Paying Off House

Image of Should you pay off your house early - Lifestyle Equity Builder

Is It a Good Idea to Pay Off Your House?

Image of Should you pay off your house early - Lifestyle Equity BuilderThe American Dream…Owning your own home. For the majority of us, that means a mortgage.

Most home mortgages are set up for 30 years duration. With that in mind, most people think they will have moved on before 30 years is up, and the idea of paying the house off is not even considered.

So does that mean that paying on a mortgage is a life-sentence?

It doesn’t have to be, many people are planning and working their plan to get their mortgages paid off early. Although this may not be the thing for you to do, it’s definitely an idea that everyone should at least consider.

Why pay your house off early?

  • The best reason I can think of is that you will save thousands of dollars in interest payments. Most people who have a fixed rate mortgage of 30 years will typically pay more in interest than on the principal of the loan.
  • Once your mortgage is paid off, the money for your eliminated payments can begin to work for you in other ways, savings, retirement plans or other investments.
    • Some people who have chosen to heavily invest while still paying on their mortgage are at risk if their investment fails, or some other disaster strikes and they could be left with nothing to fall back on, but still have mortgage payments to make.
  • In times of economic unrest, you can rest easily knowing that you are free of debt and your home is safe and cannot be lost.

Is There a Downside?

There could be a few negatives, such as pre-payment penalties or some tax ramifications. But these things need to be determined on an individual basis.

Image of Complete a Financial Analysis - Lifestyle Equity BuilderAt Lifestyle Equity Builder that’s exactly what we do.

We will take a good look at your financial profile and do a complete analysis to give you the answers that will help you make the best decision for you.

Should you pay off your house early? Ultimately that’s a decision only you can make, but we can give you the tools to do it wisely.

Contact us for a Free Financial Analysis Today!

 


HELOC Mortgage

Image of Make your home equity work for you - Lifestyle Equity Builder

Reverse Mortgage vs HELOC

Image of Make your home equity work for you - Lifestyle Equity BuilderThis is the final in a 3 part series of articles addressing Reverse Mortgages, sometimes call Equity Conversions or Equity Release.

In this article we will address an alternative solution to Reverse Mortgages or a New Way of thinking…HELOC Mortgage or Home Equity Line of Credit.

Fortunately, for the majority of families with good fiscal responsibility, there is another methodology that can be used to accomplish the same thing at zero (0) costs. It answers all of the same “desire and needs” that we have previously discussed. Most everyone has heard of the Home Equity Line of Credit, but many don’t fully understand its potential or how to use it.

Qualifying for an HELOC

For the most part, the underwriting for the HELOC would be the same as the underwriting for an HECM (Home Equity Conversion Mortgage), except for certain advantages.

  • You must have income resources such as Social Security or pension money and equity in your home.
  • You can qualify for an HELOC at any age over 18 years and you don’t have to wait until age 62 to activate the features that are available.
  • No fees to start an HELOC. Does zero expense to get access to your equity work for you?
  • Interest is charged based upon the average daily balance during the month.
  • There is typically an annual continuation fee of just $50.
  • HELOCs are available up to 85% of the value of the home or Loan to Value ratio (LTV). In some cases it is available up to 95% LTV and does not have the lower limitations of the HECM. You can then put more of your equity to work.
  • Interest rates for the HELOC or the HECM are essentially equivalent based upon the underwriting criteria of the lender. At this time the interest rate will be approximately 3.5% to 4%.
  • HELOCs function as a line of credit. You can withdraw and/or make payments to the loan as often as you like without any fees or penalties. This same feature is available in HECM.
  • The line of credit has the potential to increase over time as the value of the home increases.
    • The HELOC allows increases based upon the appreciated value of the house.
    • Over time, the available funds in an HELOC will outlast the HECM every time, even if the housing market is depreciating 1% per year.

Other Comparative Features

Image of HELOC outperforms HECM - Lifestyle Equity BuilderIf you compare the HELOC to the HECM, you will find the HELOC outperforms the HECM every time.

  • The fees during the withdrawal benefit period will be substantially lower using an HELOC. As an example:
    • If you are borrowing $500 per month from either loan type, and the withdrawal is increasing 2% each year to keep up with inflation, at the point that the HECM runs out of borrowing power, you will have paid an additional $59,000 more in fees and interest than you would if you were using the HELOC instead.
  • That means the HELOC will have almost 8 years more of additional borrowing power before it runs out.

HELOC Monthly Payments

The HELOC does have minimum monthly payments that are due based upon the balance in the loan and the interest rate of the loan. The need for monthly payments is covered by using the following technique that essentially results in the equivalency of no monthly payments.

  • Image of Receiving Social Security - Lifestyle Equity BuilderEverytime you get a Social Security check, pension check or money of any kind from any resource, pay 100% of those dollars as a payment to the HELOC.
  • When you need to make a payment or pay bills, borrow the money back from the HELOC to pay your bills.
  • As far as the bank is concerned, you have been making your payments, even though the average daily balance of your loan may be going up.
    • If, during the month you make payments of $2,500 to the line of credit, but you pull out $3,00 or $500 more for living expenses, your $2,500 paid to the balance of the line of credit constitutes the payment each month.
    • So, instead of your check sitting in your checking account, put it to work reducing the interest due, then borrow out what you need for living expenses.
    • The line of credit will grow by $500 per month, plus interest.
  • The other advantage is this methodology will reduce the average daily balance resulting in less interest charged to the account, leaving a greater portion available for a long time.

For more information on how to make your equity work best for you,

Contact me today!

You can have a free 1 hour consultation to discover your potential!

We concentrate on Keeping America Strong one Family at a Time, no matter what the economy is doing!


Equity Conversion

Negatives of Equity Conversion - Lifestyle Equity Builder

What are the Negatives About a Home Equity Conversion Mortgage

Negatives of Equity Conversion - Lifestyle Equity BuilderIn our last post we talked about some of the positive aspects of an Equity Release Loan, also called a Reverse Mortgage or a Home Equity Conversion Mortgage.

So you can make a better decision, in this article we’ll talk about One of the some of the negative features of an Home Equity Conversion Mortgage (HECM).

Costs and Restrictions:

  • In order to qualify for the loan, underwriting approval requires at least $500 excess cash flow, which includes monthly withdrawal.
  • The LTV (Loan to Value ratio) is based upon the age of the youngest person living in the house – which means both spouses must be at least 62 years old in order to qualify.
  • Loan origination fees can be pricey for HUD or FHA guaranteed the loans.
    • Typically the 1st part of the fee is calculated on 2% of the first $200,000.
      • For example: If a home is valued at $250,000, then the initial fee would be $4,000.
    • Is an Equity Conversion Loan right for you - Lifestyle Equity BuilderThe second part of the fee is calculated on 1% of the value of the home over $200,000, up to $650,000 and a maximum fee of $6,000.
      • In our example above, there would be a 1% fee on the remaining $50,000 of the home’s value – $500 additional added to the first fee, giving us a total of $4500 for the HUD approved loan origination fee.
    • There may be third party fees of 1% or an additional $2500, which could increase your fees to as much as $7000.
  • Mortgage Insurance Premium is another up front fee of 2% of the house’s appraised value…another $5000.
  • So the initial expense of our example loan would be about $12,000 which would typically be rolled into your loan, and you would start with a balance owing of $12,000.
    • If your home is appraised at less than $125,000, the minimum origination fee would apply which would be $2500.
    • If the appraisal is more than $625,000, the maximum origination fee, excluding general fees is $6000.
      • The LTV or available funds are applied against homes of the maximum value of $625,000
  • You will incur a $35 a month for a loan management fee, which is actually greater than that amount, because each month, interest is added to the prior month’s fee and charged to your account.

Management Fee for Equity Conversion - Lifestyle Equity Builder

  • As with the Management fee, there is a hidden cost associated with the Mortgage Insurance Premium of 1.25% of the existing loan balance per month.
    • This fee is added onto the balance of the loan and begins to accrue compound interest each month.

What would be your line of credit?

Given today’s interest rate, the available LTV is based on the age of the youngest resident of the house, minus 7. So, if the youngest person is 65 years, the available LTV would be at 58%. See the chart below to see what the available line of credit would be on our example house.Line of Credit for Equity Conversion - Lifestyle Equity BuilderIn our 3rd and final article, we’ll discuss an Alternative Idea that will probably suit your needs and introduce you to A New Way of Thinking.

If you’d like to learn more about it right away…

You can have a free 1 hour consultation to discover your financial potential!

Contact me today

We concentrate on Keeping America Strong one Family at a Time, no matter what the economy is doing!