Professional Mortgage Loan Insight - Interest Only Loans, LIBOR Loans, Mortgages and more

Mortgage Information and Real Estate Experience

Through years of mortgage and real estate experience it has become more apparent to many people that the appreciation and tax benefits of real estate is where financial wealth comes from and not so much as to how much principal balance someone pays down on a mortgage. Real Estate has skyrocketed over the last 25 years and it has become harder for families to realize the dream of owning a home. These loans not only help you qualify for more home they will allow you options that amortizing loans do not.

The national average most people stay in a home is between 5-7 years, why on Earth would you take an amortizing 30 year fixed rate loan, I know, because your parents did and their parents did and so on. Let us try to give you some insight on how these types of loans can significantly change your cash flow position, it is important to understand that we are in no way telling you that you will be saving money, we are explaining with these types of loans you will have options and can decide for yourself how to use the principal portion of your payment.

Here is an example of a $500,000 loan comparing a 30 year fixed rate mortgage to a 5/1 ARM Interest Only, assuming you will move in 5 years, again the caveat is if you do not move you will be subject to the rates five years from now and you may want to refinance. We will take that into consideration also. The rates quoted below are in no way an offer of a mortgage; it is pure speculation of a scenario that could happen.

500K 30 year fixed rate jumbo mortgage loan @ 5.875% - payment $2,957.69 per month for 30 years. Your principal balance will be $464,547.20 after 5 years; you paid down $35,453.00 or just 7% of the total loan balance in 5 years.

500K 5/1 ARM Interest Only mortgage @ 4.875% - payment $2,031.25 per month for 5 years. This is $926.44 a month cash flow position or $55,586.40 in 5 years that you have created for yourself.

This is a typical scenario of what we see in the industry today. You benefit not only because your interest rate is lower, you also have the option to decide what you want to do with the principal portion of your payment, college tuition maybe, pay down some credit cards, you decide. With families struggling to make ends meet today or the financial expert who wants to have additional options to use and invest their money in other areas, these loans benefit both.

Okay lets look at the possible down side. Five years from now you decide you are not going to move and assuming rates have increased, let’s look a possible scenario.

500K loan, if you took the 30 year fixed rate jumbo @ 5.875% you would still be paying $2,957.69 per month.

It is five years later and rates have moved up to where they were a number of years ago, you might be looking at this scenario. The average closing cost for a refinance excluding escrows is about $4,000.00; this normally is added to your loan amount.

504K Fixed Rate Jumbo Loan @ 7.50% - payment $3,524.04

504K 5/1 ARM Interest Only @ 6.50% - payment $2,730.00

The payment of $2,730.00 per month on the new 5/1 ARM Interest Only mortgage at the higher rate of 6.50% is still $257.69 per month less than the original mortgage payment of $2,957.69 at 5.875% 30 year fixed. This is an additional $15,461.40 in cash flow for another 5 years. In fact if rates increased to 7% on the 5/1 ARM your payments would be $2,940.00 per month, still below the fixed rate payment.

These are hypothetical examples. Let’s look at the bottom line; if these figures were even close to being true, and it is now five years later and you decided to sell your home, assuming you bought your home for $625,000 and you put 20% down to give you a $500,000 mortgage. Using a moderate appreciation of home values of 4% per year, your home should be worth approximately $750,000.

30 year fixed scenario: Sold for $750,000, the present loan balance is $464,547.20. Realized gain in appreciation is $125,000 along with the principal balance you paid down of $35,452.80 for a total amount of $160,452.80 at closing.

5/1 ARM Interest Only scenario: Sold for $750,000, the present loan balance is $500,000. Realized gain in appreciation is $125,000 adding the cash flow balance of $55,584.40 that you used however you wanted, your total net would be $180,584.40. Not only did you save money by going with an Interest Only ARM at a lower rate, you were able to utilize the principal balance portion as you wanted.

Each individual scenario is different, and we are by no means telling you this is the best way to go, we just wanted to shed some light on the potential savings and cash flow that these products offer. Please request a quote from one of the mortgage professionals associated with our site, they can explain in detail the different programs available, and give you an up to date mortgage quote. Good Luck!!!

10 Home Buyers Tips

1- Buying a home Is One of the Best Investments You Can Make! Home equity remains the largest single savings vehicle for most Americans. In addition to the tax incentives of home ownership, and the ability to tap into your home equity if the need arises, buying a home is a wise and prudent investment for most people.

2- It Is Very Important To Buy A Home That Will Go Up In Value. Slow, steady home appreciation has been the rule over most of the nation’s history, and many real estate investors became quite wealthy in that environment. They did so by very carefully analyzing the appreciation potential of their investment, and they invested for the long term. You should too. Even if you plan on living in your home just a few years, you will want it to have gone up in value when you put it back on the market.

3- Use A Buyers Agent. If you’re going to work with a real estate agent, contract with a buyer’s agent rather than with a subagent. A buyer’s agent is paid by you and has a duty to represent your interests, while the subagent is paid by the seller and represents the seller’s interests. The subagent, which has been the traditional relationship between a buyer and an agent, is ethically required to disclose all relevant information (such as the fact that you’ll be willing to raise your offer if necessary) to the seller. Try as you might, it’s difficult to avoid saying things you shouldn’t to a subagent. While you are responsible for paying the buyers agent, the net cost can be zero if you put in your offer that the seller is to pay buyer agent’s commission (which the seller would have had to pay anyway if the offer had come from a subagent). An exception is if you’re buying from a self-seller. They often did not plan on allowing for a real estate commission. In those circumstances you face a subjective decision as to whether a buyer’s agent’s negotiating skills are sufficiently better than yours to justify the commission you will owe them.

4- Choose Your Agent Wisely. If you are using a real estate agent look for one with experience in working with buyers, with knowledge of the neighborhood(s) you are considering, and who does not have a reputation for being ‘pushy’. The purchase of a home is a serious long term commitment on your part and a good agent will recognize that buyers need time and patience so they can satisfactorily sort out the myriads of factors involved in a purchase decision.

5- Current Home Prices Are A Less Important Consideration Than Interest Rates. Try to buy and/or sell when interest rates are low. The amount of mortgage you can afford (and thus the price of the home you will consider) will change as the interest rates rise or fall. A certain asking price may sound expensive to you, but at a lower interest rate you might be able to afford it. You may own several homes over your lifetime, and the factors that will limit or increase the value of the home you will be selling will similarly affect the price of its replacement. Since those factors largely wash each other out, interest rates remain the most important factor.

6- Always Have a Home Inspection Contingency in Your Offer and always hire a professional home inspector to provide you a written report, along with "ball park" estimates or ranges of repair costs. If the inspection turns up problems that weren’t readily noticeable, you can use it and the ball park estimates for negotiating leverage to get the seller to make the repairs or provide you a commensurate price reduction.

7- Learn As Much As Possible about the Seller’s Circumstances. There may be mutually beneficial opportunities. For example if you might face difficulty qualifying for a big enough mortgage, and the seller is worried about college costs for his or her sixth grader, then maybe the seller might be interested in accepting a second trust for part of the purchase price if the interest rate is above what they could otherwise earn and the loan is paid off the summer before the child's freshman college year. From your perspective the rate will likely be less than you could get from a traditional lender.

8- Research Your Mortgage Options Well Before You Make An Offer. You won’t have enough time in the five days sellers normally allow to get all of your paperwork together, determine the best kind of mortgage, who is offering the best rates etc. Consider getting a contingent letter of approval for a loan, or an actual loan commitment prior to making an offer. The former is not actually a loan commitment, but rather a contingent approval for a loan up to a certain amount. While it has relatively little enforceable value, it nevertheless can impress a seller, who might be more willing to accept a lower offer because of the perceived financial capabilities of the seller. It’s also possible to get approved by a lender with a longer term "lock" on the interest rate in order to protect you from subsequent rate increases. While this should substantially increase your negotiating leverage, keep in mind that you pay more directly or indirectly for the longer commitment, either in terms of the rate and/or points.

9- Learn How To Negotiate Like A Pro. There’s more money involved in this negotiation than just about any other area you’ll encounter. Even if you’re using a buyer’s agent, you’re part of the team, and you’ll have to make the ultimate decisions about how much to offer and how much to compromise on a counter offer.

10- STUDY! The tips in this brochure are only the beginning. You’ll need to learn a lot more if you want to get the best possible deal. Read as much as you can on home buying, on negotiating, on neighborhoods in your area that might fit your needs, and on factors that impact long term appreciation like schools, infrastructure, major new business expansions or closing etc. Keep copies of everything you send the lender and everything the lender sends you. 

10 SELLERS TIPS

1. The Only "Sure Fire" Way To Sell Your Home Fast Is To Price It Substantially Below Its Fair Market Value. If it truly is priced at far less than its worth it should sell quickly. For those of us who can’t or don’t wish to sell our home for less than the fair market value, the next best alternative is to take the time to learn each of the components of a successful home sales initiative and make the effort needed to assure that in each area you are doing everything possible to maximize its contribution to the home marketing effort.

2. If You Plan To Purchase Another Home The Best Time To Sell Is During A Period Of Low Interest Rates. Low rates benefit buyers and sellers alike, and you will be both. A "sellers market" is also helpful, but this competitive benefit will be canceled out if you plan to buy a replacement home.

3. To Be Effective You Must Participate In The Marketing Process. If you’re in a sellers market, and you have both good marketing skills and the necessary time, you can greatly reduce the selling costs by selling the home yourself. There are now over 200 private local organizations that offer assistance for self sellers, including magazines, radio and TV advertising, private computerized listings, and other selling tools such as for sale signs, how-to videotapes etc. In a buyers market it will be harder for a self seller to overcome the disadvantage of lack of access to the multiple listing service as well as the large number of real estate agents scrambling for the attention of the limited number of buyers. Compromises include discount brokers, which typically provide MLS access but limited market support.

4. If You List Your Home With A Broker, Seek A Broker And Agent With A Successful Track Record In Your Neighborhood. Give preference to a broker with the greatest emphasis on representing sellers. Also ask how the firm attracts buyers. Since most brokers try hard to encourage their subagents to sell buyers on house listings first a firm that represents only or mostly sellers and which also is successful in attracting many buyers is in your best interest. Include language in the listing providing for the sharing of the real estate commission with a buyer’s agent should they be a source of the buyer. (A buyers agent works for they buyer and owes their loyalty to the buyer while a traditional subagent finds the buyer but works for and represents you.) If an offer is presented by a buyer’s agent, give it serious consideration, but remember that the buyer’s agent’s duty is towards the buyer. (For these same reasons we recommend that buyers who choose to work through an agent use a buyer’s agent and not a subagent).

5. You Can Sell Your Home Without An Agent. To Have a Reasonable Chance of Success You’ll Need:

A) Time. It will likely take longer to sell your home without an agent so it’s best if you’re not facing a deadline. Also, selling is work. Developing and executing a marketing plan will take a lot of time if your effort is to be effective. It’s not a smart idea for two income parents of young children who both are already working 40 plus hour weeks.

B) Talent. Selling is a marketing effort. If you don’t have an instinctive bent towards advertising and marketing, and you don’t like negotiating, reconsider.

C) A favorable market. In a strong sellers market (more buyers than available homes) almost anyone can sell a home. That's the very best time to sell without an agent. In a strong buyers market even the best executed market plan will have a hard time overcoming the inherent marketing advantages of the MLS system/broker/agent network.

6. If You List Your Home With A Broker, Ask Them To Prepare A Market Analysis (how much is it worth?) And A Marketing Plan (how do you plan to sell it?).  Ask lots of questions about both. Include the main points of your marketing plan in your listing agreement so that all parties will know what is to be expected (i.e. frequency of ads and the publications where they’ll appear, frequency of open houses, etc.). Limit the length of the listing - two months or less is good, but no more than three months. If the agent is doing his/her job as set out in the listing agreement you can reward them with a renewed listing. If they’re not you’ll be able to show them why they aren’t getting the renewal and you’ll have hard documentation of reasons to cancel the listing if they don’t perform.

7. Shine Your Apple. Make your home look as nice as it can look. Have a presale yard sale and get rid of as much clutter as possible. Clean up and repaint with neutral colors if necessary. Open blinds and replace light bulbs with brighter substitutes. If important parts of your home are outdated consider cost effective updates. If your kitchen or bath is old or in bad shape a prudent remodel can often return over 100% of the investment and help you sell the home faster. But don’t over improve. There’s not much point in adding a fourth bathroom to a home that is already worth more than most of the others in the neighborhood.

8. Price Realistically, Especially In Slow Markets. When markets are slow buyers are psychologically unprepared to overpay - and they apply stringent standards of value. They will heavily discount many expensive and unusual improvements unless they appeal very strongly to their own personal tastes.

9. Consider Providing Owner Financing If You Can, But Be Cautious. If you can provide some financing, even if it’s a small second trust, you may be offering the deal maker. AT the same time you can often earn a considerably higher interest rate that you would have earned with the same money otherwise. Caution: Fluctuating real estate markets can wipe out your security in the event of foreclosure. Foreclosures cost money and second trusts get paid after first mortgages, and only if there's money remaining. Make sure to check the financial records of the buyer and make sure that they put up a substantial down payment if you’re providing owner financing.

10. Study. More money hangs in the balance here than in most financial transactions in your life. It therefore makes sense to learn as much as you ca about selling your home. No matter whether you’re a self seller or have an agent, you need to learn enough to be in command of the process. The difference between several days of study can be several thousand dollars in the eventual selling price.

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