According to recently released estimates, over 8 million American homeowners could benefit from refinancing at today’s low interest rates. Here are three questions to ask yourself in order to figure out if refinancing makes sense for you:
1 – Interest & Cost Benefit: What would be my interest and cost savings if I refinance into a lower interest rate?
For example, assume you could save $50 in monthly interest expenses if you paid $2,500 in closing costs to refinance. In this case, it would take you 50 months to break-even ($2,500 costs / $50 monthly savings = 50-month break-even).
When you calculate your refinancing costs, you should include all the closing costs on the new loan, but you should not include the pre-paid interest or pre-paid items that go into your new escrow account. That’s because you’ll get a refund of whatever is in your existing escrow account after you pay off the current mortgage. In some cases, the lender may allow you to pay less closing costs in exchange for a slighter higher interest rate.
When you calculate your interest and cost savings, be sure to include the mortgage insurance that you may be able to reduce or eliminate by refinancing. For example, assume your home value has increased from the time you purchased the home. The mortgage insurance may be less if the mortgage balance only represents 85% of your current home value vs. 95% of your current home value.
2 – Cash Flow Benefit: How would my overall cash flow situation change if I refinance?
Here are three examples of when it could make sense for you to refinance even if your new interest rate is not that different from your current interest rate:
Assume you took out a car loan or racked up some credit card balances that carry interest rates that may be higher than current mortgage rates. You may be able to benefit from a debt consolidation refinance. In this case, be sure to compare your current blended interest rate scenario vs. the new refinance scenario.
Assume you recently completed some home improvements, or you’d like to make some home improvements in the near future. Trading in your current mortgage for a new one through a “cash-out refinance” may be the way to go. If you go this route, the IRS gives you a 24-month look back period and a 12-month look forward period to gain the coveted “acquisition indebtedness” tax deductibility status. For more details, please see my article titled, Three Things You Should Know if You’re Pulling Cash-Out for Home Improvement.
Assume you have an upcoming large expense where it makes more sense to use a low-interest-rate mortgage vs. paying cash or liquidating other investments. In this case, you could use the funds from a “cash-out refinance” in order to preserve your cash and/or other investment assets.
Please contact me for details on any of these ideas, or to evaluate your mortgage options.
This housing market has many people talking about home values; where they are and where they are headed. It’s also interesting to look back and see how home prices compare to values prior to the housing crisis.
Every quarter, Freddie Mac releases their House Price Index. The index usually provides monthly home values for:
the nation as a whole
each of the 50 states
367 metropolitan statistical areas
This quarter, the report also included a look at today’s home values as compared to Pre-2008 values. Here is a graphic that breaks down the numbers on a state-by-state basis:
Section 529 of the Internal Revenue Code created a type of college savings plan that known as a “529 Plan”. The 529 plan allows families to:
Invest funds after you’ve paid taxes on them (similar to a Roth IRA)
Grow the money tax-free over time (no taxes on dividends or asset appreciation)
Withdraw the money tax-free to pay for qualified college expenses
#1 – Each State Sponsors its Own 529 Plan(s), But You Can Invest in Any Plan that You Want For example, if you live in Florida, you can invest in a New York plan and send your student to a college in California. The plan is sponsored by the state, but the state hires a money manager to manage the plan and pick the investments. There are several web sites that rank the various plans in each state, including Morningstar.com and SavingforCollege.com. Click here to view a list of plans and how they rank as analyzed by SavingforCollege.com. You can view the rankings over a 1-year, 3-year, 5-year or 10-year period of time.
Although you don’t get a federal income tax deduction for investing in a 529 plan, some states offer a full or partial tax deduction against your state income taxes (see a tax advisor for details). Also, unlike other types of investment accounts, 529 plans don’t have restrictions based on income or age, and there are no annual contribution limits. However, you can only contribute up to the amount necessary to provide for the qualified education expenses of the student. Keep in mind that the plan can be funded by anyone, including parents, grandparents, friends and relatives.
#2 – The Investment Grows Tax-Free, and the Student Beneficiary Can Withdraw the Funds Tax-Free to Pay for Qualified Education Expenses The funds in the account grow tax-free. The student beneficiary can withdraw the funds tax-free to pay for tuition, fees, books, equipment, room and board at an eligible educational institution. According to the IRS, “An eligible educational institution is generally any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education.” Click here to view a list of schools that are eligible institutions.
In conclusion, 529 College Savings Plans could be a great way for you to contribute to a child’s future. Please see a financial advisor for more details.
PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 970.
The National Association of Realtors’ most recent Existing Home Sales Report revealed that home sales were up rather dramatically over last year in five of the six price ranges they measure.
Homes priced between $100-250K showed a modest increase at 3.4%. This not only points to the lower inventory of homes available for sale in this price range but also speaks to the overall strength of the housing market.
Sales of homes over $250,000 increased by double digit percentages with sales in the $750,000- $1 million range showing the largest increase, up 16.7%!
As prices in many markets continue to accelerate, it is no surprise to see the percentage of homes in the higher price ranges increasing.
Here is the breakdown:
What does that mean to you if you are selling?
Houses are definitely selling. If your house has been on the market for any length of time and has not yet sold, perhaps it is time to sit with your agent and see if it is priced appropriately to compete in today’s market.
According to Bankrate’s latest Financial Security Index Poll, Americans who have money to set aside for the next 10 years would rather invest in real estate than any other type of investment.
Bankrate asked Americans to answer the following question:
“Which would be the best way to invest money you did not need for more than 10 years?”
Real Estate came in as the top choice with 25% of all respondents, while cash investments (such as savings accounts and CD’s) came in second with 23%. The chart below shows the full results:
Sterling White, co-founder of Holdfolio, gave one reason as to why real estate may have ranked so high.
“Houses are tangible. You can physically see and feel the product. So you know where your money is going.”
July’s poll also found that for the “26th consecutive month, Americans’ sense of financial well-being improved when taking into account debt, savings, net worth, job security, and overall financial situation.”
There are several reasons, both financial and non-financial, as to why homeownership makes sense. It is nice to see that Americans have returned to a belief in homeownership as the best investment.
Recently, the United Kingdom decided to withdraw from the European Union in a decision commonly known as Brexit. At that time there was a lot of speculation on how that decision would impact the Financial Markets as well as U.S. residential mortgage market. Today, we want to look at the impact.
Most believed that the Brexit decision would drive mortgage rates down and keep them down for some time. As CoreLogicreported:
“First-time buyers can count on continued low mortgage rates to help with affordability issues. Similarly, re-setting adjustable rate loans will have less of a rate shock, and in some cases may even go down.”
What has actually happened?
Initially, rates did fall. However, Freddie Mac has reported that rates have stabilized and have actually increased marginally each of the last two weeks. This prompted Freddie MacChief Economist Sean Beckett to say:
“Post-Brexit volatility tapered off over the last two weeks, allowing interest rates to bounce back a bit from their near-record 30-year mortgage rate lows.”
And, Capital EconomicsProperty Economist Matthew Pointon believes rates will continue to increase:
“Given we expect Brexit will have a minimal impact on the U.S. economy, we see no reason to change our forecast for mortgage rates to reach 3.85% by the end of this year, and 5.0% by the middle of 2018.”
For now, it appears that the impact of Brexit on the U.S. housing market was not as dramatic as some thought it could be.
According to a Merrill Lynchstudy, “an estimated 4.2 million retirees moved into a new home last year alone.” Two-thirds of retirees say that they are likely to move at least once during retirement.
As one participant in the study stated:
“In retirement, you have the chance to live anywhere you want. Or you can just stay where you are. There hasn’t been another time in life when we’ve had that kind of freedom.”
The top reason to relocate cited was “wanting to be closer to family” at 29%, a close second was “wanting to reduce home expenses”at 26%.
A recent Freddie Macstudy found similar results, as “nearly 20 percent of Boomers said they would move closer to their grandchildren/children compared to 13 percent who said they would move to a warmer climate.”
Not Every Baby Boomer Downsizes
There is a common misconception that as retirees find themselves with fewer children at home, they will instantly desire a smaller home to maintain. While that may be the case for half of those surveyed, the study found that three in ten decide to actually upsize to a larger home.
Some choose to buy a home in a desirable destination with extra space for large family vacations, reunions, extended visits, or to allow other family members to move in with them. According to Merrill Lynch:
“Retirees often find their homes become places for family to come together and reconnect, particularly during holidays or summer vacations.”
If your housing needs have changed, or are about to change, let’s get together to discuss your next steps.