Month: May 2016

Before you begin your home search. Before you contact a mortgage professional. Even before you attend your first open house, there’s something you need to do. You need to take inventory of your financial situation, both as it is now, and what it could be in the future.

Families grow. Employers (and jobs) come and go. Unexpected situations, such as medical issues, arise. What would your financial situation look like if any (or all) of these events occurred? Once you’ve purchased a home, will you still be able to save for a rainy day? It’s something to think about now.

While you’re thinking about the “what ifs,” you may want to consider a fixed-rate loan. If economic factors drive up rates and the cost of other goods and services, a fixed rate will help ensure that at least your monthly mortgage payment will remain constant.

The takeaway: Despite what real estate agents, loan officers, and well-meaning friends and relatives think you should do, bear in mind that whatever you conclude is a realistic monthly mortgage payment is the right amount for you. After all, it’s you – and only you – who must make that payment every month.

You need to start your home-buying journey knowing what works for you; once you make this decision, everything else will flow from it. Now you can find the right real estate agent, start your search, and confidently contact your mortgage professional to start the process.

Because now you know what you can afford.

In this era of probably-soon-to-be-gone low interest rates, homeowners may be asking themselves if now is a good time to refinance their homes.

To be able to answer this question, you need to first answer these three questions: Will a lower rate actually work in your favor? How much will the refinance (refi) cost? And how long do you intend to own the property after the refi?

To put this into numbers, let’s say your remaining mortgage balance is $150,000, and it will cost you $2,000 to lower your rate by one-quarter of a percent.

We’ll assume that you’ll pay the closing costs out of your own pocket.

You’ll go from 4.75 percent to 4.5 percent. Your current mortgage payment (on your original, 30-year, fixed-rate $160,000 mortgage) is $834.64 per month. Your payment at the new rate will be $760.03. This is a monthly savings of $74.61.

To calculate the time required to recoup the costs of the refi, we need to take the $2,000 cost and divide it by the monthly savings.

In this case it would be $2,000/$74.61, or 26.8 months.

So if you are planning on staying in your home for more than two years, it would be worth your while to contact your mortgage professional and explore your options.

Of course, larger loan amounts will have a shorter payback period, and smaller loan amounts will take longer to recoup with the same interest rates.

A change in interest rate of greater than 0.25 percent will also shorten the time required to justify the costs of the refi.

For example, a drop in the interest rate of 1/2 percent in the above case would make the new rate 4.25 percent and provide a monthly savings of $96.73 per month. The recoup period would be just over 20 months.

Contact your mortgage professional to help you adjust the above scenario to your own situation.