How to Pay Off Your Home in Less Time

As more homeowners are starting to make plans to wait out the economic downturns and stay in their homes longer I thought it might be a good idea to offer some information on accelerating the payoff of your home. There are several strategies, and over the next few weeks I will offer a few of these strategies, however I will start with one of the most simple techniques: The Bi-Weekly Payment.

Just as it sounds, the bi-weekly payment is simply a payment plan that has you paying your house payment every two weeks. Now don’t panic, you are not paying the same amount twice, simply take your current payment, cut it in half, and then pay that amount every other week. At the end of the year you will have made the equivalent of 13 payments. By doing this you will shorten the term of a 30 year mortgage by roughly 7 years.

Unfortunately, a true bi-weekly payment isn’t always available. Many lenders will use what is called a “Standard Bi-Weekly” payment plan, also known as a “Pseudo Bi-Weekly” program. With a Standard plan the bi-weekly payments are put into an account managed by the lender. Once a month the mortgage payments are then made from that account. Any interest that accrues remains in the account until the end of the year. The interest will be equal to the amount of a typical monthly payment, which means that once per year your lender will make a “double” payment.

While most lenders do not offer it, you will pay off your home faster if you use a “True Bi-Weekly” or “Simple Interest Bi-Weekly” payment plan. With a True Bi-Weekly payment program the lender applies your payments immediately, rather than waiting until the end of the year. For this to work your lender must calculate your interest for 2 week intervals and base the interest upon the outstanding principle balance.

If you would like to consider a Bi-Weekly payment for your home simply contact your mortgage lender and ask what kind of program they offer. Be sure to find out if they apply your payments immediately or if they only apply payments once per month.

As always, feel free to email me with any questions. I can be reached at jayhart@cottonwoodmtg.com

Waiting Too Long to Buy A Home?

I have a client who has been considering upgrading to a newer and larger home for nearly a year now. Every month or so he calls me and asks if I think now is the right time, or if home prices will drop even more. I have started to realize that quite a few potential home owners are using the same rational to put off buying a home. I guess I am just not convinced that this is the best strategy. Now, don’t get me wrong, I am all about being conservative, but my gut tells me that if you are in a position to qualify for a new home (and that is something you are planning on) you ought to get going on it, rather than hold off. If you are planning on buying a home and only holding on to it for a year then be my guest and sit on the sidelines. You are probably better to wait and see if prices will drop.

If, however, you are looking more long-term, then it is probably better to get into the home you are looking for sooner rather than later. Members of my Inner-Circle will remember that the NUMBER 1 RULE when purchasing a home is to treat your home as an investment. Remember, our first home is 95% investment. Our second home is something closer to 75% investment, and our third (and for most Americans our final) home is more like 25% investment. Unless you plan on remaining in your home for 15 years of more you need to treat it as an investment. Period.

So, why not wait? Well, first off let’s remember that our economy isn’t exactly booming right now. Interest rates will very likely increase, making that home more difficult to pay for. Second, as home values decline more people who have been previously “priced-out” will be back in the market, meaning that there will be more competition for the home you want. Third, as more buyers enter the market we will likely see home prices edge back upward (remember the supply and demand discussion from your freshman economics class?)

Here is another reason to stop waiting: Utah has a different Real Estate Market then the rest of the country. I have written extensively about the fact that while home sales have slowed we are not seeing the kind of losses that the rest of the nation is facing. The article I posted yesterday only confirms that while we are slowing, the market in Utah is still one of the stronger in the nation.

And another reason: Buy when you are ready—stop timing the market. If you are renting you are throwing money away. A family paying $750 per month in rent will loose $9000 just by waiting an extra year to see if the market drops much more.

So, if you are thinking about buying a home, whether it be your first or your next, I guess it is probably worth taking a serious look at why you are waiting. If you have questions about your specific situation just shoot me an email at jayhart@cottonwoodmtg.com

Are Utah Home Losing Value?

I would say that the most common question I am asked these days is whether or not homes in Utah are loosing value. I have maintained that while home sales have slowed, the average sales price is staying pretty much level. I base this upon what I am seeing for my clients, as well as what I have seen on the homes that I own which are for sale. The truth is that it is getting more and more difficult to sell a home right now. Potential buyers are concerned about the direction of the housing market, and the economy isn’t exactly bursting with signs of consumer confidence. In spite of that, home values have not dropped in most of the state.

The Salt Lake Tribune had an article last week that only proves my point. You can read the article here: http://www.sltrib.com/realestate/ci_9033973

Here is a quick summary for you:

1. Salt Lake County Home Sales dropped 42% over the past year, but values increased by only 1%
2. Davis County Home Sales dropped by 26%, but home values remained unchanged
3. Home prices dropped in Tooele County and Utah County
4. Weber County saw an increase in prices of nearly 8%, the largest of the counties along the Wasatch Front.
5. Experts are now predicting that Utah home values will likely experience slight declines through 2009.
   

SO WHAT DOES THAT ALL MEAN?

Well, if you are looking for a home you might be able to get a good deal on a new home. Conversely, if you are looking to sell a home you may have to choose between waiting another year or more to sell or simply accepting a lower price for your home.

Personally, I am seeing more home owners preparing to take advantage of the slowing market. I believe that as more people realize the good opportunities in the Utah housing market more people will look to buy newer homes at discounted prices, meaning that we will most likely see a quicker turn around than many would predict.

That’s my two cents!