insignificant when compared to his income — not to mention the fact that his house had grown substantially in value.

You probably remember struggling to make your mortgage payment when it was new. But over time, that payment becomes cheaper relative to your income — especially if yours is a fixed-rate loan: Payments on such loans will never rise but incomes usually do.

Reason #7: Mortgages allow you to sell without selling.

Have you noticed that your home is worth much more than it was 10 years ago?

You might be worried that your home’s value will fall.

If you’re afraid that your home’s value might decline, you should sell the house before that happens. But you don’t want to do that! It’s your home, after all. You have roots in the community. Uproot the kids? And where would you move? No, selling is not a practical idea.

Still, you fret that your home’s equity is at risk. Can you protect it without having to sell? Yes! Simply get a new mortgage, and pull the equity out of the house. It’s the same thing as selling, except that you don’t have to sell!

Here’s how the idea works: Say you bought a house for $200,000 with no money down (meaning you owe the bank $200,000). Further say that prices have skyrocketed, and houses in your neighborhood have been selling for $500,000. You fear that prices will fall, dropping your home’s value to $400,000.

If you sell now for $500,000, (Assuming that you can, and ignoring real estate commissions and other selling expenses, and pretending that you still owe the bank the full amount of the original $200,000 loan.) you’d pocket $300,000. But you don’t want to sell, so just refinance and get a new loan for $500,000. You now have the $300,000 in hand — just as if you had sold the house! Obviously, this is an extreme example simply to prove a point. I’m not necessarily suggesting you actually get a new mortgage that’s two-and-a-half times bigger than your old one – although I might, depending on the situation. And don’t forget the tax limitations regarding the deductibility of the large new loan.

Borrow the money now, because you won’t be able to do so after the house falls in value.

I’m not suggesting that you’d want to owe more on the house than the house is worth. But that’s certainly better than watching the equity evaporate before you have a chance to use it.

Reasons #8 and #9: Mortgages allow you to invest more money and to invest it more quickly. Mortgages allow you to create more wealth than you otherwise would.

As I mentioned in Reason #6, people get big mortgages on their first home simply because they don’t have a choice. You’re excited about buying a house, and even though you don’t have much money, you have a good income — two good incomes, if you’re like many couples. Some years later, with a growing family, higher incomes, and newfound equity in the house, you’re ready to move up to a bigger home.

Let’s say you net $300,000 from the sale of your old house, and you’re ready to buy a new home for $300,000.

Should you use all your cash and make a $300,000 down payment? Or should you place only $60,000 down, which is 20% of the purchase price?

If you make the bigger down payment, your monthly mortgage would be $1,146, assuming a 4% 30-year mortgage.

This explains why so many people prefer to make big down payments when they buy houses. A big down payment translates to a small monthly payment.

But the people who are trying to ask you to choose between big monthly payments and small monthly payments are lying to you. Yep, they’re tricking you by asking you the wrong question.

The correct question is not about the amount of money you want to pay monthly, but the amount you want to invest. Again, it’s all about wealth creation, not debt elimination.

Here’s the question you should be answering:

Would you rather invest:

$240,000 right now, as a one-time-only deposit

or

$1,146 a month, every month, for the next 30 years?

Obviously, you’d prefer the strategy that results in a higher profit. And Figure 8-5 reveals the answer. Regardless of the time period, investing a large amount now produces better results than investing small amounts over long periods.

Thus, while a low mortgage payment lowers your overall expenses, it also lowers your overall wealth.

Investing a large amount now produces better results than investing small amounts over long periods.

But you suspect there’s a flaw here. In order to invest that $240,000, you’d have to be willing to accept the higher monthly payment. Where will you get the money to do that each month?

You’ll find the money from two places. First, increase your paycheck! Remember that the new loan payments are almost entirely tax-deductible interest. That means you don’t need to have as much money withheld from your paycheck. So file a new IRS Form W-4 at work to increase your exemptions; this will reduce the amount of taxes that are withheld from your paycheck, boosting your net pay. Yes — you’ve just given yourself a raise! And you can use this increased paycheck to help you pay for your new mortgage payment.

Second, if your paycheck isn’t enough, simply make periodic withdrawals from the investment account you’ve just created. Soon enough, as your income rises, you won’t need this crutch; your income will become enough to handle the cost, as shown in Reason #6.

In fact, getting a big mortgage and using investment proceeds to help you make the payment is superior to getting a small mortgage and having no proceeds to invest. This is especially true when you discover the most important reason of all to carry a big, long mortgage…

Reason #10: Mortgages give you greater liquidity and flexibility.

To help you understand this, let me introduce you to Nervous Nick and Smart Sam.

They have the same income and expenses, and are in the 25% tax bracket. Each has $100,000 in cash; each wants to buy a $300,000 house.

Smart Sam gets a $240,000 30-year mortgage at 4%. He makes no extra payments. But Nervous Nick takes a different approach. Nick hates mortgages and wants to get rid of his mortgage as quickly as he can. He fears that if he has a mortgage, he might one day lose his house. He doesn’t quite understand how that could actually happen, but his granddaddy told him that mortgages are bad, and Nick believes his granddaddy, so he goes with a small mortgage — as small as possible. That means he uses his entire $100,000 in cash to make a down payment. His mortgage is therefore smaller than Smart Sam’s — $200,000.

Nervous Nick also gets a 15-year loan instead of a 30-year loan, because he hates mortgages and he figures the 15-year loan will let him get rid of his loan in half the time. Nick also knows that this clever ploy garners him a lower interest rate, because lenders charge less for 15-year loans than they charge for 30-year loans. So while Sam is paying 4%, Nick is paying only 3.5%.

Nick, in fact, is so obsessed with getting rid of his mortgage that every month he sends an extra $100 to his lender. He knows that the more he sends in, the faster his loan will be paid off. So, compared to Sam, Nick has a smaller mortgage, a shorter mortgage, a lower interest rate — and he’s adding money to each payment.

Figure 8-6 shows where the two men stand. Smart Sam’s monthly payment is $1,146. Thanks to amortization, almost all of Sam’s payment — 70% of it — is comprised of interest. Thus, on an after-tax basis in the 25% federal income tax bracket Smart Sam’s payment costs him $946 a month.

Meanwhile, Nervous Nick’s payment is $1,530 a month. But only 38% is interest. That’s because Nick’s loan is for 15 years: The shorter the term, the more principal you must pay each month, and principal payments are not tax-deductible (only the interest is deductible). So even though Nervous Nick is paying more per month than Smart Sam, he’s deducting less. Nick’s after-tax cost, therefore, is $1,384.

Figure 8-6 shows where the two men stand.
Thus, Smart Sam is paying $438 less per month than Nervous Nick. But Nick doesn’t mind. He doesn’t mind the extra monthly cost because he knows he’ll get rid of his mortgage quicker.

So for the next five years, Smart Sam makes his monthly mortgage payments. And instead of sending an extra $100 every month to his lender like Nick does, Sam puts that $100 into exchange-traded funds. Then both men lose their jobs. Or perhaps one develops a medical condition, or his wife has a baby and quits work. Whatever the cause, something happens in five years that causes their income to fall or expenses to rise — or both. Figure 8-7 shows Sam’s status.

Figure 8-7 shows Sam's status

Nick’s been busy paying down his mortgage; the outstanding balance is only $149,000. But does that matter? The guy just lost his job, but he still has to make his monthly mortgage payment. So it doesn’t matter that his mortgage balance is $149,000; what matters is that his mortgage payment of $1,530 is due at the end of the month.

This is a real problem for Nick, because with no job, he has no income. He also has no money, because he’s given every available dollar to the bank in the form of extra payments. Nervous Nick’s nightmare is coming true! He’s about to lose his house!

Sam, though, is in much better financial condition. Oh, sure, his mortgage balance is higher than Nick’s but does that matter? Not at all. What matters is that he has to find some way to make his $1,146 payment.

But Sam is not in the same predicament as Nick. That’s because Sam has lots of savings, as shown in Figure 8-7. First, he gave the bank a smaller down payment, enabling him to invest $40,000. Based on an average annual return of 7%, that money grew to $56,102.

Smart Sam also took advantage of the fact that his monthly payment was $438 less than Nick’s; he invested that money too, which is now worth $31,367. And instead of sending $100 a month to his lender like Nick, Sam added $100 to his investments; those investments are worth $7,159. All told, Smart Sam has $94,628. So even though he’s out of work, he’ll be able to make his mortgage payments for another six years!

How ironic that Nick, who wanted to get rid of his mortgage so he wouldn’t lose his house, is about to suffer the fate he was so desperately trying to avoid. This fable shows you why it is so important that you minimize both your down payment and your monthly payment. By doing so, you retain more of your money.

By keeping control over access to your money, you maintain liquidity. But when you give your money to your lender, you lose control of it. After giving money to your lender, the only way to get your money back is to sell the house — and that’s the one thing Nervous Nick does not want to do.

This reveals the fatal flaw in the logic of those who lie to you about mortgages. Sure, owning a home mortgage-free is an appealing concept. But it is completely unrealistic! I mean, sure, paying off your mortgage is great — if that’s the only thing you need to do with your money. But what about paying for college? Saving for retirement? Caring for elderly parents? Or even just paying for car repairs!?!?

Indeed, the fatal flaw of those who tell you to do everything you can to pay off your loan as quickly as you can is that they are completely ignoring everything else that’s happening in your life! If you succeed in paying off the loan, you might fail in paying for college, or covering costs in the event of a job loss, medical problem, marital issue, or other family concern.

That’s why you must stop listening to those who pretend that the only thing that matters is paying off a mortgage. Your life is more complicated than that, and by realizing this, you see that trying to pay off the mortgage like Nervous Nick is actually a risky thing to do. Instead, the smarter and safer approach is to carry a big, long mortgage and don’t bother trying to pay it off!

Reason #11: You’ll never get rid of your monthly payment, no matter how hard you try.

You want to eliminate your mortgage so that you don’t have to make any payments in retirement. That’s too bad, because even if you somehow eliminate your mortgage, you won’t eliminate your payments.

Sure, paying off your mortgage means you no longer make any principal or interest payments. But mortgages are known as PITI, and we’ve only addressed the P and the I. Let’s not forget about the T and the other I — or the M and the R.

I’m talking about taxes and insurance. Even if you manage to pay off the loan, you’ll still have to pay property taxes and homeowner’s insurance. Thus, your goal of “getting rid of the mortgage payment” is impossible! Even if you eliminate the mortgage, you’ll still have tax and insurance payments.

And as long as you own your house, you’ll have Maintenance and Repairs to contend with as well. So don’t bother trying to make your mortgage go away. Instead, create wealth so that you can comfortably afford the cost of living in and owning your home.

The above examples are for illustrative purposes only and do not fully take into account expenses such as property taxes or homeowner’s insurance. The examples used here assume that the rate of return on investments will be greater than the interest rate paid on a home mortgage. As there are risks with virtually any investment, there can be no assurance that you will achieve returns greater than the interest rate on your home mortgage. Changes in federal income tax laws could have adverse consequences for the mortgage interest deduction.

Taking equity out of your home involves risk, particularly in slow or declining markets. This could result in some homeowners owing more money than their home is worth. Even if your home sells for its appraised value, the net proceeds could be much lower than anticipated due to legal fees, realtor fees, and other closing costs. There is also the potential for a reduced tax deduction. Any amount that you borrow over 100% of equity is not tax deductible.

Originally published in The Truth About Money

Client and Partner Testimonials

Cameron spent his Saturday afternoon with us on the phone helping us get pre-approved and starting the loan process with us. This was after our bank proved to not be as organized or efficient in getting us a home loan and we were in a panic. Cameron remained calm and completed the loan process and got us underway. Everything went very smoothly with him. – Katherine Cashwell

To put it simple, Cameron is a true professional. He is very astute to what is going on in his industry which in turn gives him the ability to give superior service to his clients.   –  Brett DePriest

Cameron was friendly, professional and extremely helpful. He really helped make the process of purchasing our first home less intimidating and more enjoyable! – Carly Reese

I have known Cameron for over ten years – he is honest, personable and will work hard for you. I highly recommend Cameron! – Kathryn Overstreet

I have worked with Cameron Lewis in the past and trust his guidance. He takes good care of his clients. – Carol Forney

I’ve worked with many lenders and Cameron is the gold standard! Cameron is very thorough in his work, making the process simple and effective for everyone involved. He is always proactive with communication and very honest. Cameron is also a lot of fun to work with! Highly recommended. – Collin O’Berry

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Working with Cameron at Acopia was such a relief. We had originally applied with another bank, only to endure a frustrating, months-long ordeal of poor service and unclear communication. Cameron was able to quickly pinpoint the areas we needed to address in order to successfully qualify for our home. –  Cherie Montou
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I felt that through the entire process, Cameron was there for us. As first time home buyers there were many aspects of the process that were completely foreign & he took the time to explain what we needed and why. All phone calls were received promptly & all paperwork was dealt with in a likewise fashion, even if it meant dealing with something as late as 6 or 7 o’clock at night. – Brian & Kate S.

I have known Cameron for over 9 years as a friend and business associate. Cameron is exceptional at what he does. Having worked and closed many deals with him, I can always say my clients were very satisfied with him and the service he provides. I can strongly recommend him to anyone looking for home financing. – Derek Weekley

Our refinance was a great experience with Cameron, Acopia. I would highly recommend anyone considering refinancing or purchasing a home to meet with him first. – James Bound

Whenever I refer a client to work with Cameron Lewis, I am always at ease knowing that the job will get done and on time. He is extremely thorough and keeps me in the loop throughout the entire process. Some contracts take up to a year to close due to construction so always knowing the status of the client’s ability to close on the home when the time comes is crucial. If I leave him a message, he returns my call that day. I enjoy working with Cameron and intend to continue doing business with him in the New Year. – Leslie Lang

Cameron Lewis has outstanding phone skills! Having just completed a mail mortgage and never meeting my broker(s) I must say that his professionalism and personality kept me with Acopia. There are many choices and my personal bank in Asheville TD Bank was one. His attention to detail was second to none and it gave me a level of comfort that is hard to find. Thank you Cameron. – Antonio Lepore

In every business conversation I’ve ever had with Cameron, I’ve always felt he was looking out for my best interests. Cameron’s a problem solver who I will never hesitate to call on. – David Bourne

I have known Cameron for over 9 years as a business associate and a true professional in his field. Cameron is extremely knowledgeable about his business and is one of the best I have ever had the pleasure of working with. My clients have been highly pleased with his efforts on their behalf. I highly recommend Cameron to anyone looking for financing. He exemplifies the consummate professional. – Alysia Maher

Cameron made the mortgage application process easy. As a first time home buyer, it was nice having someone explain everything in detail. There was a significant amount of paperwork to go over, financial information to be gathered and just a lot of general questions from us to be answered about the process. Cameron was there every step of the way and we are very satisfied. – Patrick O’Brien

Cameron is an all-around fantastic guy. He is very knowledgeable about the mortgage industry and is always up to date on the ever-changing information about the current market and what mortgages are available for people. He takes the time to get to know each and every client on an individual basis and to help them decide what works best for them. – Anne Aldridge

I would strongly recommend Cameron for any and all Mortgage Services. He is always available, prompt, courteous, great with customers, and willing to assist agents to make his services available to our clients. – Sandy Piercy

Cameron Lewis made this experience understandable, comprehensive and efficient. This is our second experience with him as our mortgage lender and we have confidence in his skills and expertise. It is a pleasure to work with him.  – Michael Summa

Cameron has guided my wife and I through financing our home when we first bought it and then again when we refinanced. There are a lot of options available to a home buyer when they are financing a home and for most people this is a huge investment, if not their largest. Sitting down with a professional like Cameron across the desk from you takes all the mystery and hassle out of the process. Unlike a lot of online services there was no hard sell. All the available programs were explained to us so we could make informed decisions as to which option to choose. – Dave Noyes

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A skilled, responsive, knowledgeable mortgage lender is critical to handling one of the most important parts of the home loan process – especially in these difficult economic times. Cameron Lewis is all that – as well as an all ’round personable guy! I can without reservation recommend him – and know you’ll be in good hands. – Evelyn Zebro

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Cameron was extremely helpful, available and supportive. He made the loan process very personable and interesting, not a simple business transaction. – Raechel Callahan

Cameron commits to a high level of client follow up and attention to detail. He makes the Lender-Client-Realtor connection seamless and easy for my buyer clients and me. I wouldn’t hesitate to recommend Cameron as the best in the home mortgage industry. Thank you, Cameron for your hard work and Professionalism! – Patti Haberstock

Cameron is extremely knowledgeable about the lending process and works great with his clients to lead them through the process with no hassles. He takes a particular interest in his clients which makes it easy for him to find the right loan that fits the client’s needs the best. – Burns Aldridge

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I worked with Cameron in Asheville during my tenure at Southcliff. I found him to be extremely knowledgeable, eager to serve, attentive to concerns and listens to his customers well. Cameron is very easy to work with and is detail oriented. He follows his transactions thoroughly assuring to the best of his ability your closing goes smoothly without a hitch. – Sonny Iler

So very many of my Real Estate clients have worked with Cameron as their loan originator at Beverly-Hanks Mortgage Services. These clients have always been very pleased with Cameron’s manner of letting the client understand the process, of his keeping the client informed, and being on track and on target toward the common goal of their purchasing a home. I highly recommend Cameron Lewis as a mortgage originator and consultant. – Barbara Biedenbach

Cannot say enough good things about Cameron, both personally and professionally. – Sybil Riddle

 

Spring Is Real Estate’s ‘Rush Hour’ — Here’s How to Tell If You’re Prepared

Spring Is Real Estate's 'Rush Hour' -- Here's How to Tell If You're PreparedThe most popular time of year to buy a home is in the spring, and this means that if you’re preparing yourself for getting into the real estate market, you may be experiencing a time crunch. If you’re wondering if you’ll be ready to put your home up for sale in time to take advantage of the season, here are few things you’ll want to think about.

Have You Cleaned Up And De-cluttered?

Spring is not only an optimal time to put your home up for sale, it’s also an ideal time for spring-cleaning! Instead of leaving all of the de-cluttering and clearing away to the time when you know you’ll be moving, get prepared by going through your stuff and discarding anything that you don’t want to move. This will not only make the packing up procedure more streamlined, it will also make the basic cleaning duties like vacuuming a dusting a little easier to carry out.

Are You Prepared To Move?

A home can sit on the market for a few weeks or months, and it can also sell on the first day, so you’ll want to have a game plan for moving beforehand. If you don’t yet have a place to stay, determine a plan for yourself and your family so that you can start looking for a home to invest in or at least rental property. You don’t want to lose out on a good offer by not being prepared, so make sure you know where you’re going before getting into the market.

Do You Know The Market Conditions?

Spring is certainly the most popular time to buy, but if your home isn’t priced right for the conditions of the market, it may linger longer than you’d expect. When you utilize the services of a professional real estate agent, they will have the background knowledge of the local market and be able to help you with pricing your home correctly and with the tough negotiating when offers come in.

With spring being the best time to sell, it’s important to de-clutter your house ahead of time and be aware of the market conditions you’ll be dealing with. Seek the help of a local real estate professional.

3 Things You Must Do after Inheriting a Home

3 Things You Must Do after Inheriting a HomeThere can be a lot of excitement when it comes to the realization that you’ve inherited a home, but simply because it’s an inheritance doesn’t mean there aren’t a few strings attached. Whether you’re expecting to be gifted with a home in the future or you’re currently going through this process, here are a few things you may need to watch out for.

The State Of The Mortgage

Once a home has been effectively handed over to you, it’s important to determine the status of the mortgage with the lender and if anything is still owed. While you have the option of taking over the mortgage in a lot of cases, in the event that there’s a reversible mortgage or you’re choosing to rent it out as a second property, you may not be able to transfer the mortgage. While this can often be a rather seamless process, if money is owed there can be other factors to consider.

Determine If You Want It

If you already have a first home and don’t want to take care of your second property as a rental unit, it’s important to realize that keeping the home may not be the best decision for you. While you have the option of organizing a short sale if you’d like to get it off of your hands, you can also contact a real estate agent who will be able to provide you with advice on how to proceed if you’re unwilling (or unable) to take control of the property.

Is It In Good Condition?

Whether you want to keep the home or not, there can be cases where it’s not even a question if it’s a home that you’re going to end up investing money into without much return. In the situation that a lot of money is owed on the house or there are serious issues with its general condition, you may want to release yourself from the inheritance and move on with your financial situation still intact.

There can be an instant feeling of acquired wealth in the event that you’ve inherited a home, but a home in bad condition or that you don’t want to take care of can end up being more of a headache than anything else.

3 Things You Must Do after Inheriting a Home

3 Things You Must Do after Inheriting a HomeThere can be a lot of excitement when it comes to the realization that you’ve inherited a home, but simply because it’s an inheritance doesn’t mean there aren’t a few strings attached. Whether you’re expecting to be gifted with a home in the future or you’re currently going through this process, here are a few things you may need to watch out for.

The State Of The Mortgage

Once a home has been effectively handed over to you, it’s important to determine the status of the mortgage with the lender and if anything is still owed. While you have the option of taking over the mortgage in a lot of cases, in the event that there’s a reversible mortgage or you’re choosing to rent it out as a second property, you may not be able to transfer the mortgage. While this can often be a rather seamless process, if money is owed there can be other factors to consider.

Determine If You Want It

If you already have a first home and don’t want to take care of your second property as a rental unit, it’s important to realize that keeping the home may not be the best decision for you. While you have the option of organizing a short sale if you’d like to get it off of your hands, you can also contact a real estate agent who will be able to provide you with advice on how to proceed if you’re unwilling (or unable) to take control of the property.

Is It In Good Condition?

Whether you want to keep the home or not, there can be cases where it’s not even a question if it’s a home that you’re going to end up investing money into without much return. In the situation that a lot of money is owed on the house or there are serious issues with its general condition, you may want to release yourself from the inheritance and move on with your financial situation still intact.

There can be an instant feeling of acquired wealth in the event that you’ve inherited a home, but a home in bad condition or that you don’t want to take care of can end up being more of a headache than anything else. If you’re currently considering your options when it comes to a home inheritance, contact your local mortgage professional for more information.

3 Money-Smart Reasons To Downsize Your Home

3 Money-Smart Reasons To Downsize Your HomeLiving big isn’t necessarily living better. Apartment buildings, townhouses and multiplexes have become the new normal for increasing numbers of individuals, couples and families. It’s clear that for many people, smaller spaces are smarter, too.

This attitude is more than just a trend. According to TIME Magazine, multi-family dwellings like condominiums accounted for 40% of new construction in the United States in 2014 and the movement shows few signs of slowing down.

The change isn’t surprising when considering the benefits to moving, especially when it comes to sheer cost-savings. Whether residents are spending less cash or conserving their valuable time and resources, they’re going to see a difference in their bank accounts.

Here are three money-smart reasons to downsize that can lead to big savings.

1. Reduced Maintenance

Maintaining a single-family dwelling can be difficult. Clearing gutters, painting walls, weeding the garden and other unpleasant tasks have serious costs, as residents are forced to invest their valuable time and resources into these recurring chores.

Switching to a smaller space means less maintenance, which can lead to serious savings. Multi-family dwellings typically have a building manager who is responsible for upkeep, leading to serious savings.

2. Heating, Water and More

Utilities are much less costly after downsizing. The less square footage a home has, the less electricity, water and other utilities it will require. Residents have the potential to save hundreds of dollars in costs.

There’s also an added benefit if there are shared utilities divided between other residents of multi-family dwellings. Splitting subscriptions or services like Internet and cable can lead to much lower prices.

Moving to smaller spaces makes these invoices less expensive, which gives residents a bonus every month.

3. Location is Key

Apartment buildings, condominiums and other compact dwellings are often located in central areas close to useful services and businesses. This convenience is a major cost-cutting reason that encourages many people to move.

The Nielsen Company actually found that 62% of millennials would choose to live in communities that combine residential homes and businesses. By being closer to things they value, residents save themselves time, a valued commodity.

Why Moving is a Smart Move

These three money-smart reasons are major factors into why people move into smaller spaces. It’s hard to resist saved time and resources, reduced maintenance, lower utility bills and increased convenience. Learn more about potential savings from your local mortgage professional today.

Understanding How Home Equity Works and Why Buying a Home Can Be Your Best Investment

Understanding How Home Equity Works and Why Buying a Home Can Be Your Best InvestmentWhen delving into the world of real estate and investment property, there are many terms that will come up that require further explanation. Whether you’ve never heard the phrase ‘home equity’ before or you have a little familiarity, here are the ins and out of what it means and how this asset can help your financial outlook.

All About Home Equity

Essentially, home equity refers to your portion of the value of your home, and the amount of this figure is important because it is included among your assets when determining your net worth. If this sounds confusing, think of it this way: if you have completely paid off the cost of your home, the value of your home equity is this total amount. Of course, because most people seek a lender to borrow money from when they purchase a home, their home equity would consist of their down payment and whatever amount they’ve paid down on the mortgage since purchase.

An Example Of Home Equity

To provide further clarification, let’s use the example of a house that has been purchased for $300,000. In the case that a down payment of 20% has been provided at the time of purchase, the equity in the home would be $60,000. Since this amount is the percentage and cost of the house that’s been paid down, this is the amount of the house that is actually owned and this will be figured among an individual’s assets.

How Home Equity Works

As you pay the amount that you owe on your home each month, you are paying off your total debt and thereby increasing your equity. Since this amount of money is considered an asset that belongs to you, it can be used down the road to buy another home or invest in other important things like education or retirement. While paying off the amount owed on a home is a considerable investment, if the value of your home increases, this means that you’ll still owe the same on it but your home equity will have automatically increased.

As an asset that is part of your financial net worth and can be used down the road to fund other investments, home equity is a very useful term to know when it comes to purchasing a home. If you’re on the market for a home and are considering your options, you may want to contact one of our local real estate professionals for more information.