Should You Pay Off Your Mortgage?
It might be worthwhile, in some cases, to pay a home loan off early. Rather than approach a mortgage broker, homeowners should consult with a personal financial planner or accountant--as they're more familiar with the ins and outs of such a decision. Those professionals can tell homeowners if they would fair better paying off their mortgage or investing their money elsewhere, and they'll also know how taxes figure into the equation.
But professional opinion varies widely. "Basically, if the interest rate you're paying is greater than the amount of return you're getting on your [investment] money, obviously the smart thing to do is to pay off that mortgage," advises CPA William M. Walczak. But, he adds, those homeowners who have debt in addition to the mortgage should pay off the other debt before the home loan. Still other financial experts say that homeowners shouldn't pay off mortgages because of the tax deductions the loans can offer.
Jim Kopp, president of the Wisconsin Mortgage Bankers Association, says ultimately that the decision should be based on the homeowner's lifestyle and financial comfort level.
Fraudulent lenders often work in cities and target first-time homebuyers who may not be familiar with the process of applying for a loan. But homebuyers should make sure they choose their lender as carefully as they choose the home they are buying. Choosing a lender based on a recommendation is not enough. Buyers should get referrals from many people and should ask them if their experience with the lender was positive. This will help the buyer get to know the lender.
There are other rules to follow when working with a lender. Sometimes lenders will ask buyers to sign a blank application form, allowing the lender to fill in false information in order to make the loan larger. Buyers who do this are committing fraud, and they should fill out the application completely and make a copy of it. Buyers also shouldn't believe everything a lender tells them. If the lender is making large promises or is asking about anything besides necessary documentation or credit history, they are probably asking too much.
Finally, if buyers are unsure about the offers a lender is making, they can always contact a state regulatory agency to make sure the lender is acting legally.
Terms such as "suitable" and "acceptable" should raise red flags to sellers that the buyer may pull out of an agreement if everything isn't just so. Other phrases to watch out for are "subject to suitable financing". This kind of wording gives the buyer the freedom to cancel the contract on a technicality, and without paying a penalty. To avoid this, sellers should insist on a rate and point cap on financing requirements.
Although the inspection is a necessary part of the purchase, sellers should put a time limit on when it is to be completed, and they should set a monetary limit as to how much they agree to spend to correct problems found during the process.
In addition, sellers will know if a buyer is serious based on the size of the deposit check. Although this "good faith" deposit varies, it usually falls between 2 percent and 10 percent of the asking price. Finally, sellers should put a limit on the amount of time a buyer has to close. Statistics show that the longer it takes to close, the more likely the chance that the buyer will back out of the deal. A fair amount of time to give buyers, professionals say, is about 40 days.
Inspectors will examine the physical structure of the property as well as such specifics as the foundation, attic, basement, windows, doors, HVAC system, wiring, and plumbing. Buyers can obtain the names of qualified inspectors from family or friends, or they can contact the American Society of Home Inspectors for referrals. Not all states require licensure of inspectors, so obtaining inspector names from the ASHI will at least provide reassurance that the inspector has some sort of professional training. In addition to giving the buyers the peace of mind that they are making a sound purchase, Doug Richards--president of the Council of Residential Specialists--notes that inspectors can also show homeowners how to best operate and maintain the systems of a home.
For buyers who made a down payment of less than 20 percent, appreciation levels may enable them to eliminate private mortgage insurance. On average, PMI premiums run between $50 and $100 a month--which incurs additional costs of $5,000 to $10,000 over the life of the loan. To get the lender to drop PMI, homeowners must show proof that they have achieved 20-percent equity. Lenders have different requirements for canceling, so it is a good idea to check with the lender before paying have the value of the home assessed. Usually, the opinion of a professional appraiser is required, and such a valuation can cost between $300 and $400.
To take advantage of high home-appreciation levels, homeowners should also consider dropping their escrow account. The interest these accounts accrue is usually smaller than the rates consumers could find if they saved the money themselves. After the escrow account is canceled, savvy homeowners will set up an interest-bearing account that automatically withdraws funds for property taxes and homeowners insurance. Until those bills are due, however, the money could be earning interest. Over the course of a 30-year mortgage, the homeowners stand to amass thousands of dollars in extra savings.