Archive for the ‘Education’ Category

Understanding your Mortgage

In interviewing new clients, I have found that many are not as familiar with their mortgage as they should be. In considering how important it is to overall financial health, having a clear understanding of the terms of your home loan and the provisions within the mountain of paperwork can help save you money and avoid unexpected surprises that may arise.

Listed below are the key points that I feel every mortgage holder should know and understand about their home loan:

• What is the interest rate of your mortgage?
• What is the term of the loan and how much longer do you have to pay?
• Who is your lender? NOTE: This is a different question than asking who you make your monthly payment to:
• Is there a penalty if the loan is paid off early?
• What is the penalty if you miss a payment or are late making a payment?
• How is your home vested? Does the vesting protect you and your family against creditors and lawsuits?
• Do you know who to contact if you have a problem with your mortgage?
• In what situation, if any, could your loan be called due and payable?
• What happens if you cannot make your monthly payments?
• What happens in the event of death?
• Most importantly, do you understand the documents that you signed at closing?

What Type of Mortgage should you have?

In addition to understanding the terms and provisions of your mortgage, ensuring that your home loan is appropriate for your individual situation is also crucial. I see many clients in adjustable rate mortgages that would benefit from a fixed rate loan and others who have interest rates that are well above current market rates. Further, there are many homeowners who pay mortgage insurance who now have enough equity in their homes to remove the additional premium from their monthly payment. The process of a free mortgage review is simple and may end up saving you thousands of dollars in the long run.

A Tragic Case Study

I had a case a few years ago where a husband unexpectedly passed away. His wife assumed that the home they owned together would automatically be passed on to her. She was shocked to learn that their home was vested in a way where she owned 50% of the home and he owned 50% of the home. As heirs to his estate, his children from a prior marriage then had claim to his share of the equity. She ended up having to sell her home to pay off her step children. Through this tragic situation, she learned the hard way the importance of having an estate planner review their home’s vesting.

If you would like to learn more about your home loan, or if you are interested in a no-cost mortgage review, please call me at 801-501-7950 or e-mail me at mike@citycreekmortgage.com.

Pay off the account with the smallest balance first regardless of interest rate. As each account is paid off, apply those payments to the account with the next smallest balance, and so forth. Watch your debt begin to disappear. This is one of the most liberating experiences my clients have. Is it time for you to snowball your debt? Call me if I can help!

MY QUICK TIP – When refinancing a home loan, in most cases, a no-cost loan is your best solution. Too many people pay thousands of dollars in closing costs and refinance every two years. These fees add up! You would be better off taking a slightly higher rate but paying NO fees. Call me with your specific questions at 801.501.7950. – Mike Roberts

The Financial Consequences of Paying Off a Mortgage

The decision to pay off a mortgage is one that stretches beyond the emotional benefit of owning a home free and clear. There can also be a significant financial cost to paying off a mortgage. Depending upon the overall profile of a homeowner, maintaining a mortgage may be the most financially sound option.

Consider the following investment and its characteristics. How much would you feel comfortable depositing or investing?

1. The monies you deposit are not safe from a loss of principal

2. The monies in the account are not liquid

3. Your income tax liability increases with every contribution

4. Your money earns a 0% rate of return

5. When the investment is fully funded, there is NO income paid out

The investment described above is home equity obtained through a larger than necessary down payment or through pre-payment strategies to pay down or pay off your mortgage. The key point here is that home equity is not an investment at all. It does not earn a rate of return and will not increase in value. The home as an asset may increase or decrease in value depending on the market; however, the cash invested into home equity does not.

A $100,000 Investment VS a $100,000 Mortgage

The primary reason homeowners want to pay off their mortgages is to avoid paying interest. As you may know, the interest paid on a home loan over 30 years can be more than the amount of the original loan! That sounds terrible until you consider the cost of liquidating the investment funds. If you are contemplating pulling cash from an investment account to make a large down payment or to pay down your current mortgage balance, consider the following example:

• $100,000 borrowed at 5% over 30 years will require 360 payments of $536.82, or $193,256 over the life of the loan.
• $100,000 invested earning a return of 4% will be worth $324,339 in 30 years. If the rate of return is 7%, the investment would be worth $761,225.

The True Definition of Being Mortgage Free

If you have a $200,000 mortgage as well as a liquid investment account with at least a $200,000 balance, then having a mortgage becomes a choice. By building your investment account balance and through the power of compounding growth, you have the ability to reach the point where a mortgage is optional more quickly than by making additional principal payments on your home loan. In essence, your investment will grow at a greater rate than the speed at which your mortgage balance will drop.

If you are considering using investment account assets to pay off or pay down your mortgage balance, I would be happy to discuss the pros and cons of your individual situation and determine the most appropriate solution. We can run specific reports for you that will detail the current and future implications of liquidating investments to pay down a mortgage. Call me at 801-501-7950 or send an e-mail to mike@citycreekmortgage.com.

The last few years I have heard many people say that they are holding back from opening a new business or starting a new marketing plan because the economy is down. Are you kidding? Now is the perfect time to take a risk. The muscles that you will develop becoming successful during times like this will ensure that you skyrocket when the “economy” turns around. Sure, you have to be more disciplined, more creative and pay a higher level of attention to the details, but shouldn’t we be doing that anyway?

To confirm my opinion, today I read a fabulous quote by Gary Vaynerchuk in his book Crush It. Gary writes, “It’s never a bad time to start a business unless you’re starting a mediocre business.”

So don’t be mediocre. Be passionate, work harder/smarter than you’ve ever worked before (and because you are passionate, you will love every moment of it), and go BIG.

What do you want to do more than anything else in 2011?

I want to transform my traditional mortgage company into a huge, loyal tribe of enthusiastic followers who eat possibility, drink self improvement and breathe contribution to others. As a result of their life change they become my most valuable and passionate sales force inspiring everyone they know to be apart of the City Creek Family. We will CRUSH IT in 2011!!!