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Pros and Cons of a 15-Year Mortgage

Coming up with the down payment on a home can be hard enough, and one way to make a home more affordable is to spread out the mortgage payments over 30 years.

But 30 years can be daunting, and that time can be cut down with a 15-year mortgage. It’s a lot more expensive in the short-term than a 30-year fixed-rate mortgage, but pays off through greater long-term savings.

Here are some things to consider when weighing a 15-year vs. 30-year mortgage:

Saving Money
It can be difficult to see the long-term benefits when looking at a monthly mortgage bill that will be 50 percent higher over 15 years instead of 30.

Paying a home loan off in half the time requires a larger payment, of course, but it can save you tens of thousands of dollars in interest charges. Why? Not only is more principal paid earlier, but interest rates on 15-year mortgages are usually better than other loans types.

Here’s an example of a $200,000 mortgage at 30 vs. 15 years:

Mortgage type:         30-year          15-year
Interest rate:             4.5 percent    4 percent
Monthly payment:     $1,013           $1,479
Total interest:            $164,813       $66,288

That’s almost a savings of $100,000 by going with a 15-year loan. Divide that savings over 15 years and it’s about $555 saved per month.

Borrowers should make sure they have enough income to afford it, are able to manage their household debt and have money in liquid savings for emergencies.

Building Equity
Repaying a mortgage faster not only saves you money in the long run, but you build equity in your home faster, too. If home prices rise, your equity could grow as well.

This is good for many reasons, including making refinancing easier by lowering your debt-to-income ratio. While it won’t improve your cash flow, it should make it easier to get approved for a home equity loan or home equity line of credit.

An Easier Retirement
Another big advantage…if you plan to retire in the next 10 to 20 years, you won’t have to worry about mortgage payments during your retirement. Instead of a house payment, you can use that money for retirement expenses.

If you continue paying a 30-year mortgage into retirement, you may have to pull money out of your savings to make the payments.

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Mortgage Options When Interest Rates Are Rising

Mortgage rates have been relatively low for years. Seeing them inch up can cause home shoppers to panic and possibly put their home purchase on hold.

The good news is that there are options when mortgage rates are rising.

First, it’s worthwhile knowing that small increases in mortgage interest rates shouldn’t affect buyers too much — a one-half percent rise in mortgage rates is only about $28 more per month on a $100,000 loan.

A 30-year fixed-rate mortgage is the most common type of home loan. There are other types of home loans and other options that can make buying a home easier, though they often come with the caveat that a low interest rate now may mean a higher one later. Here are some options:

Get an ARM: An adjustable rate mortgage, or ARM, will have a lower interest rate than a fixed loan, but only for a certain number of years before it changes.

The interest rate will be fixed for three, five, seven or 10 years, then may go up if interest rates are rising. The longer the fixed-rate period, the less savings you’ll see in the interest rate.

Pay More Points: Paying discount points can lower your interest rate. Each point costs 1 percent of the loan rate to lower your rate by one-eighth to one-quarter percent. Paying two points, or $2,000 on a $100,000 loan, to lower a 4.25 percent loan to 4 percent equals $15 per month in savings.

You’ll have to calculate how many months it would take to make up that savings. In the above case, it would take 133 months of saving $15 per month to make up the $2,000 paid for the lower interest rate. That’s about 11 years of living in a home.

Make a Bigger Down Payment: Coming up with a bigger down payment is another way to afford higher interest rates on a loan. The more money you put down, the less money you’ll need to borrow—and, sometimes, it can help you get a lower interest rate.

Do the Floatdown Option: Pay a fee of one-quarter to one-half of a point to get a floatdown option to protect you if mortgage rates drop by the time you close on the loan. If rates fall during the typical 45 days it takes to close a home loan, you’ll get the lower rate.

Those are just some of the options borrowers have when interest rates are rising. Ask your mortgage provider for more.

I hope you found this helpful. Contact me for more home and real estate insights and info.

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A Quick Breakdown of Your Homeowners Insurance

As new homeowners will learn, borrowers need to provide their lender with proof of homeowners insurance for the full value of the property (usually the purchase price) in order to be approved for the loan.

Typically, the standard insurance policy protects your new property and some possessions against damage or theft. But what, specifically, will it cover?

Limited Damage to the Home’s Interior and Exterior
Your insurer will compensate you for repairs or rebuilding costs resulting from fire, hurricanes, lightning, vandalism or other covered disasters. Damage that is the result of floods, earthquakes and/or poor home maintenance is generally not covered unless you have purchased ‘riders’ for that protection.

Loss or Damage to Personal Belongings
Clothing, furniture, appliances and most other home contents are covered if they are destroyed in an insured disaster. You can even get “off-premises” coverage that enables you to file a claim for lost jewelry, for example, no matter where you lost it. But there may be limits on the amount of protection.

According to the Insurance Information Institute, most insurance companies provide coverage for 50 to 70 percent of the amount of insurance you have on the structure of your home. If your house is insured for $200,000, there might be $140,000 worth of coverage for possessions. If you own expensive art or jewelry, and provide proof of their value, you can purchase a ‘floater’ policy to fully insure them.

Personal Liability
Liability coverage protects you from lawsuits filed by others. If your dog bites your neighbor, your insurer will pay her medical expenses. If your kid breaks her expensive vase, you can file a claim to reimburse her. And if the neighbor slips on the broken pieces and successfully sues for pain and suffering or lost wages, you’ll be covered for that, too. Experts recommend having at least $300,000 worth of coverage.

Lodging During Repair or Rebuilding
This coverage reimburses you for hotel rooms, meals and other costs you incur while waiting for your home to become habitable after a covered damage. Most policies impose daily or total limits unless you purchase additional coverage.

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Obtaining a Mortgage When Self-Employed

Obtaining a mortgage is a little different when you’re self-employed.

Reporting your income as a self-employed worker on Schedule C for income tax purposes can make qualifying for a mortgage loan or refinancing a little more complex. The reason being that proving consistent and reliable income as a freelancer can be more involved because you don’t typically receive a regular paycheck. Because of this, the lender wants proof that you can repay the loan.

Each lender is different. Some require self-employed borrowers to go through extra hoops to prove employment, while others may or may not wait until the loan gets to its compliance or operations department. Early in the applications stage, for example, you may need to provide contact information for your employer so the lender can confirm you’re working regularly.

Many lenders will ask for three years of accounts to prove income. Some may drop it to two years, and a small number of mortgage lenders will accept one year.

However, 2018 guidelines make it easier for self-employed homebuyers, requiring only one year of income tax documents to prove income, as long as the application qualifies for automated underwriting. This automated system doesn’t require filling out various forms, though you’ll need to document your income, savings, retirement and investment balances.

An accountant or tax preparer may be able to help by providing a letter stating how long you’ve been in business. A Profit and Loss Statement, or P&L, can be prepared by your accountant to show your business income and expenses for a specific time, such as showing you paid off a business loan.

When applying for or closing on a loan, be sure to give yourself plenty of time. A rate lock can give you enough time to verify your income. Have your bank statements and tax forms ready, along with any other information your accountant or tax preparer says you might need. Respond to inquiries from your lender promptly and focus on the final goal of getting a new mortgage.

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Kitchen Counsel: Tips to Keep That Stainless Steel Shining

If you have ever owned any stainless steel products, you know how beautiful and appealing the look can be. Stainless steel appliances give a renovated kitchen that POP! it needs, while steel also makes for a very durable cookware product that never disturbs flavors, yet guarantees a balanced heating of foods. It also resists corrosion and rust – a bonus for the steel fans!

But sometimes stainless steel appliances can be difficult to keep clean. Here are some quick and easy tips for cleaning steel and maintaining that fresh metallic look:

Clean with water and a cloth. Microfiber cloths are the best option to use when cleaning stainless steel because they absorb all of the water. It’s also a safe product to use to avoid scratching steel surfaces. You’ll want to avoid paper towels or any cloth or towel with a rough surface intended for non-stick cookware. This especially includes steel wool! When drying, dry along the grain to avoid water spots. If you clean or dry aggressively against the grain with regular scouring pads, you will leave marks on your appliance or pan, so be sure to take it easy.

Only use a drop of dish soap. For most cases, a drop of mild dish soap and warm water is all you’ll need to clean a pan or pot, so don’t overthink it! Just be gentle. Alternatively, using white vinegar as a cleaner has also been proven to work. Try it out – that stuff is like magic!

Glass cleaner is your friend. Fingerprints on stainless steel is one of the biggest complaints and it’s a valid concern! No matter how careful you try to be, fingerprints will always end up on your fridge. Spray glass cleaner on a microfiber cloth to get the job done. Wipe away the fingerprint using soft circular wipes. There are newer finishes of stainless steel that are fingerprint resistant, so if you are buying new products be sure to do your research and seek those out.

Keep a stainless steel cleaner on hand. If you need to remove stains or scratches from your stainless steel, using a steel cleaner is a great option. Read the directions on the cleaner and be sure to test the product on an unnoticeable location, just in case. Even if you aren’t trying to remove a stain or hide a scratch, stainless steel cleaner or glass cleaner will help your appliance shine. As always, rinse the area thoroughly afterwards and towel dry.

Stainless steel can be finicky, but with a little TLC, stainless steel will keep your kitchen looking sleek and stylish for years to come.

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