How to Pay Down Your Mortgage Correctly

Refinance to a 15-Year Mortgage Term

It's pretty common for people to initially sign a traditional 30-year mortgage, meaning you have 30 years to pay back the amount owed.

However, if you can afford higher monthly payments, then you'll want to seriously consider refinancing to a shorter term loan, which generally has a lower interest rate, according to the Federal Reserve's mortgage refinancing guide, published on their website.

What's more, with a 15-year loan, "you pay off your loan sooner, further reducing your total interest costs. The trade-off is that your monthly payments usually are higher because you are paying more of the principal each month," the Federal Reserve adds.

As you can see, with a shorter-term loan, you'll pay off your mortgage faster, and save a ton of money in interest. That's a win-win situation, right?

Make Extra Payments, When Possible

Did you receive a raise or fall into some unexpected extra cash? Well, instead of spending it right away, consider making an extra mortgage payment or simply increasing the amount you typically pay.

Just consider this advice from the website of Massachusetts's Office of Consumer Affairs&Business Regulation:

"If you are unable to send a full extra monthly payment at one time, increase the monthly payment you are sending. To achieve the greatest benefit, the increase should be at least 1/12th of a normal monthly principal and interest payment."

And even if you can't do this every month, every little bit can help if you're smart about it, says Mitchell D. Weiss, an adjunct professor of finance at University of Hartford's Barney School of Business.

"When you pay more than your loan requires, and when you designate extra payments to be applied against the principal balance of your loan, you end up reducing that balance at an accelerated rate," he says.

Weiss emphasizes that the key is to direct whatever extra payments you make to be applied against the principal, or the total amount borrowed.

Protest Your Property Taxes and Examine Your Insurance

"Your monthly mortgage payment includes four things: your principal, interest, property taxes, and insurance - which is collectively called your PITI," says Paula Pant, founder of AffordAnything.com, a money management website.

Most people tend to focus on the principal and interest when they're looking to pay down their mortgage faster, says Pant. The amount you pay in property taxes and insurance, however, is often overlooked and this could be a big mistake.

Why? Because "if your property tax rate was set during the heady boom days of 2007, you might be paying taxes based on an assessment that's no longer valid," Pant says.

For that reason, "it's worth it to protest the assessment with your county to see if your rate should be re-adjusted to reflect today's lower home values," adds Pant.

However, this does not mean you need an appraisal. In fact, Pant says that is one of the most common misunderstandings about how property taxes are charged.

Instead, you should have an assessment done by the county, as they're the ones that determine your tax rate, she says. To get the process started, call your local county line or send them an email with your intentions.

If your property taxes are lowered after the assessment, you can continue to make the same monthly payment, and more of your money will be applied towards the principal and interest, which will help you pay down that loan much faster, says Pant.

Source: Yahoo Real Estate

How to Build a Nest Egg

Everyone needs to save--especially business owners. Sure, we all dream that our enterprises will prosper and flourish, but the reality is that there are sure to be plenty of rainy days in the future.

Smart entrepreneurs set money aside to weather those storms.

Take me, for instance. For the past five years, I've earned six figures from my business. This year I'll be lucky to earn five. I gave up a high-paying gig, and now my monthly income doesn't come close to covering my expenses.

But I'm not panicked. In time I'll earn more money; meanwhile, I can live off my nest egg. You see, over the years, while I was making much more than I needed, I socked away money in savings.

As a result of my forward thinking, I'm able to focus on the big picture ahead instead of freaking out over day-to-day expenses. It's a sweet feeling and one you can enjoy yourself--if you take action now.

How Much to Save
The standard recommendation from financial advisors is to save 10 percent of your income. That's a nice guideline, but the truth is that each person's situation is different. I have three recommendations.

• Always save something, even if it's just $20 a month. Starting small will turn saving into a habit.
• Aim to sock away 20 percent of your after-tax income. This will be easier once you realize that paying off debt and contributing to your retirement plan counts toward that goal.
• If you're in a position to sock away even more, go ahead and save as much as possible. I encourage people to save until it hurts, a sort of financial version of "No pain, no gain."

Where to Save
Don't just put the money into an account that pays 0.01 percent interest. There are ways to earn a return on your nest egg.

• Open an online high-yield savings account. ING Direct, Ally Bank, EverBank and other institutions offer interest rates far above the national average. And by moving your savings online, you'll keep that money separate from your checking account and therefore make it harder to use for impulse buys.
   
• Explore reward checking accounts from a small, local bank or credit union. These accounts usually offer higher rates than online savings accounts--if you meet certain requirements, such as making a minimum number of debit-card purchases each month and agreeing to receive statements electronically.

Building a buffer of savings in the bank is like buying business insurance. Thanks to the cash cushion I built up over the years, I now know that I can cope with whatever the economy throws my way.

Source: www.entrepreneur.com

How to Choose the Right Real Estate Sales Professional

Buying real estate is complex, and it’s imperative to select a competent, honest agent who will skillfully represent your best interests throughout the entire process of selecting, negotiating and closing on your property.

Here are several things to look for and consider when selecting the real estate professional to represent you in a transaction:

Experience

Real estate is a learn-by-doing process, and an experienced agent should be closing at least five to seven property transactions per year. Every transaction is complex, and each agent obtains new and relevant “training” on each deal. So ask each agent — you should interview at least three — how many transactions they’ve closed in the past 12 months and several years. If they have not closed that many, ask who is guiding them as they learn the business and what professional training they had to prepare them to assist you.
References

You also want to get references from the sales professionals’ recently closed transactions. Then take the time to call those references to ask how the agents performed. You will learn a lot by listening to what their past customers have to say. Google their names, too, and check the state for licensing information and any disciplinary information.

Time to work with you

An agent who has too many clients may be too busy for you and may not be right for you, either. Make sure they have the time to sit with and educate you, show you lots of properties and are willing to write offers on properties that you would like to buy. If they have too many clients at once, service to you may suffer. So make your best judgment.

Location

Make sure they know the location, location, location in which you want to purchase property. Some agents are going to be familiar with the entire county and can talk to you about each neighborhood. Find a sales professional who is very knowledgeable about your targeted location.

Help you protect yourself

Will they help you make smart decisions? This is the largest purchase you are ever going to make, and your real estate professional should be well-versed in and advise you on how to do your “homework” when buying a property. Does buying make financial sense? Did you get a fair deal on your mortgage? Have you looked at the HOA documents, title abstract or plat? Are you procuring the right insurance for the proper amount? A good agent can guide you in these areas and should be on your side in a transaction.

The sales professional you use should be someone you trust and feel can do a great job helping you evaluate homes and get a property under contract. They should also help you navigate the escrow and closing process and negotiate in your best interest, whether it is the price, repair requests or other contract terms.

Source: Fox Business

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No Money Down Mortgages are Back

Its 100% financing the same strategy that pushed many homeowners into foreclosure during the housing bust. Banks say these loans are safer: They're almost exclusively being offered to clients with sizable assets, and they often require two forms of collateral the house and a portion of the clients investment portfolio in lieu of a traditional cash down payment. In most cases, borrowers end up with one loan and one monthly payment. Depending on the lender and the borrower, roughly 60% to 80% of the loan can be pegged to the homes value while the remaining 20% to 40% can be secured by investments. On a $2 million primary residence, for instance, the borrower could get a $2 million loan, which would require a pledge of assets in an investment portfolio to cover what could have been, say, a $500,000 down payment. The pledged assets can remain fully invested, earning returns as normal, without disrupting the clients investment goals. While these affluent clients may be flush with cash, this strategy allows them to get into a home without tying up funds or making withdrawals from interest-earning accounts. And given the markets gains combined with low borrowing rates in recent years, some banks say clients are pursuing 100% financing as an arbitrage play where the return on their investments is bigger than the rate they pay on the loan, which can be as low as 2.5%. Some institutions offer only adjustable rates with these loans, which could become more expensive if rates rise. In most cases, the investment account must be held by the same institution that's providing the loan.

These loans also provide tax benefits. Since borrowers don't have to liquidate their investment portfolios to get financing, they can avoid the capital-gains tax. And in some cases, they can still tap into the mortgage-interest deduction. While these loans make up a small portion of banks overall lending, demand for them has been rising. BNY Mellon Wealth Managements mortgage team says it experienced a 10% increase in requests for 100% jumbo-mortgage financing involving clients investment portfolios in 2012 compared with a year prior. BOK Financial, which offers up to 100% financing just to medical doctors through its private-banking divisions in eight states, including Arizona, Oklahoma and Texas, says there has been a roughly 25% increase (or about 100 more borrowers) in this lending from a year ago. Also, at Citi Private Bank, applications have been growing over the past two years. Demand is two to three times what it normally is, says Peter Ferrara, managing director of the private banks residential real estate.

Some banks are using this product to lure in clients, such as BOK Financials offer, which is available to new physicians. To provide the loan, the bank must first receive proof that the borrower has cash or investments, like stocks or mutual funds, that equal 10% of the borrowed amount.

What to consider before signing up:

         Portfolio restrictions. The amount clients can borrow against investment accounts will depend on what the portfolio comprises. In most cases, they can get up to 95% if the account comprises cash, up to about 80% if its bonds, and between 50% and 75% with stocks.

         Relationship pricing. To get the lowest rate, clients who already have significant assets at a particular bank should consider applying for 100% financing there.

         Underwriting standards. Borrowers will still need to pass regular underwriting requirements, including having a high credit score, a low amount of overall debt and  documentation of substantial income/assets.  Source: Marketwatch

RE/MAX National Housing Report: Broad-based Housing Recovery in Full Swing

For the fourth month in a row, the RE/MAX National Housing Report is showing an increasing Median Home Price. In May, home prices were 6.1percent higher than those in May 2011. Home sales also rose above the mark set last year by a significant 12.8 percent. With 42 surveyed metros showing increases in both sales and prices, the recovery of 2012 appears to be taking hold in all regions of the country.

For 11 months in a row, home sales have exceeded the level of the same month a year ago. Inventory continues to fall significantly lower than the previous year, with a 26.6 percent drop from May 2011. The related Months Supply and Days on Market figures are also trending lower.

Clearly, 2012 is the year the housing industry has been waiting for; theres a broad-based recovery taking hold, says Margaret Kelly, CEO of RE/MAX, LLC. This recovery may not bring improvement in all sectors to all markets at the same time, but most markets across the country are experiencing the best selling season theyve seen in years.

Transactions- Year over Year Change
In the 53 markets surveyed for the May RE/MAX National Housing Report, closed transactions rose 12.6 percent from the previous month and 12.8 percent from the same month last year. May is the 11th consecutive month to report home sales at a higher level than the previous year. Strong sales trending higher each month are driving an undeniable recovery in all regions of the country. Of the 53 metro areas surveyed, a record 48 saw sales higher than one year ago, and of those, 38 saw double-digit increases including: Burlington, Vt. +39.3 percent , Albuquerque, N.M. +35.8 percent , Boston, Mass. +29.3 percent , Chicago, Ill. +28.1 percent , Nashville, Tenn. +27.1 percent , and Raleigh-Durham, N.C. +25.7 percent.

Median Sales Price
The Median Sales Price of homes sold in May was $166,500. This price marks a 4.1 percent rise from the median in April and a 6.1percent increase from May 2011. May also marks the fourth month in a row to record a year-over-year increase. Of the 53 metro areas included in the May RE/MAX National Housing Report, a record 46 experienced price increases over last year, with 9 metro areas seeing double digit gains including: Phoenix, Ariz. +34.5 percent , Detroit, Mich. +23.1 percent , Boise, Idaho +23 percent , Denver, Colo. +14.8 percent ,Miami, Fla. +14.3 percent, and San Francisco, Calif. +11.9 percent.

For more information, visit www.detroitmetrorealestate.com.

Source: RISMedia

Why is my FICO credit score falling?

For the past five years, my FICO credit score has been above 825. This month, I checked my credit score again, as I do annually, and it dropped to the 755 range. Nothing has changed, except that I applied for and received six new credit cards in less than three months. They all are cash-back rewards cards. What happened?
-- Pat

Dear Pat,
Your FICO credit score fell because you opened those six credit cards in a short time. Every time you open an account, you're allowing creditors to pull your credit report, and you're lowering the average age of your credit accounts.

Both of those actions will sink your score.

Here's how it works: When you apply for a new credit card, a lender will pull your credit report and score. This is called a "hard" credit inquiry, and it'll hurt your score. (It doesn't hurt your score, by the way, when you pull your own credit report. It also doesn't hurt when an employer pulls your credit report or when a lender pulls your credit report for marketing purposes. Those are called "soft" inquiries.)

If you have several hard credit inquiries in a short amount of time, the damage to your credit score increases dramatically, says Anthony Sprauve, spokesman for myFICO.com, the consumer education division of FICO.

"Our data shows that someone opening multiple credit accounts in a short period of time is at a higher risk for default," he says.

It's unclear how much a hard inquiry -- or several of them -- will hurt your credit score. It depends on the cardholder, Sprauve says. Typically, the higher your credit score, the harder it gets hit by any credit transgression, he says. Consumers with low credit scores will find that a hard inquiry doesn't hurt their already low credit score by the same amount.

The damage from these hard inquiries will lessen over time as long as you manage the new credit responsibly. That means paying your bills on time and keeping the balances below 20 percent of the total available credit, Sprauve says.

New credit accounts also hurt your FICO credit score by lowering the average length of your overall credit history. The average age of all your accounts, the age of individual accounts and the length of time since you used certain accounts all contribute 15 percent to your FICO credit score. As the accounts age, and if you manage them responsibly, those new accounts will eventually boost your credit score.

So be careful with those credit card offers. While it's attractive to sign up for rewards credit cards, especially since many of them offer cash bonuses for new cardholders, do so with prudence and only when you need new credit.

"In addition to paying bills on time and keeping revolving credit balances low," Sprauve says, "the third most important thing a person can do to improve their credit is only open new accounts when necessary."

Source: Yahoo Finance

Prices are up, but homes are in short supply

The supply of homes for sale has been shrinking for six months and shows no improvement so far in January a bad sign for buyers. New listings of existing homes for sale were down 14% year-over-year in the first two weeks of January, according to Realtor.com, which tracks 143 markets nationwide.

In Phoenix, where prices were up 24% in November from a year earlier, new listings through the first three weeks of January hit their lowest level in 13 years, says Mike Orr, real estate expert at the W.P. Carey School of Business at Arizona State University.

That's bad news for buyers, and it means "prices need to go up more" to bring more sellers to market, Orr says.

Nationwide, the supply of existing homes for sale fell to 4.4 months in December, based on the current monthly sales pace, says the National Association of Realtors. That's the lowest level in more than seven years. A six-month supply is generally considered balanced between buyers and sellers.

Home prices in November were 7.4% higher on average than a year earlier, according to CoreLogic. Real estate experts had expected that rising prices would spur more sellers trapped by years of falling prices.

Instead, January's listing data "is the same sad story," says Glenn Kelman, CEO of online brokerage Redfin. If sellers don't have to sell, "they're holding on, thinking they'll wait for prices to go up even more."

Redfin's data, covering 19 major markets mostly in the West, shows new listings down 29% the first two weeks of January vs. last year.

Scarce sellers aren't the only driver of shrinking supplies. There are fewer distressed properties for sale. Foreclosure sales were down 7% through the first nine months of last year from the same period in 2011, RealtyTrac says.

Meanwhile, demand is up. Existing home sales were up 9.2% last year, NAR's preliminary data show. New-home sales rose almost 20% in 2012, the government reported Friday, while supply fell to 4.9 months in December from 5.4 months a year before.

New home construction is still weak. In each of the past three years, builders completed fewer than 500,000 single-family homes. That's less than half the number built annually between 1993 and 2007, according to the Census Bureau.

Home builders would need to double production this year to alleviate the tight supply, estimates Lawrence Yun, NAR's chief economist. That's not expected. Home supplies nationally will stay at about the five-month level much of the year, Yun predicts. Some markets are far below that. California's supply of existing single-family homes for sale stood at 2.6 months in December, the California Association of Realtors says.

"Nobody is selling because no one has anywhere to go," says Barbara Hendrickson, of Red Oak Realty in Berkeley, in the San Francisco Bay Area, which had a 1.8-month supply in December.

The low supply is feeding bidding wars. One of Hendrickson's clients recently lost a bid despite offering $130,000 above the home's $775,000 asking price, Hendrickson says.

Whether the supply of homes for sale will expand to meet rising demand is a "big question for the market" in 2013, says Jed Kolko, economist with real estate website Trulia.

This year is also the first since the housing bust began that falling inventories are not necessarily a good thing, he says.

Listings may still swell in time for the busy spring selling season, says Stan Humphries, Zillow economist.

He says listing activity next month will be key. If it doesn't pick up by then, the spring season is likely to bring a lot of price increases, he says.

Source: USA Today