Which Mortgage is a Better Fit: Fixed or Adjustable?

Are you thinking of refinancing a mortgage?  Is a fixed or adjustable rate mortgage a better fit for you?  Below is a great article from Inman News about finding the right mortgage fit.

A better mortgage fit: fixed or adjustable?

Integrated calculators help you decide

By Jack Guttentag, Monday, January 2, 2012.

Inman News®

House and interest rates image via Shutterstock.com.

Editor’s note: This is the first of a two-part series.

In many, if not most, countries, borrowers are offered one type of mortgage: Take it or leave it. Borrowers in the U.S., however, can choose from a large menu of mortgage types designed to meet different borrower and lender needs.

These include fixed-rate mortgages (FRMs) with terms ranging from 10 to 40 years, and adjustable-rate mortgages (ARMs) with 30-year terms but initial rate periods ranging from one to 10 years. Many of these mortgages have an interest-only payment option for the first five or 10 years. And all are offered with multiple combinations of interest rate and lender fees.

Difficulties in making decisions

But having options is as much a curse as a blessing to borrowers who have no idea of how to make a selection. Most focus on the immediate financial burdens imposed by the mortgage, and give little thought to the future.

The loan originators (LOs) who borrowers encounter in the process are seldom helpful because their time horizon is even shorter than the borrower’s.

They want the loan to close so that they will get paid, and they fear that extended discussions of different loan types and options will slow down the process, and perhaps derail it altogether.

Their impulse is to suggest the loan type that the borrower might find acceptable, which may or may not be the best. Many LOs are not qualified to counsel borrowers effectively, even if they wanted to do so.

Using calculators to maximize future wealth

Borrowers should aim to be as wealthy as possible when their mortgage is paid off. To meet that objective, and subject to the constraints discussed below, a borrower should select the mortgage that has the lowest net cost over the period he or she expects to have the mortgage.

This approach is used in two new integrated calculators on my website. One enables the user to find the lowest-cost type of mortgage, while the second finds the lowest-cost combination of interest rate and lender fees on the selected type of mortgage.

These calculators are integrated in the sense that they use live market-price data provided by participating lenders, and the prices have been personalized to the characteristics of the user.

Selecting the best type of mortgage

The selection process is illustrated by the table below, which compares the total net cost of an FRM and an ARM. The comparison is made over five years using a tax rate of 25 percent and an investment rate of 2 percent. These assumptions are all specified by the borrower.

Total Net Cost: Two $270,000 Loans on Dec. 8, 2011

	30-Year FRM	5/1 ARM
Interest Rate Closest to Zero Fees	3.875%	2.75%
Monthly Payment	$1,250	$1,102
Total Cost Over 6 Years	$40,615	$30,416
Paid in Cash Upfront
Points	-$559	$667
Fixed-Dollar Loan Fees	$1,300	$1,309
Payments	$76,178	$66,135
Lost Interest at 2%
On Upfront Costs	$58	$154
On Monthly Costs	$2,878	$2,499
Less Tax Savings at 25%
On Points	$0	$180
On Interest	$12,952	$9,107
Less Reduction in Loan Balance	$26,288	$31,061
Equals Total Costs Net of Benefits	$40,615	$30,416
Worst-Case Interest Rate/Month Reached	3.875% (1)	7.75% (61)
Worst-Case Payment/Month Reached	$1,270 (1)	$1,805 (61)

Costs consist of cash paid upfront, monthly payments, and the interest loss on both at the interest rate the borrower can earn. Tax savings at the borrower’s tax rate, and the balance reduction over the period, are benefits that are subtracted from costs to measure costs net of benefits.

Budgetary and risk constraints

The borrower’s decision is subject to two possible constraints. Selection of the FRM is subject to the proviso that the initial monthly payment fits the borrower’s current budget. Selection of the ARM with its lower initial payment is subject to the proviso that the borrower is comfortable with the risk of possible future rate and payment increases.

The calculator quantifies the risk by showing the worst that can happen to the rate and payment, and the earliest it can happen.

The borrower must make the final decision. The table defines the choices, which are not limited to the two shown. The borrower in this case might want to look at a 7/1 ARM, which has a slightly higher initial interest rate than the 5/1 but two more years of rate protection.

The borrower can also calculate costs over different periods to see how it affects the results — few borrowers know exactly how long they will have their mortgage.

Next week: selecting the best combination of interest rate and lender fees.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

Copyright 2012 Jack Guttentag

 

Help Protect Your Personal and Rental Properties from the Cold Temperatures

Source: By Mike McClintock, Special to the Tribune Newspapers

Link to original article: http://www.chicagotribune.com/classified/realestate/home/sc-home-diy-0102-winter-checks-20120106,0,7835231.story

January 6, 2012

The to-do list at your home probably includes old standards such as clearing the gutters and downspouts. Among dozens of other candidates, consider these high-priority safety checks and a couple that can prevent damage this time of year when the temperature drops.

Locate emergency shut-offs. When there’s an emergency with heating, plumbing or wiring, the first step is to shut down the system. Furnaces generally have a kill switch with a red cover plate mounted near the unit or at the top of the basement stairs. The other systems have a network of shut-offs starting with a main valve or breaker where the services enter the building. If you haven’t located the plumbing cutoffs for specific fixtures, do it now. The same goes for mapping and labeling electrical breakers for individual circuits.

Service combustion sources. Think how efficiently your car would run after sitting idle for six months. The furnace does that every year and could probably use a tuneup and cleaning, especially as it ages. The general rule is every year for oil-fired, every two or three years for gas-fired, and every four or five years for electric-powered. Seasonal checks also include fireplaces, wood stoves, chimneys and flues. If you burn wood fires regularly, it’s wise to call in a chimney sweep every few years.

Check smoke detectors. It’s easy to forget about them and even to disable units that false-alarm or chirp as the system warns that the battery is about to die. But the stats on smoke detectors show that they are the least expensive life-saving investment you can make. The National Fire Protection Association (NFPA) says that 38 percent of reported fires occur in the small percentage of homes without smoke detectors, and that 62 percent of all home fire deaths occur in homes with no alarms or alarms that aren’t working. Try the test button, and replace old or dead batteries to be sure the protection is intact.

Check carbon monoxide detectors. The same goes for these alarms that warn against exposure to exhaust fumes containing carbon monoxide. Push the test button. The noise is piercing on purpose because most CO poisonings occur at night when you’re asleep.

Check the fire extinguisher. Kidde, First Alert and other companies make traditional, pressurized extinguishers. It’s important to have one handy that’s easy to use because fires can double in size in 30 seconds. With most types, you pull a safety pin, point the nozzle at the base of the fire and pull the trigger. The type you want is rated ABC. It works against all of the most common household fires. If the pressure dial is in the green, you’re OK. If not, replace the fire extinguisher. Another option is to use an extinguisher in a spray can. You might leave one near the fireplace, for instance, like First Alert’s Tundra — about $10 for a 14-ounce can.

Service humidifiers. The combination of dry winter air and forced hot-air furnaces (the most common type) create a parched environment unless you add some moisture. A variety of humidifiers can solve the problem. But on central units hooked to furnaces as well as on portables, the humidifier can turn into a biology lab petri dish spewing impurities through the duct system. To prevent that, open up the unit, change or clean the filter and disinfect the interior.

Protect freeze-prone pipes. Water pipes in crawl spaces, particularly near exterior walls, are best insulated with foam tubes. They’re slit down the side so it’s easy to slip them over exposed pipes even in tight spaces.

Drain outside pipes. Don’t forget the plumbing outside. Shut off the supply to exterior faucets and irrigation systems. Then open the faucet (or release pressure in underground pipes), and drain away remaining water.

Copyright © 2012, Chicago Tribune

If you would like Field Street Properties to handle any winter preparation maintenance for your properties, please call our office at 630-613-9390 or email workorders@fieldstreetproperties.com.

Help Protect Your Personal and Rental Properties from the Cold Temperatures

Source: By Mike McClintock, Special to the Tribune Newspapers

 

Link to original article: http://www.chicagotribune.com/classified/realestate/home/sc-home-diy-0102-winter-checks-20120106,0,7835231.story

January 6, 2012

 

The to-do list at your home probably includes old standards such as clearing the gutters and downspouts. Among dozens of other candidates, consider these high-priority safety checks and a couple that can prevent damage this time of year when the temperature drops.

Locate emergency shut-offs. When there’s an emergency with heating, plumbing or wiring, the first step is to shut down the system. Furnaces generally have a kill switch with a red cover plate mounted near the unit or at the top of the basement stairs. The other systems have a network of shut-offs starting with a main valve or breaker where the services enter the building. If you haven’t located the plumbing cutoffs for specific fixtures, do it now. The same goes for mapping and labeling electrical breakers for individual circuits.

Service combustion sources. Think how efficiently your car would run after sitting idle for six months. The furnace does that every year and could probably use a tuneup and cleaning, especially as it ages. The general rule is every year for oil-fired, every two or three years for gas-fired, and every four or five years for electric-powered. Seasonal checks also include fireplaces, wood stoves, chimneys and flues. If you burn wood fires regularly, it’s wise to call in a chimney sweep every few years.

Check smoke detectors. It’s easy to forget about them and even to disable units that false-alarm or chirp as the system warns that the battery is about to die. But the stats on smoke detectors show that they are the least expensive life-saving investment you can make. The National Fire Protection Association (NFPA) says that 38 percent of reported fires occur in the small percentage of homes without smoke detectors, and that 62 percent of all home fire deaths occur in homes with no alarms or alarms that aren’t working. Try the test button, and replace old or dead batteries to be sure the protection is intact.

Check carbon monoxide detectors. The same goes for these alarms that warn against exposure to exhaust fumes containing carbon monoxide. Push the test button. The noise is piercing on purpose because most CO poisonings occur at night when you’re asleep.

Check the fire extinguisher. Kidde, First Alert and other companies make traditional, pressurized extinguishers. It’s important to have one handy that’s easy to use because fires can double in size in 30 seconds. With most types, you pull a safety pin, point the nozzle at the base of the fire and pull the trigger. The type you want is rated ABC. It works against all of the most common household fires. If the pressure dial is in the green, you’re OK. If not, replace the fire extinguisher. Another option is to use an extinguisher in a spray can. You might leave one near the fireplace, for instance, like First Alert’s Tundra — about $10 for a 14-ounce can.

Service humidifiers. The combination of dry winter air and forced hot-air furnaces (the most common type) create a parched environment unless you add some moisture. A variety of humidifiers can solve the problem. But on central units hooked to furnaces as well as on portables, the humidifier can turn into a biology lab petri dish spewing impurities through the duct system. To prevent that, open up the unit, change or clean the filter and disinfect the interior.

Protect freeze-prone pipes. Water pipes in crawl spaces, particularly near exterior walls, are best insulated with foam tubes. They’re slit down the side so it’s easy to slip them over exposed pipes even in tight spaces.

Drain outside pipes. Don’t forget the plumbing outside. Shut off the supply to exterior faucets and irrigation systems. Then open the faucet (or release pressure in underground pipes), and drain away remaining water.

Copyright © 2012, Chicago Tribune

 

If you would like Field Street Properties to handle any winter preparation maintenance for your properties, please call our office at 630-613-9390 or email workorders@fieldstreetproperties.com.

Winter’s Coming! Time to Set Up Snow Removal Services!

Snow may not be on the ground yet, but it’s not too early to think about setting up snow removal services.  In fact, alot of companies start getting booked up in November.  If you would like a snow removal service to handle your properties this season and want Field Street Properties to handle it, please let our office know.  We will contact our vendors and send you quotes for your approval.  Please do not wait til the 1st snow fall to start service.  Most companies will not have room in their schedule that late in the season.  Many cities and villages have ordinances requiring snow removal at rental properties or property owners can be fined.  Making sure sidewalks, steps and driveways are clear of snow & salted for ice can also prevent injuries and claims from tenants falling on slick surfaces.  Be proactive and set up your snow removal service today!

Winter’s Here! Be Aware of Chicago Snow Route Parking Rules.

Chicago Residents & Visitors:

Watch where you park or you could get ticketed and towed. 

 

Last night at 3:00 AM (December 1^st) officially started the City of Chicago’s Winter Parking Ban.  Between 3 am and 7 am until April 1st, 2012, regardless of snow, your car will be ticketed and towed if you are parked on one of the 107 miles of “critical arterial streets“.  Parking tickets are $50 and towing charges are at least $150.  So before you go to sleep tonight make sure your car is not parked on one of the streets with the parking ban.

   

The City of Chicago also has 500 miles of Snow Route streets where vehicles are not allowed to park after 2 or more inches of snow has fallen.

 

For more detailed information, visit the City of Chicago’s website. 

 

Please beware of these streets and be careful were you park! Remember, the parking rules are in effect even if there is NO snow! Field Street Properties and the property owners are not liable for any violations you receive or if your vehicle is towed due to you violating Chicago’s parking rules.

Be a Great Landlord! Avoide These 6 Mistakes!

Investing in real estate right now can be surprisingly profitable. But if you’re going to become a landlord, watch out for these common pitfalls.

Traditional investments are delivering low returns, and home prices are at bargain levels. Is it time to consider buying some rental housing?

Investing in real estate right now can be surprisingly profitable, if everything goes well. Rents are climbing in many areas, and more properties may be coming on the market. Last month, the Obama administration asked for proposals on how to convert at least some of the bulging inventories of foreclosed homes from Fannie Mae and Freddie Mac into affordable rentals.

Investors used to aim for rents that were 1% of the purchase price, or $1,000 a month for a $100,000 home — an annual gross return of 12% — says Michael McCreary. His firm, McCreary Realty, manages about 300 properties in the Atlanta area. Today, he says, some of his investors are getting as much as 2% of the purchase price each month.

In general, though, average returns after expenses are far less, more like 5% to 6% of the property value per year, says Ingo Winzer, president of Local Market Monitor, a real-estate forecasting firm. But that still is well above what many other investments yield.

Before you start scouring for deals, keep in mind that owning rental properties is time-consuming, expensive and fraught with challenges. Many investors lose money. You will want to avoid falling into one of these common traps.
Home affordability calculator
Combined annual income $
Other monthly obligations $
Cash for down payment $

Mistake 1: Confusing a cheap deal for a good deal.

It is true that you can buy some homes for ridiculously low prices — but that doesn’t mean you can rent them out. Homes in deserted subdivisions aren’t any more appealing to renters than they are to buyers. The same is true for less attractive properties or those in less desirable school districts.

Investors from the San Francisco area often look at the Sacramento market assuming they can get Bay Area-like rents, and end up overpaying, says Robert A. Machado of HomePointe Property Management. He uses several resources, including the website FinestExpert.com, to estimate rents. Other experts suggest canvassing apartments nearby to see not just their rates, but whether they are offering special deals, such as a couple of months of free rent.

Mistake 2: Overlooking key costs.

Knowing the potential rent isn’t enough. Before you buy a property, you should also factor in closing costs of 3% to 6%, the costs to fix up the place and maintain it, and your holding costs. Then add the profit you expect to make — and more closing costs, if you intend to turn around and sell it. Only then can you figure out what you can afford to pay.

Mistake 3: Forgetting that time is money.

In real estate, “time is your biggest enemy,” says David Hicks, co-president of HomeVestors of America, a franchiser whose motto is “We Buy Ugly Houses.” You lose money when your property is empty, whether you are painting it or are between tenants. You also lose if you buy in the fall and can’t replace the roof until spring. You may be better off accepting a lower rent than waiting for a higher-paying tenant.

Mistake 4: Assuming you will sit back and watch the rent roll in.

“When you become a landlord, you become a rent collector,” says Mark Kreditor of Get There First Realty, which manages 1,600 rentals in the Dallas-Fort Worth area.

Just like homeowners who can’t pay the mortgage, tenants lose their jobs and stop paying the rent. Evicting them can take several weeks, and some steal appliances or other property. Kreditor says that once or twice a month, a tenant removes a home’s copper tubing on the way out the door to sell the copper for its meltdown value.

You will need to screen prospective tenants carefully, or pay someone to do it for you.

Mistake 5: Underestimating repair costs.

As with all homes, you will be making lots of repairs. You may find wood rot or mold when you remove that cracked bathtub. Carpet in rental homes typically must be replaced every five years, and you may have to repaint after every tenant. Tony A. Drost, president of the National Association of Residential Property Managers (NARPM), suggests setting aside six months of expenses so that you will have money if a major repair is needed.

Mistake 6: Assuming that owning a rental is the same as owning a home.

You might put up with flaws that a renter wouldn’t tolerate. In addition, many states and communities have strict and complex laws for landlords, even if you own only one property. A property manager can handle most of the headaches, but you should expect to pay one up to a month of rent for finding and screening tenants — and up to 10% of the monthly rent for management fees.

Source: By Karen Blumenthal of The Wall Street Journal

Attention Chicago Property Owners! Set-up Snow Removal Services to Avoid New Fines!

Chicagoans who neglect to shovel their snow-covered sidewalks this winter could be in for a big surprise — a warning notice, followed by a ticket — if an influential alderman has his way.

After watching the Department of Streets and Sanitation showcase its “mobile electronic ticketing,” Ald. Tom Tunney (44th), chairman of the City Council’s Committee on Economic, Capital and Technology Development, suggested Wednesday that the Blackberry technology be used to crack down on a chronic winter violation that endangers and infuriates pedestrians.

“One thing I know is not being written is people who don’t shovel their snow. I’m assuming that this technology is there to take a picture of the snow not being shoveled [and say], ‘Property owner, here’s your $100 ticket.’ Is that correct?” Tunney asked a Streets and San employee doing the demonstration.

“That’s correct,” the employee said.

Streets and Sanitation Commissioner Tom Byrne added, “You can go that way. We haven’t gotten there yet. The sky’s the limit on it. We can do almost anything with it.”

Homeowners and businesses are required by law to shovel the sidewalks in front of their property, but the ordinance is rarely enforced. Tickets range from $50 to $100.

Tunney said he’s dead serious about cracking down on snow shoveling neglect, but only after giving property owners “one or two” warnings.

“The complaint we have when we go to community meetings is, ‘Who owns that property? We’re trying to walk down the street, and everybody seems to be doing a good job except one or two property owners.’ A ticket here or there [and], all the sudden, the snow will be removed on a timely basis,” he said.

“We need to use some street smarts before we go up and down the block trying to ticket. That’s not necessarily good for business. It’s not good for residents. It’s not good for politics. But at a point, we need people to abide by the municipal code.”

Ald. Leslie Hairston (5th) said any crackdown should target businesses — not homeowners.

“I don’t think we need to be patrolling citizens who do not shovel their sidewalks. Some of them may not be able to,” she said.

In the past, Chicago’s 50 ward superintendents hand- wrote tickets for an array of violations using a paper driven system and hand-held cameras.

Pictures of the violation were stapled together with the ticket and the court complaint, then shipped off to the Law Department for a title search to determine who owns the property. The file was then sent to the Department of Administrative hearings.

Now that all 50 ward superintendents have Blackberries, the system has gone paperless.

If a ward superintendent sees a vacant lot with high weeds, he or she snaps a picture of it with the Blackberry, types in an electronic ticket and e-mails the electronic file to the Law Department, where the ticket is cleared and sent to Administrative Hearings.

“We’re not doing title searches anymore. We’re not doing any type of real documentation on a lot. The GPS coordinates tell you the true coordinate, which saves a whole lot of time,” Byrne said.

The proposal to get tough on Chicagoans who fail to shovel their sidewalks comes at a time when crackdowns are also pending against disabled parking fraud, owners of unlicensed dogs and motorists who speed down residential streets near schools and parks.

Source: Chicago Sun Times 10/27/2011

Avoid Costly Repairs Later by Doing a Furnace Tune-Up

If you’ve been delaying a Furnace Tune Up your system is not operating at optimum efficiency. Further, most furnace breakdowns are directly related to little or no maintenance — often resulting in premature breakdown of your furnace components. Four Seasons technicians will inspect, clean, oil and tune your furnace, which will insure a safe and comfortable winter season for you and your family.

Did You Know?

If your car was used as often as your furnace and air conditioner, it would have traveled over 200,000 miles in a year. Impossible you say? Well, it’s not. Your home heating and cooling system operates approximately 3,200 hours in a year. If you traveled 3,200 hours at 65 mph in your car you would have changed your oil 66 times, used 4 sets of tires, performed 4 tune-ups and flushed your cooling system 3 times.

No one would drive that many miles without performing any maintenance and expect for things to function properly. Just like your car, your furnace needs a tune-up, lubrication and cleaning. By performing a precision tune-up on your furnace, you minimize the chance of breakdowns — saving energy and extending the life of your system.

For safety, reliability and efficiency, it is important to have your furnace and heating system in peak operating condition before the heating season begins.  A broken furnace means no heat which can lead to frozen pipes and expensive water damage to your property. A malfunctioning furnace that uses natural gas, propane, wood or oil can create the potential for dangerous and deadly carbon monoxide problems. A tune up can help prevent and catch this – and make your furnace run more efficiently – thus saving you money.

Every furnace and air conditioner manufacturer recommends routine maintenance. What many homeowners never realize is that nearly every manufacturers owner’s manual and warranty fine print states the homeowner is required to maintain their equipment or the warranty may become void. The small investment in a furnace tune-up will return big rewards. Some manufacturers require proof of routine maintenance, so remember to always keep a copy of your receipts for any and all service work performed.

 

Be a Great Landlord and Avoid Common Pitfalls.

Investing in real estate right now can be surprisingly profitable. But if you’re going to become a landlord, watch out for these common pitfalls.

By Karen Blumenthal of The Wall Street Journal

 

Traditional investments are delivering low returns, and home prices are at bargain levels. Is it time to consider buying some rental housing?

Investing in real estate right now can be surprisingly profitable, if everything goes well. Rents are climbing in many areas, and more properties may be coming on the market. Last month, the Obama administration asked for proposals on how to convert at least some of the bulging inventories of foreclosed homes from Fannie Mae and Freddie Mac into affordable rentals.

Investors used to aim for rents that were 1% of the purchase price, or $1,000 a month for a $100,000 home — an annual gross return of 12% — says Michael McCreary. His firm, McCreary Realty, manages about 300 properties in the Atlanta area. Today, he says, some of his investors are getting as much as 2% of the purchase price each month.

In general, though, average returns after expenses are far less, more like 5% to 6% of the property value per year, says Ingo Winzer, president of Local Market Monitor, a real-estate forecasting firm. But that still is well above what many other investments yield.

Before you start scouring for deals, keep in mind that owning rental properties is time-consuming, expensive and fraught with challenges. Many investors lose money. You will want to avoid falling into one of these common traps.

Mistake 1: Confusing a cheap deal for a good deal.

It is true that you can buy some homes for ridiculously low prices — but that doesn’t mean you can rent them out. Homes in deserted subdivisions aren’t any more appealing to renters than they are to buyers. The same is true for less attractive properties or those in less desirable school districts.

Investors from the San Francisco area often look at the Sacramento market assuming they can get Bay Area-like rents, and end up overpaying, says Robert A. Machado of HomePointe Property Management. He uses several resources, including the website FinestExpert.com, to estimate rents. Other experts suggest canvassing apartments nearby to see not just their rates, but whether they are offering special deals, such as a couple of months of free rent.

Mistake 2: Overlooking key costs.

Knowing the potential rent isn’t enough. Before you buy a property, you should also factor in closing costs of 3% to 6%, the costs to fix up the place and maintain it, and your holding costs. Then add the profit you expect to make — and more closing costs, if you intend to turn around and sell it. Only then can you figure out what you can afford to pay.

Mistake 3: Forgetting that time is money.

In real estate, “time is your biggest enemy,” says David Hicks, co-president of HomeVestors of America, a franchiser whose motto is “We Buy Ugly Houses.” You lose money when your property is empty, whether you are painting it or are between tenants. You also lose if you buy in the fall and can’t replace the roof until spring. You may be better off accepting a lower rent than waiting for a higher-paying tenant.

Mistake 4: Assuming you will sit back and watch the rent roll in.

“When you become a landlord, you become a rent collector,” says Mark Kreditor of Get There First Realty, which manages 1,600 rentals in the Dallas-Fort Worth area.

Just like homeowners who can’t pay the mortgage, tenants lose their jobs and stop paying the rent. Evicting them can take several weeks, and some steal appliances or other property. Kreditor says that once or twice a month, a tenant removes a home’s copper tubing on the way out the door to sell the copper for its meltdown value.

You will need to screen prospective tenants carefully, or pay someone to do it for you.

Mistake 5: Underestimating repair costs.

As with all homes, you will be making lots of repairs. You may find wood rot or mold when you remove that cracked bathtub. Carpet in rental homes typically must be replaced every five years, and you may have to repaint after every tenant. Tony A. Drost, president of the National Association of Residential Property Managers (NARPM), suggests setting aside six months of expenses so that you will have money if a major repair is needed.

Mistake 6: Assuming that owning a rental is the same as owning a home.

You might put up with flaws that a renter wouldn’t tolerate. In addition, many states and communities have strict and complex laws for landlords, even if you own only one property. A property manager can handle most of the headaches, but you should expect to pay one up to a month of rent for finding and screening tenants — and up to 10% of the monthly rent for management fees.

Should You Refinance?

5 tips for refinancing a mortgage today

The lowest rates in decades are enticing, but do your research to make sure you’re really better off with a new loan.

Fears of a “double-dip” recession and the possibility of a widening European debt crisis have lowered U.S. mortgage rates to levels not seen in more than half a century.

Thirty-year fixed-rate mortgages continued their fall in September, landing at just a tick over 4%. That’s the lowest level in nearly six decades, according to home-loan giant Freddie Mac. (Bing: More refinancing information)

Even if rates rebound a bit this month, experts say it is a great time for qualified homeowners to refinance.

“Record-low rates mean lots and lots of people could realize substantial savings by refinancing,” says Erin Lantz, director of real-estate website Zillow.com’s Mortgage Marketplace. “That’s not the case for every single homeowner, but I’d still encourage consumers to take the time now and look into refinancing.”

True, banks have tightened lending standards since the U.S. housing boom’s easy-credit days, when it seemed as if anyone could get approved for anything.

But Lantz says a little bit of calling around should turn up a lender who will OK your application, especially if you have at least 20% equity in your home and a 740 credit score or better.

“There’s a good chance that there’s a way out there for many homeowners to qualify for today’s record-low rates,” she says.

Here are five things Lantz says homeowners looking to refinance should do:

Tip No. 1: Shop around.
Mortgage rates vary widely, so experts recommend doing lots of research before settling on a deal.

“We’re seeing an increase (in) pricing disparity between lenders, which means it’s more important than ever to shop around for your loan,” says Mona Marimow of mortgage website LendingTree.com. “Rates can vary by 1% or more from lender to lender, translating into a difference of about $140 per month on a $250,000 loan.”

Lantz adds that consumers should look at more than just rates.

“Fees and the quality of service that you’ll receive from different lenders vary, too,” she says. “So you should always do your research — reading reviews and comparing rates and fees in advance so you’re ready to lock in when rates hit the level you’re looking for.”

Popular websites for mortgage information include Zillow, LendingTree and Bankrate.com. You should also check with lenders in your area, and ask friends and relatives where they got their mortgages and whether they’d recommend their lender.

Tip No. 2: Figure your break-even point.
Today’s low rates are great, but they’re not for everyone.

People who already have mortgages with fairly low rates might consider skipping a refinance, as a new loan typically carries thousands of dollars in closing costs.

“It’s not as simple as saying, ‘I’ve got a 5% mortgage and rates have dropped to 4%, so that’s a better deal,’” Lantz says. “You have to think about things like what your closing costs will be and how much longer you plan to stay in the home.”

A good rule of thumb: Refinance only if you can cut your mortgage rate by 0.5 percentage point or more from what you’re paying.

Lantz also suggests doing a careful analysis to calculate your break-even point — how many months it will take to recoup your closing costs. You can do this with a pencil and paper, but mortgage-oriented websites often have online calculators to make the job easier.

Tip No. 3: ‘No-closing-cost’ deals really have closing costs.
All mortgage refinancings, even those billed as having no or low closing costs, charge you in some fashion for loan expenses.

“When it comes to refinancing a mortgage, there really is no such thing as a free lunch,” Lantz says. “Even if you see an ad that says, ‘No closing costs,’ there are still costs that you pay in one form or another. So you should ask your lender to show you all of the options available to you.”

Closing costs typically total about 1% of your new mortgage’s principal, covering such things as home appraisals and lawyer’s fees.

But there are several ways lenders work these fees into refinancing deals, including:

• Upfront charges. The traditional way of paying for closing costs, this method involves simply bringing a certified check to your mortgage closing to cover expenses. The lender will usually tell you a day or so ahead of time how much money you’ll need.
• “Rolled-in” closing costs. With this option, the bank adds all closing costs to your new loan’s balance rather than making you pay upfront. You won’t spend any money out of pocket, but you’ll pay slightly higher mortgage bills each month throughout your loan’s lifetime.
• No- or low-cost refinancings. These deals don’t charge you any closing fees, but they carry higher interest rates. That compensates the lender or mortgage broker for “eating” your new loan’s closing costs.

Which option to choose depends on your circumstances.

“As long as you understand that there are always closing costs involved in a refinancing, you can simply ask your lender to lay out all of the different scenarios and pick the one you like the best,” Lantz says. “It’s really a question of which method works best for you.”

Tip No. 4: Consider a ‘cash-in’ refinancing.
Remember “cash-out” refinancings?

Those were the deals in which homeowners refinanced existing mortgages during the housing boom for larger loans and walked away with thousands in cash, pulling out some of the equity they’d built up because property values were soaring.

Well, today’s housing bust has boosted interest in the opposite kind of deal: the “cash-in” refinancing. That’s where homeowners swap existing loans for smaller mortgages instead of bigger ones, bringing cash to the closing table to make up the difference. Hence the term “cash-in.”

Lantz says cash-in deals allow consumers whose property values have plummeted during the housing bust to increase their home equity to 20%, the minimum that many refinancing deals require.

“If you can bring a little cash to the table and push your equity up, people who otherwise couldn’t qualify can take advantage of today’s low rates,” Lantz says.

Tip No. 5: Get a rate-lock confirmation.

Today’s historically low mortgage rates have left many lenders swamped with refinance applications, so it’s important to have your bank lock your rate in writing.

Most lenders will send you a “rate-lock sheet” by fax or email upon request, confirming the mortgage rate you’re getting and spelling out when the rate lock expires.

“The idea is to hold your lender accountable for the rate commitment they’re making,” Lantz says. “You also want to show the lender that you’re an educated and informed consumer.”

Lantz recommends asking for at least a 60-day rate lock in today’s busy refinance market, and quizzing banks to make sure they can close your deal before the lock period expires.

 

Source: By Jerold Leslie of TheStreet via MSN.com