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Interest Rate Drop Makes Home Ownership More Affordable - 2008-01-25 |
The stock market roller coaster ride continues, the banks are asking for more money, the new administration tells Congress that another $350 billion may not be enough, and all the while consumer confidence is about as low as low can go. Apparently, I've been watching too much television lately.
In the face of all this economic doom and gloom, there is a silver lining for those of us who own (or would like to own) residential real estate. It's the continuing decline of long term interest rates and the wonderful effect it's having on our long term ownership costs.
The benchmark thirty year fixed rate loan dropped into the sub-five percent range last week, making it more affordable than ever to buy or refinance a home.
This is a particularly welcome development, because there are literally millions of home loans on the books today with interest rates in the six percent range and higher. And borrowers are lining up to refinance in numbers not seen for quite a while.
As an example, let's say you have a loan of $200,000 that you took out in the summer of 2006. At that time, the typical rate was just under 7 percent, at 6.75. Assuming you selected the industry standard term of thirty years to repay this debt, your monthly payment of principal and interest would come to just over $1,297.
But if you refinanced today, and took out a new loan for the same term at today's rate of 4.875 percent, your monthly payments would drop to just over $1,058, giving you a monthly savings of almost $239 in interest payments alone. That translates into an annual bonus of around $2,850 during the first year.
And the savings will continue, although in decreased amounts, for the remaining life of the loan. All told, if you paid the loan all the way to its term in thirty years, the savings would exceed $85,000.
I always hesitate to share the dramatic total projected savings number because so few owners actually keep a loan its full term. But at these rates, it might actually happen.
According to the Mortgage Bankers Association, refinancings now make up about 80 percent of all new loan applications, and this activity couldn't come at a better time for lenders. With mortgage companies closing right and left, there at least is now enough business to pay the bills next month.
Here are some tips to help you save additional money if you are considering a refinance:
* Call your existing lender and see if they offer any type of "streamline" refinance program.
If available, these programs can save you significant closing expenses by allowing a "modification" of existing loan documents instead of forcing you to pay for a complete new round of settlement fees.
Chief among the savings in Georgia is the ability to avoid state intangibles tax of $3 per thousand of new loan. If the existing loan is modified, you can likely avoid this meaningless fee.
* Also, when you refinance, the lender will likely require a new "lender's title insurance" policy. That's to make sure you still own the property and that there are no new claims against your ownership. But don't fall into the trap of purchasing a new "owner's title policy" unless you never purchased one in the first place.
If you already purchased owner's title insurance in the past, there is no need for you to replace that policy. Because your ownership of the property has been continuous, you still have full protection under the original policy.
However, if you failed to buy an owner's policy in the past, now is a good time to obtain this protection. That's because you qualify for a lower rate while the lender is getting their policy at the same time. It's called "simultaneous issue," and your closing attorney will explain it in detail.
* If you do have to pay another round of closing costs, be sure to shop and compare among lenders. Unless your existing lender offers you a discount, there is no advantage to remaining their customer. It is to their advantage to preserve their relationship with you, and if they fail to see that, you will likely find a better deal elsewhere.
In order to compare apples to apples, ask each lender you consult for a written "good faith estimate" of all the expenses you will be asked to pay, as well as a written commitment to a specific interest rate. Ignore the government-inspired APR and focus on the "note rate" instead. That rate and the good faith estimate will cover all your costs.
* Finally, consider how long you plan to keep paying on this new loan, and whether you might better off allowing the lender to pay your closing costs and charge you a slightly higher rate in return. This is called a "zero closing cost" loan and benefits those who plan to move in the next five years.
As usual, it's always a good idea to talk with your CPA or financial professional to see how a refinance transaction will benefit your situation. But don't expect this low rate to last forever, because it won't.
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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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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
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7. Give the Assessor an Opportunity to Save Face
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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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