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Last Minute Gift to Homeowners Carries Lasting Benefits - 2008-12-28 |
This has been a challenging year for the real estate industry. Sales are down everywhere, prices are hurting and sellers are struggling. Things are pretty rosy for the few buyers remaining in the marketplace, and the rest of us who own our own homes and aren't trying to sell are left wondering what our homes are truly worth.
In all the years I have owned real estate, this seems like one of the bleakest, and totally out of step with the holiday season. Surely there might be a last minute special delivery for good little boys and girls who owned their own homes and pay their mortgages on time.
Well, somebody must have left out fresh milk and cookies, because Father Christmas has left us a nice gift in the past couple of weeks. Thirty year fixed rate loan programs have dropped to their lowest rate in over thirty years, and smart borrowers are refinancing in droves.
You have to remember that I sold new houses in Gwinnett County to eager young buyers in the early 80's for under a hundred thousand dollars, and then helped them apply for fixed rate loans in the range of 17 percent interest. That's not a misprint. Thirty year fixed rate loans were in the 17 percent range during those times.
And I also remember telling my wife that if we could ever refinance our home for any fixed rate under 10 percent, I would be contented forever.
I lied, and here's the big news for you:
If you own your own home and carry a mortgage of fifty thousand dollars or more at an interest rate of anything above 5.50 percent, you should seriously consider refinancing immediately.
At one point during the week before Christmas, long term funding dropped to the lowest level seen in three decades, that being 4.5 percent. That rate included one point for origination and zero discount points. Closing costs for such a loan would probably run between 2.5% and 3% of the loan amount, depending on the amount you borrow.
Why am I making such a bid deal about this rate drop? Because it can literally save you thousands of dollars in interest expense over the life of the loan.
For example, let's say your remaining mortgage balance is about $200,000 and your current interest rate is 6.50%, with maybe 25 years of monthly payments remaining. Over the next 3 years, you will pay about $39,000 in interest expense to your lender.
But if you were to lock in a rate of 5% and refinance that same balance, your interest expense would drop to approximately $30,000. In other words, your closing costs would be paid back to you in just about 2 years, and all future savings would go into your personal pocket.
And you should know that the savings continue for the remaining life of the loan, although the difference is less each year as the loan balance falls. Because the savings are lessened on lower balances, it may not be worth your time or effort to refinance a balance of less than $50,000.
But even in that case, there is another option. It's called the "zero closing cost" option. In this scenario, the lender pays all your up front costs for you, including origination fees, Georgia intangible taxes, and attorney fees. In exchange for covering these costs, the lender asks that you accept a slightly higher interest rate, probably between 3/4 and 1 percentage point on your long term interest rate. The size of the rate differential depends largely on the amount you intend to borrow, with larger amounts costing less.
So in this type of loan restructuring, you could literally walk into the room, pay nothing, sign a few pieces of paper, then begin saving hard cash with each monthly payment thereafter.
While this turn of events is a winner for those I just described, it is nothing short of a home run for those who carry balances on credit cards or adjustable rate home equity lines.
For example, if you are carrying a balance of $15,000 on a credit card and your card rate is a modest 15%, your non-tax deductible interest expense for the year would be approximately $2,250, assuming you make minimum payments monthly. But if you can include the credit card debt in your loan payoff, your expense drops to about $750 for that same amount of debt. And in addition, that interest now likely becomes a tax deductible expense, simply because it is secured by your home.
On the downside, borrowers today are likely to encounter much more strict underwriting guidelines. And your credit score will have to be higher than was required just recently. In addition, an independent appraisal will have to document that your home is worth more than the amount you want to borrow.
But overcoming these hurdles will pay off, both now and in the years ahead. Yes, it is possible that long term rates could get below what we are seeing now. But in reality, rates have a lot more room to go up than they do to go down, especially from here.
As always, before you commit yourself to a major financial decision, it's a good idea to consult with your CPA or tax-preparer for advice on your individual situation. But for most of us, it's time to beat a path to the local mortgage company and lock in the lowest rate we will likely see for years to come.
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John Adams Presents
LANDLORD SURVIVAL TRAINING
with John Adams
Tuesday, February 28th
Being a landlord can be a rewarding experience. It can also be a difficult one if you don't have the knowledge and understanding of what the process requires.
Few schools offer degrees in property management, so most landlords learn "on-the-job" through acquired knowledge and on-the-job experience, essentially re-inventing the wheel. This is an expensive and depressing way to learn anything.
Whether you're a full-time landlord or just getting ready to purchase your first rental property, whether you are a licensed Georgia real estate professional or an accidental landlord, this seminar will help you improve your property's value, increase your cash flow and decrease your expenses, from attracting (and retaining) good tenants to maintaining your property to understanding your rights and obligations under the law.
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PROPERTY TAX REDUCTION WORKSHOP
with John Adams
Tuesday, March 27th
One of the significant annual expenses faced by any Georgia property owner is ad valorem property tax. Depending on where you live, it can be as high as three percent of the property's fair market value, and it must be paid year after year after year.
As a result, efforts to minimize this expense are not only worthwhile, they are encouraged by Georgia law. The phrase "ad valorem" means that each property is taxed based only on its value, and no one is required to pay a penny more than the minimum the law demands.
At the Property Tax Reduction Workshop, real estate expert John Adams will review the system he has used for over thirty years to reduce valuations and assessments in Georgia counties and municipalities, saving himself literally hundreds of thousands of dollars over the years.
In this 3 hour information packed seminar, John will teach you how to:
1. Understand the legal process of Property Tax Assessment
2. Meet the newly uniform Tax Deadlines
3. File your own Property Tax Return with a realistic valuation
4. Document your PT-50R with facts to support your case
5. Proactively meet with your Appraiser to reach an agreement
6. Protest your Notice of Assessment in an Intelligent manner
7. Give the Assessor an Opportunity to Save Face
8. Appeal to your Board of Equalization, in person or by mail
9. Make Your Case to the BOE
10. Take Your Case to Superior Court if necessary
If you are not doing all these steps now, you are likely costing yourself hundreds or thousands of dollars a year. If you own just one house, you could easily save over a thousand dollars over the next three years. If you own properties valued collectively over a million dollars, you are literally throwing away your profits year after year.
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