Should You Pay Off Your Mortgage Early? Not Always

By Daniel Duffield

Potential Benefits of Paying Off a Mortgage Slowly

 With so many borrowers negatively affected by the burst of the U.S. housing bubble, numerous homeowners are striving to pay off their mortgages as quickly as possible, made somewhat easier by the low mortgage rates currently available. While early mortgage repayment can reduce the overall interest cost of the loan, it is not always the most prudent financial option. This blog post will outline several situations in which it can be equally if not more beneficial to pay off a mortgage slowly, rather than going out of the way to pay it off sooner than the amortized term:

• Mortgage as an Investment

 When purchasing a home, borrowers not only are securing a place of residence but making a real estate investment. As most people are painfully aware, home prices are subject to radical changes depending on the housing market, and appreciation and depreciation are prime factors to consider when purchasing a home. However, in some cases, paying into a mortgage may not be the most prudent investment in the short term; in other words, borrowers could potentially earn a greater return from an alternative investment, such as purchasing stocks or bonds. While these purchases can be as risky if not more so than home purchases, borrowers may find that long-term investments may be more financially beneficial than the quick repayment of a mortgage, especially for homes not expected to appreciate in value.

• High interest debt

 Another prime reason to pay off a mortgage within a normal amortization schedule is to apply these funds to other debts that include higher interest rates. For instance, borrowers with a high amount of credit card debt that carries a burdensome, high interest rate should focus on paying off this revolving debt as soon as possible, rather than investing in home equity. This does not require an excessive explanation; mathematically, borrowers will save more money by paying off high interest debt first, leaving more money to apply toward the home mortgage later.

• Retirement planning and savings

 While paying off a home quickly may be rewarding for the sense of satisfaction in owning the residence, it is advisable that borrowers pay off their mortgage during the standard lifetime in order to apply any additional savings toward retirement planning, such a 401k or other form of retirement investing. Since 401k deductions and the income accumulated through a 401k do not get factored into taxes, borrowers can benefit more from long-term financial planning rather than investing in home equity, especially at such a volatile point in the U.S. housing market.

• Prepayment penalties

 Prepayment penalties are fees that lenders impose on mortgages that are paid off sooner than the standard amortization schedule. If the borrower sells the property or refinances, these penalties will take effect and equate to roughly the amount of interest that the borrower will otherwise would have paid if the mortgage was paid off in the normal timeframe. Borrowers should always attempt to secure mortgage loans that do not include these costly fees, and homeowners with prepayment penalties stand to gain little and less from paying off their mortgages ahead of schedule.

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 If you would like to secure a home purchase mortgage, visit the Lender411 Get a Quote page to conveniently receive interest rate quotes from nearby lenders in your area. Start comparing rates today and take the first step toward a smart mortgage.

NAHB Survey: Home Size Preference Affected by Age

By Daniel Duffield

Data from a recent survey conducted by the National Association of Home Builders (NAHB) has revealed that home buyer preferences in relation to the size of a home depends largely upon age, race, and ethnicity.

In the their survey, entitled “What Home Buyers Really Want,” the NAHB polled over 3,600 home buyers nationally on a range of property characteristics. The results indicated that the median home size desired by American home buyers is 2,226 square feet; although, examining the data closer shows that different types of buyers have notably different preferences in ideal home size.

Age has historically played a significant role in a buyer’s preferences in terms of home size, as the amount of space both desired and required tends to decrease as the buyer gets older. For instance, the survey revealed that home buyers younger than 35, typically first time home buyers, preferred homes at an average of 2,494 square feet, while home buyers age 65 or older preferred homes at an average of 2,065 square feet.

According to Rose Quint, assistant vice president for survey research in the NAHB, the home building industry aims to make use of these findings by surveying buyer home size preferences. With the results, the NAHB has a better understanding of home size preferences for U.S. home buyers as a collective, as well as each varying demographic preference.

In addition to age, the NAHB survey also found that home buyer preferences differ along boundaries of race and ethnicity, with minority buyers preferring a larger amount of space than White, non-Hispanic home buyers. While the survey showed that the latter preferred a home of 2,197 square feet, Asian home buyers were shown to prefer homes at 2,280 square feet, while Hispanic buyers preferred homes at a median of 2,347 square feet. Likewise, African-American buyers desired homes at a median of 2,664 square feet.

According to the U.S. Census Bureau, median home size peaked during 2006 but subsequently declined in 2007, 2008, and 2009. Since then, however, median home sizes have increased for three consecutive years. Projections reveal that the median home size of all single-family homes originated in 2012 amounted to 2,309 square feet, with the average being 2,521 square feet.

The chief reason for this turnaround in home size constructed can be attributed to the decreased availability of credit for home buyers; as a result of the strict underwriting requirements that have somewhat impeded the mortgage market in recent years, riskier borrowers have been pushed out of the market. Essentially, homes constructed within the past several years display the preferences of home buyers who could meet these stringent standards and afford to make more substantial down payments. These borrowers tended to be somewhat wealthier and able to afford purchasing homes with more square footage.

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 If you would like to obtain a home purchase mortgage or refinance, visit the Lender411 Get a Quote page to conveniently receive interest rate quotes from nearby lenders in your area. Start comparing rates today and take the first step toward a smart mortgage.

5 Frequently Asked Questions for Home Refinancing

By Daniel Duffield

With interest rates rising at present, many homeowners are scrambling to refinance their mortgages. For the majority of homeowners, home refinance loans serve to reduce their current interest rates and lessen the expense of their monthly mortgage payments; however, refinances can be performed for a variety of reasons, such as altering the terms of the mortgage or withdrawing cash in exchange for equity. While refinancing is frequently beneficial to homeowners who qualify, there are many factors to consider before refinancing in order to make the most of the cost of obtaining the loan. Here are five frequently asked questions regarding home refinances that can help homeowners make the most of their refinance loans:

1.       Will I benefit from a refinance?

The first factor to consider when obtaining a refinance loan is how much you will benefit. You must weigh the cost of obtaining the refinance, including any necessary appraisals, credit checks, employment verification, and other expenses that will be charged in the closing fees, against the benefits of the refinance, including the money saved from lower mortgage rates and payments, the utility of any withdrawn cash, and the potential increase in loan stability. While not always simple to calculate, forming an idea of the relative costs versus the benefits will help you to determine whether a refinance is either necessary, prudent, or uneconomical.

2.       Should I discuss my options with my current lender before shopping around?

Prior to shopping around for refinance loan quotes from lenders in your area, it is advisable that borrowers discuss what refinance options are available with their current lender; the majority of mortgage lenders use retention programs to entice borrowers to sticking with them for a new loan, although these teals tend to be less profitable than simply shopping around. If you find that better deals are available, find a new lender to work with, as your mortgage lender will not be in any hurry to finalize the refinance, since he or she already has your business.

3.       Can I still refinance if my home value has decreased?

Whether or not you can refinance after your home value has decreased depends on a variety of factors, including your current loan-to-value (LTV) ratio and the type of mortgage that you current hold. Borrowers with FHA loans and VA loans, backed by the Federal Housing Administration and the Department of Veteran Affairs respectively, can possibly qualify for streamline refinances, which do not take into consideration the property value in the transaction. For conventional borrowers, a refinance may be feasible if the home’s value has not decreased such that the mortgage debt exceeds its current value. In these circumstances, borrowers with loans owned by Fannie Mae or Freddie Mac can qualify for refinance loans through the HARP program, or the Home Affordable Refinance Program. While other options may apply, these are the most common methods for refinancing in the event of property depreciation.

4.       Is choosing a lender by the lowest offered mortgage payment a bad idea?

Many inexperienced borrowers select mortgage offers from lenders based solely on the lowering their monthly mortgage payments. While this is a common reason for refinancing in the first place, many other factors should come into consideration when getting a home refinance loan. For instance, the type of interest payment plan can make a significant difference in both the affordability and stability of a mortgage; while adjustable-rate mortgages (ARM) generally offer lower rates and by correlation lower mortgage payments, these loan products inherently include more risk, as your mortgage payments will change annually to reflect the market conditions at the time of adjustment. Accordingly, borrowers should evaluate the loan product as a whole, pros and cons, rather than only considering monthly mortgage payments when choosing a program or loan.

5.       Should I get a no-cost refinance?

The term no-cost refinance is somewhat of a misnomer; in reality, there is no such thing as a refinance loan that does not include any costs. What is often referred to as a “no-cost refinance” is actually a standard refinance loan in which the closing costs and other processing fees are rolled up into the principal balance of the loan, or else paid for by the lender. In either case, you, as the borrower, will still be paying something; for the former option, the costs added to the principal balance will greatly inflate the expense of the loan overall as a result of the greater interest payments, while for the latter option, lenders will charge borrowers a higher mortgage rate in exchange for paying the closing fees. Regardless, both cases cost more than standard refinance options, in which the borrower pays the closing costs of the loan.

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If you would like to secure a home refinance loan, visit our Lender411 Get a Quote page to conveniently receive interest rate quotes from nearby lenders in your region. Start comparing rates today and take the first step toward a smart mortgage.

How to Dispute an Appraisal

By Daniel Duffield

Dealing a with Bad Appraisal

When getting a home appraisal, many factors can come into play that can distort or misrepresent the actual value of your property, and an inaccurate appraisal can be very detrimental in many cases. According to the National Association of Realtors (NAR), the most common reasons for an inaccurate appraisal include ambiguous neighborhood boundaries, inaccurate lot dimensions, underestimation of home renovation costs or materials, and erroneous floor dimensions. In order to avoid receiving an appraisal with a low estimate, present your home’s blueprints to the appraiser, along with a list of renovations and remodeling. If you have already received a bad appraisal and would like to contest it, this article will cover some basic ways to deal with an inaccurate appraisal:

1.       Inspect the Appraisal Report.

When you receive your appraisal report, inspect it thoroughly to for anything inaccurately reported or misrepresented. Ensure that all home dimensions are precise and that nothing has been neglected. If you discover any mistakes, present the appraisal report to your lender or real estate agent, along with documentation that provides the correct information.

2.       Research Comparable Properties.

If you suspect that your appraisal estimate is lower than it should be, try researching comparable properties. A comparable property is one that has recently been sold that is a relatively similar size and is located nearby in a similar neighborhood. To assess the accuracy of your appraisal, find comparable properties within your area to determine what their listing prices are and how their home amenities compare to your property. If you find a discrepancy between these home values and your appraisal, discuss this with either your real estate agent or mortgage lender.

3.       Contact a Real Estate Agent.

If you have any documentation to substantiate your claims that the appraisal was inaccurate, contact your real estate agent and prepare to present this paperwork. While this may not be effective in all cases, real estate agents may sometimes be able to schedule a meeting with the appraiser to discuss and amend the appraisal estimate.

4.       Consult Your Mortgage Lender.

If you have been unable to successfully amend any errors or misrepresented facts on your home appraisal through the above methods, you should contact your mortgage lender directly to see if there are any methods for recourse. According to the NAR, contacting your mortgage lender is essential when you have specific, documented proof that the appraisal is inaccurate. Ideally, the lender will be able to have a new appraisal conducted and override the first appraisal report, though this will almost always require some concrete evidence of misrepresentation.

Get a Quote

If you would like to obtain a home purchase or refinance loan, visit our Lender411 Get a Quote page to conveniently receive interest rate quotes from nearby lenders in your region. Start comparing rates today and take the first step toward a smart mortgage.