Should You Pay Off Your Mortgage?
Question: We are in the fortunate position to be able to consider paying off our home loan early. What are advisors saying about doing this in todays economy? Answer: With many homeowners bank accounts swollen with stock dividends and larger paychecks, financial advisors say that nows a good time to re-evaluate personal finances and, especially, mortgages. It might be worthwhile, in some cases, to pay a home loan off early. Rather than approach a mortgage broker, homeowners should consult with a personal financial planner or accountant–as theyre more familiar with the ins and outs of such a decision. Those professionals can tell homeowners if they would fair better paying off their mortgage or investing their money elsewhere, and theyll also know how taxes figure into the equation. But professional opinion varies widely. Basically, if the interest rate youre paying is greater than the amount of return youre getting on your [investment] money, obviously the smart thing to do is to pay off that mortgage, advises CPA William M. Walczak. But, he adds, those homeowners who have debt in addition to the mortgage should pay off the other debt before the home loan. Still other financial experts say that homeowners shouldnt pay off mortgages because of the tax deductions the loans can offer. Jim Kopp, president of the Wisconsin Mortgage Bankers Association, says ultimately that the decision should be based on the homeowners lifestyle and financial comfort level.Question: We have never financed a home before. How do we know that the lender we choose is reputable? Answer: Homebuyers applying for a loan from a lender can easily become the victim of mortgage fraud, and sometimes they can unknowingly become involved in the fraud crime itself.Fraudulent lenders often work in cities and target first-time homebuyers who may not be familiar with the process of applying for a loan. But homebuyers should make sure they choose their lender as carefully as they choose the home they are buying. Choosing a lender based on a recommendation is not enough. Buyers should get referrals from many people and should ask them if their experience with the lender was positive. This will help the buyer get to know the lender.There are other rules to follow when working with a lender. Sometimes lenders will ask buyers to sign a blank application form, allowing the lender to fill in false information in order to make the loan larger. Buyers who do this are committing fraud, and they should fill out the application completely and make a copy of it. Buyers also shouldnt believe everything a lender tells them. If the lender is making large promises or is asking about anything besides necessary documentation or credit history, they are probably asking too much.Finally, if buyers are unsure about the offers a lender is making, they can always contact a state regulatory agency to make sure the lender is acting legally. Question: We have our home on the market and want to make sure that we have a firm contract once we have negotiated with the buyer. What do we need to watch for? Answer: Homesellers may think that they have a legitimate buyer on their hands but unless they know what signs to look for, they may be deceived. To be sure of a buyers intent, sellers should make sure theres no language in the contract that allows the bidder to back out of the deal, other than that language which allows the buyer his or her period of due diligence. Terms such as suitable and acceptable should raise red flags to sellers that the buyer may pull out of an agreement if everything isnt just so. Other phrases to watch out for are subject to suitable financing”. This kind of wording gives the buyer the freedom to cancel the contract on a technicality, and without paying a penalty. To avoid this, sellers should insist on a rate and point cap on financing requirements. Although the inspection is a necessary part of the purchase, sellers should put a time limit on when it is to be completed, and they should set a monetary limit as to how much they agree to spend to correct problems found during the process. In addition, sellers will know if a buyer is serious based on the size of the deposit check. Although this good faith deposit varies, it usually falls between 2 percent and 10 percent of the asking price. Finally, sellers should put a limit on the amount of time a buyer has to close. Statistics show that the longer it takes to close, the more likely the chance that the buyer will back out of the deal. A fair amount of time to give buyers, professionals say, is about 40 days.Question: Allison , what is the best way to protect ourselves from buying a property that has defects that we might not be aware of? Answer: One of the most important steps homebuyers can take to protect themselves from a bad real estate purchase is to contract for a professional home inspection, even for new construction. Most often, inspections take place five to eight days after the contract is signed, as long as there is an inspection clause in the document. Inspectors will examine the physical structure of the property as well as such specifics as the foundation, attic, basement, windows, doors, HVAC system, wiring, and plumbing. Buyers can obtain the names of qualified inspectors from family or friends, or they can contact the American Society of Home Inspectors for referrals. Not all states require licensure of inspectors, so obtaining inspector names from the ASHI will at least provide reassurance that the inspector has some sort of professional training. In addition to giving the buyers the peace of mind that they are making a sound purchase, Doug Richards–president of the Council of Residential Specialists–notes that inspectors can also show homeowners how to best operate and maintain the systems of a home.Question: We have owned our home here for 5 years and couldnt be happier, given the appreciation that we have seen. What do we need to know to get the most benefit from this appreciation? Answer: As residential properties in many areas continue to enjoy significant appreciation levels, homeowners may want to consider how they can benefit from the upward trend. For buyers who made a down payment of less than 20 percent, appreciation levels may enable them to eliminate private mortgage insurance. On average, PMI premiums run between $50 and $100 a month–which incurs additional costs of $5,000 to $10,000 over the life of the loan. To get the lender to drop PMI, homeowners must show proof that they have achieved 20-percent equity. Lenders have different requirements for canceling, so it is a good idea to check with the lender before paying have the value of the home assessed. Usually, the opinion of a professional appraiser is required, and such a valuation can cost between $300 and $400. To take advantage of high home-appreciation levels, homeowners should also consider dropping their escrow account. The interest these accounts accrue is usually smaller than the rates consumers could find if they saved the money themselves. After the escrow account is canceled, savvy homeowners will set up an interest-bearing account that automatically withdraws funds for property taxes and homeowners insurance. Until those bills are due, however, the money could be earning interest. Over the course of a 30-year mortgage, the homeowners stand to amass thousands of dollars in extra savings.Call JOYCE NENNINGER at (970) 468-6800 or (800) 262-8442 for answers to your real estate questions. Or e-mail Joyce@SummitRealEstate.com or you can visit her website at http://www.SummitRealEstate.com. She has lived in Summit County for more than 20 years. Joyce is the broker/ owner of Summit Real Estate The Nenninger Team at the Dillon Ridge Marketplace. Her longtime residency and years of real estate experience can help you make the most of any buying or selling situation. She is a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field. She ranks in the top 4 percent of Realtors nationally.
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