Alternative Ways to Pay Off Your Mortgage Early

(MCT)—A standard, fully amortizing mortgage pays off the balance over the term. With a 30-year term, this requires 360 monthly payments, while a 15-year term requires 180 payments. Many lenders, however, offer special loan repayment programs that promise to pay off the balance before term, without imposing much of an added burden on the borrower. Here are the most common of these schemes, as well as an alternative that borrowers can adopt on their own.

BIMONTHLY PAYMENT PLANS: On a bimonthly payment plan, the borrower’s monthly payment in split into two pieces of equal size, one due on the 15th of the month and the other on the first. While the borrower makes 24 payments a year instead of 12, they add to the same total. However, the lender credits the half-payment on the 15th to the balance on that day, which reduces the interest due on the first of the month.

While the reduction in interest shortens the period to payoff, the impact is small. On 30-year mortgages with rates of 6 percent or less, payoff occurs after 719 half-payments, shaving just one-half of a month off the term. On a 7 percent mortgage, payoff occurs after 718 half-payments, accelerating payoff by one month.

There isn’t anything wrong with the bimonthly mortgage, provided that paying twice a month is convenient and you don’t give up anything of value to get it. Readers have reported to me that loan officers touting the bimonthly have told them that the term would be reduced to 23 or 24 years, which is nonsense. You can check this out yourself with a spreadsheet on my website called “Extra Payments on Bimonthly Payment Fixed-Rate Mortgages.”

This spreadsheet also allows you to assess the impact of additional bimonthly payments, which some borrowers might find an attractive option. As an example, the borrower with a $200,000 mortgage at 4 percent who pays $477.42 twice a month gets to a zero balance just half a month early. But if the borrower rounds off the payment to $500, payoff occurs after 659 payments, or 30.5 months early.

BIWEEKLY PAYMENT PLANS: A biweekly mortgage is one on which the borrower makes a payment equal to half the monthly payment every two weeks. The payment amount on a biweekly is thus the same as that on a bimonthly. But since there are 26 biweekly periods in a year compared to 24 bimonthly periods, the biweekly produces the equivalent of one extra monthly payment every year.

This results in a significant shortening of the term. For example, the 4 percent, 30-year loan converted to a biweekly pays off in 310 months — or 25 years, 10 months. The reduction in payoff period is due entirely to the extra payment every year. Payments are credited monthly, not biweekly, so there is no intra-monthly interest savings comparable to that on a bimonthly.

There have been biweekly plans in which payments are credited biweekly rather than monthly, but they have been overpriced, and their advantage is small. In the example directly above, the payoff period would be 25 years 7 months, or 3 months less than when payments are credited monthly.

Note that the benefits of any extra payment program increase with the level of interest rates. Using the same example, the payoff period is 286 months at 7 percent compared to 310 months at 4 percent. All these numbers on biweeklies are drawn from another spreadsheet on my site titled Biweekly Mortgages.

ROLL YOUR OWN EXTRA PAYMENT PLANS: Borrowers who like the idea of accelerating the payoff need not pay extra for the privilege; they can do it themselves. By increasing their monthly payment by 1/12, they will pay off in about the same time as a standard biweekly. At 4 percent, payoff is one month later, while at 7 percent it is one month earlier.

The major difference between a plan administered by a lender and one administered by the borrower is that the first is mandatory, providing a discipline that some borrowers may value. Doing it yourself means that you don’t have to do it, which is an advantage to some but a drawback to others.

Written by Jack Guttentag - RISMedia

Keep your home safe while you're away on vacation

Ways to protect your home and its contents while you're away range from simple to high tech. Here are some ideas to secure your home when you're on vacation.

1. Consider a house sitter. It may be an added expense, but having a trusted person stay at your home is a great defense against burglars.
2. Don't advertise you're away. Don't leave an outgoing voicemail stating you're out of town. Also, refrain from listing vacation dates on social media, such as Twitter and Facebook.
3. Invest in an alarm system.
4. Put all lights on timers, so it appears someone is home. A lighted home is a deterrent for break-ins.
5. Have the post office hold your mail and put your newspaper delivery on hold. An overstuffed mailbox and unopened newspapers on the lawn are a signal you are not at home.
6. Leave all doors and windows locked. When possible, utilize dead bolts and secure sliding glass doors by placing a rod in the door groove.
7. Alert police and a trusted neighbor to be on the lookout for any suspicious activity.
8. Remove any spare keys that are hidden outside the house. Instead, give a key to a trusted neighbor or family member to regularly check the house.

Cosmetic changes that can transform a home

There are cost-effective ways to transform your new home. Perhaps you want to change the look of your home but a major remodel or professional construction project is out of the question. Here are some DIY ideas that won't break the bank and will revamp your new property.

1. Repaint and revitalize. Never underestimate the difference a coat of paint can make in a room or even one wall.
2. Update your hardware. Replacing the fixtures on dresser drawers, kitchen cabinets and bathroom vanities is simple. Accessories like doorknobs, and even hinges can look dated. Spice up a space by swapping out the existing hardware and make it your own.
3. Sand and stain. Don't like your kitchen cabinets but aren't ready to completely renovate? No problem, as long as they are in good condition, you can paint or stain your existing cabinets. Be sure to do a test on the inside of a cabinet that won't be seen to make sure you get desired results.
4. Counterculture. New countertops drastically change a space and are available at most home improvement stores in standard sizes at a reasonable price. They are precut and ready to install.
5. New stream. Faucets in the kitchen, tub, and sinks can be changed. They should correlate with the rest of the style in the specific room.
6. Get floored. Tiles can be inexpensive and transform a kitchen, bath or mudroom.
7. Kitchen views. You can switch out a kitchen backsplash without moving cabinetry or appliances, and the sky's the limit in terms of color and style.

More Than 4 Million First-Time Buyers Want to Enter the Housing Market in 2014, Buoyed by Strong U.S. Housing Confidence

Millions of current renters nationwide aspire to buy a home in the next year, according to the inaugural edition of the Zillow Housing Confidence Index (ZHCI)[i], suggesting strong demand among potential first-time homebuyers if market conditions are favorable. But existing headwinds, including tight inventory, rising mortgage interest rates and growing affordability problems in a handful of areas, may make it difficult for potential buyers to follow through on those aspirations as the market enters the busy spring home shopping season.

In 19 of the 20 large metro areas surveyed, more than 5 percent[ii] of all residents indicated they wanted to buy a home in the next year. Among current renters, homeownership aspirations were particularly strong, with about 10 percent of all renters nationwide saying they would like to buy within the next 12 months. The vast majority of these respondents also said they were confident or somewhat confident they could afford homeownership now[iii]. If all renters that indicated they wanted to buy actually did purchase a home in the next year, it would represent more than 4.2 million first-time home sales[iv], more than double the roughly 2.1 million first-time home buyers in 2013.

Homeownership aspirations among current renters were the highest in Miami, Atlanta and Las Vegas, three metro areas that were among the hardest-hit by the housing recession, according to the Zillow Homeownership Aspirations Index (ZHAI), a component of the broader ZHCI.

But despite strong desires to own a home, market conditions remain mixed for potential buyers. While inventory is up nationally compared to a year ago (up 11.1 percent), it still remains well below optimal levels, and has fallen year-over-year in eight of the 20 metro areas surveyed by the ZHCI. Recent data from the Census Bureau also indicates that builders are currently building more multi-family rental housing, rather than the entry-level homes today's renters will likely be looking to buy in coming months.

Mortgage interest rates are also on the rise, currently standing at about 4.2 percent nationally, according to the Zillow Mortgage Marketplace, well above 2013 lows of roughly 3.3 percent. And as interest rates rise, homes in a number of particularly hot markets, including San Francisco, Los Angeles, San Jose and San Diego, are already looking unaffordable for buyers with lower incomes, especially first-time buyers, as more income is devoted to mortgage payments.

"For the housing market to continue its recovery, it is critical that homes are both available and remain affordable to meet the strong demand these survey results are predicting, particularly from first-time homebuyers," said Zillow Chief Economist Dr. Stan Humphries. "Even after a wrenching housing recession, this data shows that the dream of homeownership remains very much alive and well, even in those areas that were hardest hit. But these aspirations must also contend with the current reality, and in many areas, conditions remain difficult for buyers. The market is moving toward more balance between buyers and sellers, but it is a slow and uneven process."

The Zillow Housing Confidence Index, sponsored by Zillow and developed by Pulsenomics LLC, is measured on a 0 to 100 scale, with readings above 50 indicating positive sentiment. The overall ZHCI for the U.S. stood at 63.7 at the start of the year[v]. Of the 20 metro areas surveyed, 11 had individual confidence levels higher than the U.S. as a whole. The overall U.S. ZHAI among all households, which measures consumers' plans to buy and their attitudes toward the social value of homeownership, stood at 62.4.

"While it is reassuring to see all of the headline ZHCIs in positive territory, the underlying indicators of homeownership aspirations, housing market conditions and expectations for each metro area and tenure segment reveal significant variability," said Pulsenomics Founder Terry Loebs. "Several of these drivers of overall housing confidence registered negative or only marginally positive readings in some cities. These data confirm that recovery and economic healing are relative, local phenomena, and in some instances, likely reflect the lingering psychological impact of the housing bust."

[i] The ZHCI is computed by Pulsenomics from data compiled by the Zillow-sponsored U.S. Housing Confidence Survey (HCS), consisting of more than 10,000 interviews with adult landline and cellphone users nationwide, collecting more than 300,000 consumer responses pertaining to the real estate market where each survey respondent lives. The headline Housing Confidence Index is comprised of three sub-indices: the Housing Market Conditions Index, measuring recent and prevailing home value trends and current buying/selling conditions; the Housing Expectations Index, which gauges expected changes in local home values, the overall affordability of homeownership and the relative value of homeownership; and the Homeownership Aspirations Index, which measures consumers' plans to buy and their attitudes toward the social value of homeownership. To view [or download] all 256 index values that comprise the ZHCI data set, or to learn more about the ZHCI calculation methodology, please visit Zillow.com/research or pulsenomics.com.

[ii] At least 500 HCS questionnaires are completed within each of the 20 metropolitan areas where Pulsenomics conducts this survey research. For each edition of the HCS, Pulsenomics compiles more than 300,000 response data points that are recorded within the 10,000 completed questionnaires. At a 95% confidence interval, the theoretical margin of sampling error for an aggregated, household-weighted sample of 10,000 (comprised of 20 metro-level probability samples of 500 each) is +/- 1.2%. The theoretical margin of sampling error for a probability sample of 500 drawn from a single U.S. metro area population is +/- 4.4%.

[iii] In 17 of 20 metros surveyed, at least 90 percent of surveyed renters who said they want to buy in the coming year indicated they were "confident" or "somewhat confident" they could afford it.In Seattle, 82 percent indicated confidence, and in Dallas and San Francisco, 84 percent indicated confidence.

[iv] For purposes of this analysis, we label current renters that plan to purchase a home as "first-time" homebuyers. We acknowledge that a portion of current renters may have owned a home in the past. However, this share cannot be calculated from the data analyzed, and the majority of renters that do purchase in the next year will be doing so for the first time.

[v] The inaugural U.S. Housing Confidence Survey was fielded between Jan. 6 2014 and Jan. 13 2014.

Article provided by RISMedia

Economy Heats Up

Affordability is expected to take a hit next year as home prices and interest rates continue to head up.

The upbeat real estate market news we received in 2013 presents some challenges for the year ahead. An influx of buyers last year helped strengthen housing appreciation, which in turn led to greatly improved consumer confidence. The result was 5.1 million home sales, the best year for real estate purchases since 2007.

But 2014 will be different, with sales volume gains expected to be small at best, because of rising interest rates and home prices, NAR Chief Economist Lawrence Yun says. But there's an upside, too: the continued growth in the economy, which, while modest, has stayed on track. The resulting addition of more than 2 million jobs each year should provide a boost to housing markets. On the commercial side, rising rent growth and declining vacancy rates bode well for the office, industrial, retail, and multifamily sectors.

Yun says lenders could promote stable markets next year as they look to purchase-money mortgage loans as their next big growth area to compensate for a shrinking body of business from refinances, which will drastically fall as interest rates rise.

Written by Robert Freedman @ Realtor Magazine

Home prices show signs of topping out

Home prices are showing signs of topping out: The S&P/Case-Shiller index posted its first month-over-month decline in 10 months on Tuesday.

The annual measure of home prices still increased 13.7% in November, but that was only narrowly better than the rise posted in October.

The housing recovery was one of the stronger aspects of the economy last year, boosting household wealth and home construction.

But with mortgage rates climbing steadily since hitting record lows in May, it's clear the housing recovery is starting to lose some steam.

"While housing will make further contributions to the economy in 2014, the pace of price gains is likely to slow during the year," said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

But housing experts say that more modest price increases are probably a good thing for the housing market. The rapid increases of the last year are not sustainable, they said.

"Sellers used to seeing huge price gains month after month may feel some whiplash as that slows down," said Stan Humphries, chief economist for sales tracker Zillow. But more modest price increases mean "the housing market is still a long way from normal, but it's getting there."

The Case-Shiller index chronicles prices across the nation's 20 largest metropolitan areas. Fourteen of those markets posted double-digit percentage gains over the last year, but only nine posted any month-over-month gain.

The improvement in housing was driven by pent-up demand for home purchases, combined with lower unemployment and a drop in foreclosures. Mortgage rates have been climbing steadily of late but remain low by historical standards, making housing prices far more affordable than they were at the height of the bubble last decade.

National prices are still nearly 20% below peak levels reached in mid-2006, according to Case-Shiller.

Written by Chris Isidore @CNNMoney

Finding ways to help young adults make their first home purchases

Tough new underwriting standards stand in the way of many potential buyers in their 20s and 30s, but growing numbers of friends and relatives are stepping in to help.

Parents, grandparents and young adults know the problem only too well: Heavy student-debt loads, persistent employment troubles stemming from the recession, plus newly toughened mortgage underwriting standards are all standing in the way of vast numbers of potential first-time home buyers in their 20s and 30s.

But are there effective techniques that family members, friends, even employers can use to bridge the generational gap by offering a helping hand - without hurting their own finances in the process? You bet.

First, some sobering numbers:

•Citing Census Bureau data on homeownership by age, demographer Chris Porter of John Burns Real Estate Consulting calculates that Americans who were 30 to 34 in 2012 - those born between 1978 and 1982 - had the lowest homeownership rate of any similarly aged group in recent decades, 47.9%. By contrast, Americans born between 1948 and 1957 had a 57.1% ownership rate by the time they hit the 30 to 34 bracket. This is despite record low mortgage rates and bumper crops of bargain-priced foreclosures and short sales.

•Debt-payment-to-income ratios increasingly are mortgage application killers for would-be first-timers. Adoption nationwide last month of a new federal 43% maximum debt-to-income ratio for "qualified mortgages" is particularly poorly timed for young buyers. Because of large student debts, which average $21,402 but sometimes balloon into six figures, they may not be able to meet the 43% standard for years.

Typically they're already paying out large amounts on credit cards, auto loans or leases and their student debt - about 30% of current monthly income for those ages 21 to 30 as of 2012, according to a new research report from research economist Gay Cororaton of the National Assn. of Realtors. Factoring in the monthly cost of a typical mortgage for an entry-level purchase, the debt-to-income ratio as of 2012 for these individuals exceeded 60%, Cororaton estimates. Even with a 5% increase in income per year, they will not be able to qualify under the 43% debt-to-income test until 2019.

That's a long time to postpone a purchase. Yet consumer research consistently finds that the overwhelming majority of Americans in their 20s and 30s would like to own a home, once they're able to put together the financial pieces to make it feasible.

So what are some of the solutions available to help bridge the gap? The most popular is also the oldest: Growing numbers of relatives are stepping in with gift money to help defray the down payment and closing costs - 27% of first-time buyers last year, according to one industry estimate.

Down payment gifts do not address the crucial debt-to-income ratio problem, but for young buyers who can get close to the 43% mark for conventional loans (Fannie Mae and Freddie Mac) or slightly higher at the more flexible FHA or VA, they can be extremely important.

Rules on gifts vary among funding sources, but there are some shared basics: The money cannot be disguised as a gift if it is actually a loan; there needs to be a formal gift letter that spells out the purpose of the gift and the specific transaction for which it is to be used; and the source of the funds and the capacity of the gift giver to provide the money need to be documented. For down-payment help outside the family tree, check out http://www.downpaymentresource.com.

But an increasingly important and fast-growing resource is turning the gift concept on its head: Rather than simply handing over their cash with no repayment arrangements, family members are becoming mini-lenders themselves.

With a little professional assistance, they are providing either second mortgages or first mortgages that are custom-designed to deal with whatever financial hurdles - including paying off student loans to reduce debt-to-income ratios - their young relatives are confronting. Properly structured, these loans provide annual returns to family members well in excess of money-market funds or bank deposits, and open the door to homeownership for their kin.

The largest player in the field, National Family Mortgage (www.nationalfamilymortgage.com), has structured and serviced more than $155 million of intra-family transactions in the last two years and is on track, according to founder and Chief Executive Tim Burke, to do $150 million in volume during 2014.

"There is a lot going on" in this field that can help entry-level buyers strapped with student-loan debt, Burke says.

Written By Kenneth R. Harney