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Is Paying off your Mortgage Early a Good Investment?

Considering paying off your mortgage early? The fact that you have extra cash flow or savings to apply towards the mortgage should be applauded. Any extra amount that you pay towards the principal is an investment — But is it a good investment?

Without question, making extra payments on your mortgage can save you tens of thousands of dollars in interest over the life of the loan. Home owners making extra mortgage payments get a return on investment equal to the mortgage interest rate (minus any tax deductions). If you compare that to the current environment for money market accounts, savings accounts, CDs, etc. that pay less than 1% interest, the trade off of paying off mortgage interest can offer a decent return depending on mortgage interest rates.

Regardless of where a home owner is in their mortgage life cycle, there is still room to benefit from paying off your mortgage early. Any extra payment above and beyond the scheduled principal and interest payment will go directly toward paying off their principal. *It’s always a good idea to specify that extra payments are to go towards principal. Otherwise, a loan servicer may apply towards your escrow balance.

Advantages to Paying Off Your Mortgage Early

Eliminate interest and receive guaranteed rate of return (equal to interest rate after tax deductions)
Financial flexibility to save money by eliminating a hefty principal and interest payment
Own your home ‘free & clear’ – hold clear title to your home
Build a legacy to pass on a property without liability (other than property taxes)

While many home owners make paying of their mortgage an ultimate goal, is it the best use of your extra money or cash flow or savings?

Disadvantages to Paying Off Your Mortgage Early

In some cases, paying off the mortgage balance early is the best strategy to help reach financial goals. For most other families and individuals, there may be other places that their extra money or cash flow should be directed (ie. retirement planning, children’s college savings, credit card or auto debt…). A heart-to-heart with your financial team (CPA, financial advisor) may be in order. There will always be an opportunity cost for a financial decision. Extra principal payments are no different:

Pay more taxes – Lose tax write-off of mortgage interest deduction
Trapped equity – no mortgage, but no money unless the house is sold or can still qualify for cash-out loan
Home appreciates the same amount, regardless of mortgage balance
Other assets lose out – is retirement and your nest egg where it needs to be?

Every situation is different and each individual is unique. There may not be a “right” answer, but the drive behind this kind of thinking can shape future decisions.

If paying off your mortgage early is something you are considering, we’re happy to be a resource for you or that forward-thinking person in your life.

Is an 80-10-10 or 80-15-5 mortgage the best home loan for me?

There are countless ways that home loans can be structured when purchasing or refinancing a home in Dallas or anywhere in the country for that matter. One of the unique programs that has been around for years is a combo loan, typically seen as an 80-10-10 mortgage or 80-15-5 mortgage. This means the overall loan is broken up into 2 separate loans. The first loan is 80% or less of the purchase price or value of the home and the second loan covers the difference after taking into account your down payment or home equity. This strategy can also be used to avoid a jumbo loan amount.

For example, a $500,000 purchase price with 5% down could be structured with a first loan of $400,000 and a second loan of $75,000 for a total loan to value of 95% (80/15). Depending on your unique situation, there can be many advantages that come from this type of home loan structure.

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Features of a combo loan, 80-10-10 or 80-15-5 mortgage:

Finance up to 95% of the purchase price or home value – With a first loan of 80% and a second up to 15%, you can own a home with a Conventional mortgage with as little as 5% down.
No mortgage insurance – Mortgage insurance that is paid as part of a home loan is no longer tax deductible and can force unwanted up-front or monthly costs. Learn other ways to avoid monthly mortgage insurance with a 5% or 10% down payment.
More tax deductions – While mortgage insurance is no longer tax deductible, the interest that you pay on a loan for your primary residence is and will continue to be tax deductible. This means a lower after tax payment compared to options that include mortgage insurance.
Waive your escrow account – manage your property taxes and homeowner’s insurance on your own as opposed to paying monthly with the mortgage payment.
Avoid a jumbo loan – Buying a high priced or luxury home? Conforming and conventional loans provide more options and flexibility when it comes to loan terms and getting the lowest interest rate. The conforming or conventional loan means more options and lower rates for your home purchase when compared to a jumbo loan. A combo loan can help you finance up to 95% of the purchase price while staying within the maximum conforming loan limit (** $424,100 as of 2017). Example: $500k purchase price w/ 80% first loan at $400,000 and second loan at 15% or $75,000.
No prepayment penalty – Pay down the balance on the higher interest rate 2nd loan without penalty. Save interest and have a fast and easy way to pay down your overall home loan balance so all you have left is one low fixed rate.

The 80-10-10 mortgage, 80-15-5 mortgage and other combo loan options can be a great tool and home loan strategy for the right person. Like other home loan options, there can be advantages and disadvantages. The only way to truly know what the best home loan is for you is to have your mortgage lender prepare a Total Cost Analysis that compares each home loan option side-by-side so you can see how each scenario impacts not only your monthly payment and out-of-pocket expense, but also the short and long-term benefits of each option.

If you’re interested in finding out which home mortgage is best, we invite you to apply online or call us today at 972-499-0454. One of our experience mortgage planners can help you determine which option is best for you. The review will take only minutes, but could save you thousands of dollars by helping you choose YOUR best home loan.

Updated: January 10, 2017

qa-from-the-mortgage-professionals-should-i-opt-for-a-30-or-15-year-fixed-rate-mortgage

There’s a lot to decide when figuring out how to finance a new home purchase, not the least of which is whether to opt for a 15- or 30-year fixed-rate mortgage. USA Today’s 24/7 Wall St. recently offered some helpful tips to individuals on the fence of where to turn for a home loan.

The first question posited is: Can you handle a mortgage that must be paid off in 15 years? A shorter term mortgage comes with a lower rate but also comes with higher monthly payments as the balance must be paid off in a shorter time period. Guy Cecala of Inside Mortgage Finance noted that if the borrower can afford the higher payments associated with a 15-year loan they should take it. However, it’s important to be honest with yourself as if you cannot keep up with the payments it will lead to delinquency, which comes with a steep set of consequences.

On the other side of the coin, if you’re a seasoned home buyer and are planning on retiring soon then a shorter term mortgage might be more viable as you do not want to worry about paying off that loan well into your golden years.

And perhaps most important, you’ll have to put forth a strict budget and savings plan to account for your mortgage payments. Maintaining a strong credit score and responsible payment activity for all your bills is paramount, but the mortgage is arguably the most significant and important bill you will ever have to pay.

If you’d like to learn more about your home loan options, contact our team of Dallas mortgage professionals today.

Should I Opt for a 30 year or 15 year Fixed Rate Mortgage?

There’s a lot to decide when figuring out how to finance a new home purchase, not the least of which is whether to opt for a 30 year or 15 year fixed rate mortgage. While there are advantages to a 15 year fixed of having a lower interest rate, the 30 year fixed option will lead to great flexibility in cash flow. Below are some helpful tips to individuals on the fence between the 30 year or 15 year fixed home loan options.

Can you handle a mortgage that must be paid off in 15 years?

A shorter term mortgage comes with a lower rate but also comes with higher monthly payments as the balance must be paid off in a shorter time period. If the borrower can afford the higher payments associated with a 15-year loan they should take it. However, it’s important to be honest with yourself as if you cannot keep up with the payments it will lead to delinquency, which comes with a steep set of consequences.

30 year or 15 year Fixed Rate – Save more or Pay more

As a borrower, if this is the first home you’re buying then the 30-year fixed-rate mortgage may be more attractive as it is great for those starting out on a bit of a tighter budget and offers more leniency in terms of the time frame for paying the loan back. If there’s any doubt on the ability to make the 15 year payment each and every month, you can always opt for the 30 year fixed while making the equivalent 15 year mortgage payment as a principal reduction. Usually the difference in interest will lead to the loan being paid off in just under 16 years instead of 15 years. The flexibility in this strategy, can provide a lot of comfort when buying a home.

If you’d like to learn more about your home loan options, contact our team of Dallas mortgage professionals today.

How do I choose the best home loan?

Have you ever asked yourself, “What type of home loan is best for me?” or “How do I choose the best home loan for my future goals?” If so, we’re glad you’re asking such an important question(s). Just by having asked this, we know you understand that a home mortgage can be an integral part of your overall financial well-being. A mortgage can be used as a tool to help meet long and short-term goals beyond the financing of the house. However, the “best” home loan is as unique as the individual and their goals.

Every loan program has it’s own features and drawbacks, making the “best” loan that much more difficult to find. Because of the various features, step one is to figure out the answers to these questions, so you know where you’re headed. choose the best home loan

What’s important about buying/financing this house?
How long do I plan on living in this house?
How much am I comfortable spending each month?
How much do I want to pay out of pocket at closing?
Do I plan on paying off sooner than 30 years?

These are all important components to choose the “best home loan”.

Let’s look at an example of Bill and Suzy Buyer when they decided it was time to buy a new house to accommodate their growing family. The house would be bigger, the schools would be better, and unfortunately, the house prices are higher. The house they are selling doesn’t have much equity but they have saved for a 20% down payment, however would be much more comfortable with 5-10% down. They wondered, “Can I get a loan with 3% down?”

They both have great jobs with 401ks but have started to realize that they need to be savings more each month for retirement and also need to start saving to send Junior to college. “Will I be able to afford this house and still meet our savings and retirement goals?” These are all valid concerns and questions — all parts of creating a plan so the Buyer family can choose the “best home loan” for their needs and goals.

In an effort to choose the “best home loan”, the Buyer’s were presented with an outline and analysis of their various loan options. Ranging from 20% down to as little as 3% down, each scenario showed the Buyer’s how their home loan could be integrated into their budget, savings, and retirement goals.

Here is a link to the report that was created, and can available for you: Bill and Suzy Buyer Mortgage Options Report

When reviewing their options, the Buyer family noticed that putting 20% down would eliminate nearly all of their savings and leave the lowest monthly payment. However, the 3% down would carry the highest payment, yet allow a substantial amount to remain in savings and retirement.

The Buyer family decided that their best home loan was to put 5% down to keep their savings intact and focus on their number 1 financial goal of retirement. As retirement goals are met, they can use the additional cash flow to save for Junior’s college or pay down the mortgage faster.

Can I buy a house with 5% or 10% down and avoid monthly mortgage insurance?

What’s the sweet spot for your down payment to get the best home loan and avoid monthly mortgage insurance? It doesn’t matter how much money you have saved for a down payment, it’s not always best to put 20% or more down. Sure, you don’t want to spend any extra on monthly mortgage insurance, but did you know you can buy a house with 5% or 10% down and still avoid the costly monthly PMI.

Buy a house with 5 percent or 10 percent down payment and Avoid Monthly Mortgage Insurance

There are many ways you can buy a home with less than 20% down and even avoid paying the dreaded monthly PMI. PMI or private mortgage insurance is available in other forms that can make your monthly house payment much more affordable and in some cases isn’t required at all:

Upfront mortgage insurance (Single Premium) – The upfront MI is a lump sum that can either be paid at closing, paid by the seller, or even financed into the home loan!
Lender paid mortgage insurance (LPMI) – No monthly MI and also no upfront MI, which can save you thousands of dollars over the life of the loan. While at a slightly higher interest rate, the LPMI option can help you start saving money as soon you buy.
Combo Loan (first and second) – Avoid mortgage insurance all together by going with a combo loan, typically seen as a 80-10-10 or 80-15-5 home loan. The ’80’ is the percentage of the first loan, the ’10’ or ’15’ is the second loan, and the final ’10’ or ‘5’ is the down payment. Is an 80-10-10 or 80-15-5 the best home loan for you?

The fact of the matter is, there are many ways you can structure your home financing with less than 20% down payment. For many people a standard monthly mortgage insurance is their best option, but how do you know until you’ve had a chance to see a detailed side-by-side comparison of all your loan options .

Flexible Down Payment with Flexible Options to Create a Tailor-Made Home Loan

No matter how much you have available for a down payment, it may not be your best option to put all of your money down. Now that you know you can avoid monthly mortgage insurance, consider the many other opportunities that may present themselves in the years to come and how much money you may be able to save. Will you need access to that ‘cash’ that you used for down payment? If the answer is possibly yes, then don’t find yourself house poor. Find out which loan options are available and the best fit for you and your future goals.

If you’d like to see a detailed loan comparison based on your unique situation, complete our brief online loan questionnaire or call us today — 972-499-0454. We can help!

Private Mortgage Insurance and Your Dallas Home

When buying a home with less than 20% down payment will likely leave you with some form of private mortgage insurance. However, don’t let that hold you back from buying. The housing market is booming and inventory levels remain low. More and more potential Dallas homeowners are looking to buy their dream home in Dallas but aren’t quite sure what it’s going to take. Even though the housing market may have greatly rebounded, that doesn’t mean that everyone’s bank account is fully recovered from recession-era hardships and prepared to put 20% down.

With this in mind, it makes sense that many borrowers are looking for ways to buy a home with less than 20% down payment. The great news is that even if a 20% down payment isn’t available, private mortgage insurance (PMI) is available to help insure loans that are greater than 80% loan to value.

FHA loans are usually the first to come up in a conversation about low down payment or PMI. Some of the lowest mortgage rates and down payment amounts are offered by the Federal Housing Administration (FHA), which insures and funds their own loans. With down payments starting as low as 3.5 percent and have flexible credit requirements, marking perfect sense why home buyers would be interested in this type of mortgage financing. One of the drawbacks for FHA is that their mortgage insurance is now required for the life of the loan. However, despite recent increases in costs for FHA loans, they remain to be a low-cost loan strategy that many Dallas homeowners are seeking. Learn more about FHA home loans

FHA is not the only option for a low down payment. Conventional loans also carry flexible down payment options by allowing PMI when less than a 20% down payment is made. The down payment is an important factor in determining the true cost of the mortgage insurance. Credit scores also play a high role in the pricing of mortgage insurance. One of the other important factors beyond down payment and credit score is the length of the mortgage term. The biggest bonus of PMI when compared to FHA is that the PMI can be dropped from the loan once your loan balance has reach 80%.

There are numerous ways that PMI can be incorporated into your loan strategy and help put less than 20% down on your home. While monthly mortgage insurance is the most common, it may not be your best option. Consider these other ways to avoid paying monthly mortgage insurance with 5% or 10% down payment.

If you’d like further consultation or have any other questions about Dallas-area mortgages, we are more than happy to help and would love to hear from you. Feel free to call us direclty, 972-499-0454 or send us your questions.

Mortgage Tips Part 2: For Retirees and the Cash-Strapped

Obtaining a mortgage might seem like a tall task, but there are some tips to employ to ensure you give yourself the best chance at achieving financing from a reputable lender.

Amy Hoak, MarketWatch editor and columnist, recently wrote a piece for MarketWatch that outlined some important tips on how to obtain a mortgage. It was so dense that we had to break our analysis of it into two parts. And now, without further ado, here is some insight on obtaining a mortgage as a retiree:

“For retirees who don’t have a steady pension check coming through the door, getting a mortgage can be a challenge,” Hoak wrote for the news source. “But a recent rule change at Fannie Mae and Freddie Mac is helping retirees who have robust savings but aren’t taking regular distributions from their retirement funds just yet.”

Given the new rule change, balances in retirement accounts can now be considered as acceptable in determining eligibility for financing. Hoak wrote that previously, lenders would have required the potential borrower to prove that they were taking distributions in order to cover their mortgage requirements.

And mortgage tips aren’t just for prospective home buyers, current home owners can take advantage of the Home Affordable Refinance Program should they find themselves strapped for cash. HARP allows home owners whose homes are underwater, or they owe more on them than they’re actually worth, to refinance to a lower rate.

There are some common misconceptions surrounding HARP, including the program is only for those who are at very low poverty levels. This is not true. HARP is open to any underwater home owner and is encouraged for those who want to reduce how much they pay in terms of their mortgage rate.

If you’d like to learn more about Dallas mortgages, contact me today. I’m a professional serving the greater North Texas area and can show you the ropes.

Obtaining a Mortgage in Dallas: What to Know

The Dallas housing market is experiencing rising sales and sellers are in a position to choose which buyer’s offer is worthy of acceptance. This offer selection process goes beyond just the offer price. In this type of seller’s market, it is imperative that buyers have their financial house in order and are fully pre-approved with a Bank or lender. While there are many factors surrounding each individual that go into whether or not you’re approved for financing, there are also many common principles to know that factor into pre-approval for a mortgage.

Here are some important factors in obtaining a mortgage in Dallas:

Down payment – Loan options vary with as little as 3.5% down, but to have access to all types of loan programs (FHA and conventional), a down payment of 5% may be required
Credit profile – Credit profiles consist of not only credit scores, but also things like recent payment history over the last 12 months and total outstanding debts.
Debt to income ratios (DTI) – DTI is what lenders use to determine how much someone can borrow to buy a home. The general target for a DTI is 43% or less and is calculated by taking the overall monthly debt obligations including the new monthly housing payment and dividing by the total monthly pre-tax income.
Cash reserves – Reserves are used to support loan qualification by showing how many months of housing payments are leftover in savings/retirement after contributing funds for down payment and closing costs. For example, if the housing payment is $2,000 per month and there is $50k left in savings after closing, there would be roughly 25 months reserves remaining.
Employment history – Consistency across your employment is an important factor in your loan approval. A 2 year history of employment in the same line of work is typically required. This doesn’t necessarily mean employment with the same company, but if employment has changed, most lenders will require documentation about how the general job tasks, required training, and compensation type show consistency over multiple years.

By no means do these factors cover all components of loan approval, but they at least act as a general guide to knowing potential options to get pre-approved for a home loan. If you’d like to learn more about obtaining a mortgage in Dallas, we’d love the opportunity to help you with pre-approval and invite you to call and talk to a seasoned mortgage professionals at 972-499-0454 or get started with online pre-approval. We look forward to helping you.

Tips for Refinancing Your Dallas Mortgage

The year of 2013 has seen rampant action in the mortgage and home buying markets. Despite the recent increase on mortgage rates, it’s not too late to improve your mortgages strategy and save thousands of dollars on the life of your Dallas mortgage. The following simple tips for refinancing your Dallas mortgage could pave the way towards massive home savings.

1. It’s not too late to consider refinancing: Yes, as mentioned, mortgage rates aren’t at the record lows they were at a few months ago, but they’re still incredibly low when compared to where they have been at almost any point in history. Aside from interest rates being low, the Home Affordable Refinance Program (HARP), currently allows homeowners who may owe more than their home is worth. The HARP program is helping families save $4,300 a year on average, according to a recent report by Fannie Mae. But don’t wait too long, interest rates are likely to go up and the HARP program won’t be around forever. Follow this link to learn more about HARP 2.0.

2. Compare FHA loans versus conventional loans: FHA loans can provide a lot of flexibility to qualifying homeowners by allowing a Streamlined refinance, but is it worth it? While FHA streamline refinances may add flexibility, recent changes to FHA loans now require monthly mortgage insurance to remain for the life of the loan. Even if you are currently on a FHA loan, consider your options for a conventional home loan. The upfront savings and ability to avoid monthly mortgage insurance for the life of the loan could make a conventional loan a lower cost home loan strategy.

3. Deeply underwater? Keep swimming: Having already touched on how a HARP loan can help you save thousands of dollars, the same type of loan has recently helped homeowners that have fallen deeply underwater. In late 2011, HARP was amended and re-introduced as HARP 2.0, and among its main re-configurations were to allow borrowers with loan-to-value ratios above 125 percent to now be eligible for a refinance—an option that was not previously available to these suffering borrowers. In fact, since HARP 2.0 came about, 316,948 deeply underwater borrowers have refinanced, according to a recent FHFA report.

This is just the beginning of how you can start saving on your mortgage. We’d love the opportunity to help you find out if you’re taking advantage of the best available options. Contact us for a complimentary mortgage review and start saving in as little as 30 days. It would be our pleasure to assist you in finding the best mortgage strategy for your Dallas home.

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