Why Aren't We Making an Extra Payment on Our Mortgage Every Year?

It’s like asking “why aren’t we exercising ?” Or “why haven’t you seen Ted Lasso?”

(You can binge Ted Lasso on a free trial of Apple TV if you think the subscription is too expensive.)

If your lender isn’t charging a prepayment penalty, you can make extra payments.

• Make sure it goes toward your principal and not future payments.

• Pay a lump sum when you get a bonus or a tax refund

• Pay a little more each month. Divide your monthly payment by 12 and add that amount to each payment. You can also do that with your home equity line of credit (HELOC).

“Why?” You Ask

• If you start early enough, you can shave years off your mortgage.

• You can pay down the principal faster, saving money on interest.

• It makes you feel financially responsible!

A Few Cautions

Make sure you know how you stand financially. Pay off high-interest debt first. Contribute the maximum to your 401K. Make sure you have a 3-6 months emergency fund.

Then consider paying down your mortgage principal even if it’s only one extra payment a year. It’s long-term thinking but, like getting in shape, it’s worth it.

(Thanks to Mitch Mitchell and the Movement Mortgage Blog)

Contact Me

---

Cash Is King!

In April 2023, 1/3 of All Homes Were Bought with Cash

During the pandemic, there was a near frenetic homebuyer competition that encouraged cash buyers even when the interest rates were low. The seller got an unprecedented price and an offer with very little contingencies, especially no appraisal.

Cash is still king but now it’s because paying the higher interest rates are distasteful to those who can gather the resources and not get a loan.

Let’s get real—6-7% interest rates are the norm historically. Home prices that are now 25-40% higher than 3 years ago is not the norm. Hence, the problem.

Coloradoans like to think that all cash buyers are rich people from either the west or east coast and Texas. It’s mostly Californians, Texans, Arizonians, and Floridians who prefer the four seasons we all get to enjoy. I think they're moving because of hurricanes, flooding, some recently passed laws, lack of home insurers, and the relentlessness of sunny days spent at the beach. That must be it.

But cash is still a major presence in home purchasing in Colorado. Where is all that cash coming from?

Do They All Have Rich Parents?

No, they don’t but it is a source. Here are a few others:

• Selling assets

• Retirement accounts

• Family

• Investors bought nearly 26% of all homes in the US in 2022, pushing aside 1st-time homebuyers.

Some Good News

In the past few months, I’ve had two clients go up against cash buyers who offered over the asking price to make sure they got their dream house. The cash buyers lost, and my buyers won because the sellers liked their offer, and that they were young couples buying their first homes. Of course, they had to meet the offer price of the cash buyer and agree to close the appraisal gap if the appraisal came in lower than the contract price. Fortunately, they could do that.

Cash may be king but once in a while, it can be dethroned.

Contact Me

---

Marry the House, Date the Rate

Are we here again?

So you’ve found your dream house, but the rates have gone up again.

For some real estate agents, their go to response is “marry the house and date the rate.”

But is that always wise?

Let’s Figure This Out

Interest rates have been hovering around 7% for a while, freaking out buyers who have only known the rates under 5% and sometimes closer to 2%. The rise in appreciation and interest rates have kept those buyers out of the market. Some agents are telling their clients they should buy their dream home since they can refinance down the road. This could be true if interest rates decrease enough to make the cost of the refi worthwhile.

So, let’s say you’ll pay 3.5% to refi your mortgage of $500K. That’s a fee of approximately $17,000 to decrease your monthly payment by about $420. A substantial decrease, to be sure, but you won’t make up the refi fee for 3.5 years. Be sure you won’t need to sell before that.

Things to Consider

"Homes always appreciate."

Not always especially after a recession. A recession can still happen!

"You will always be able to refinance!"

Will you, though? Unexpected financial changes have forced homeowners to sell their home.

"Don't worry, rates will go down!"

Maybe. Maybe not.

Educate yourself. Always know the consequences. Be prepared to pivot.

(A thank you to The Real Estate Solutions Guy and Robert Taylor.)