11
Mar
By First Rate Financial Group
Mortgage

Wealthy Seniors Can Benefit From Jumbo Products

Wealthy Seniors Can Benefit From Jumbo ProductsIndividuals who own their homes with a considerable amount of equity should consider looking into proprietary jumbo reverse mortgages. These can be helpful tools that may allow seniors to either pay down an existing mortgage or fund their retirement. 

These tools are particularly helpful in areas of the country that have high property values, such as California and New York. In these states, jumbo reverse mortgages may provide seniors with up to $4 million in potential loan proceeds. These funds can be applied to a variety of possible purposes.

A Changing Thought Process Surrounding Reverse Mortgages

In the past, mentioning reverse mortgages was seen by many as an option of last resort; however, it seems like this reputation was largely gained because they were new and unfamiliar to most people. Over the past few years, financial experts have done a tremendous amount of research into reverse mortgages and have uncovered their potential to help someone’s financial portfolio.

There are numerous ways that reverse mortgages can help someone’s retirement portfolio ride the ups and downs of the market. Reverse mortgages can even be used to help someone postpone the claiming of Social Security benefits. 

A Potential Use Of Reverse Mortgages

One potential use of reverse mortgages follows a simple formula. The goal of this formula is to buy low and sell high. When the market goes up, draw on the retirement account for income. After all, the market is high, so shares of stocks, bonds, and mutual funds are going to be at their greatest value.

When the market starts to drop, avoid using the assets in the retirement account. Wait for those assets to come back up before using them. During this time, it is better to use a reverse mortgage and draw on the equity in the home instead.

A Mountain Of Untapped Equity

Proprietary reverse mortgages are becoming more popular in locations that have high housing values. In these locations, retirees might be sitting on a large amount of equity and might not even know it. In these locations, jumbo reverse mortgages can help individuals and families who might be short in their incomes. For this reason, retirees should consider using a jumbo reverse mortgage to help cover their living expenses and long-term care needs.

If you are interested in refinancing your property, be sure to contact your trusted home mortgage professional to discuss current financing options.

05
Mar
By First Rate Financial Group
Mortgage

Most Renters Are Paying Far More Than Their Landlord’s Mortgage

Most Renters Are Paying Far More Than Their Landlord's MortgageIn the overwhelming majority of the 50 largest cities across the U.S., monthly rent is more than the mortgage payment for single-family homes. In several cases, much more. 

Global answering service and chat support company Moneypenny compiled data from Zillow on median rent and mortgage payments from July 2014-July 2019.

In order to calculate the monthly mortgage payments, Moneypenny took the median home sale prices during the same time period and in the same major cities and then used nationally-average mortgage terms: 30-year fixed rate at 4% with approximately 6% down. 

Once the two figures — median monthly rent and median monthly mortgage — were calculated for each city, they were compared side-by-side. The data may surprise you. 

From Less Than Half To More Than Triple

In just seven of the 50 cities analyzed, tenants pay less rent than the owner’s mortgage payment each month. In 28 of the cities — well over half, tenants are paying more than 150% of their home’s mortgage. The city with the highest rent-to-mortgage ratio, Miami, shows that renters pay more than 300% of their landlord’s monthly mortgage payment on average.

Rounding out the top five are New York (276%); Riverside, California (231%); Boston (230%); and San Diego (221%). At the opposite end of the spectrum is New Orleans, where tenants pay just 49% of their home’s mortgage each month, followed by Richmond, Virginia (57%), and Kansas City, Missouri (82%). 

An interesting data point is that the median monthly mortgage payment in Miami is $720, while in New Orleans it’s $2,857. 

Not-Necessarily-For-Profit

While it makes perfect sense that rent prices in hot real estate markets are higher, some may still be surprised by the disparity between rental amounts and monthly mortgage payments. However, it’s important to note that even in the cities with the biggest gap, landlords are not necessarily pocketing the excess and enjoying a nice profit. While it’s certainly possible that they may be, homeowners are more likely putting some of that money back into the house in the form of improvements and maintenance, as well as setting some of it aside for large emergency repairs. 

If you are in the market for a new home or interested in refinancing your current property, be sure to contact your trusted home mortgage professional to discuss financing options.

28
Feb
By First Rate Financial Group
Mortgage

Should I Pay Off My Mortgage Or Invest the Money?

Should I Pay Off My Mortgage Or Invest the MoneyTo understand what to do with a windfall or extra disposable income when it comes to paying down a mortgage or investing the money, we need to discuss and understand the concept of opportunity cost.

What Is Opportunity Cost?

The concept of opportunity cost takes into consideration the total financial impact of the use of funds when applied in different ways, to be able to compare the effectiveness of how it is best to use them. The opportunity cost considers the risks involved, the potential reward, as well as the tax implications of the choices.

Risk Versus Reward Evaluation

All investments have risks. When comparing the potential earnings from an investment against the savings of mortgage interest, only the investment side has any downside risk. If you pay down the mortgage, there is a 100% certainty that the loan will reduce and the interest paid will go down. You can calculate the saving on the interest and know the exact amount.

If you invest those same funds, there is always a risk that the investment money can be lost or the investment returns are lower than expected. Moneywise did a comparison of using money to lower a mortgage versus investing in the S&P 500 stock market index over 43 years from 1971 to 2013. For 26 of those 43 years (60% of the time), paying down the mortgage was a better financial move.

Tax Implications

The tax implications involve the impact of the mortgage interest deduction, and its effect on reducing federal income taxes, and the cost of paying capital gains tax on investment profits.

The Tax Cuts and Jobs Act of 2017 reduced the possibility for many people of benefiting from an itemized mortgage interest deduction because the standard deduction increased. For comparative purposes, most Americans pay capital gains at the current rate of 15%.

Take the tax savings from the mortgage deduction, if you can use it, and compare this to the investment income, less the applicable capital gains taxes. Ask your tax accountant to do the calculation for you if you cannot do this yourself.

Summary

For some, paying down a mortgage is more beneficial than investing. Paying down a mortgage certainly has less risk. Be sure to consider paying down high-interest credit card bills first. That is always a wise idea because the interest rate charged on credit cards is so high.

Every person’s financial circumstances are somewhat different so there is no standard answer when comparing paying down a mortgage to investing the same amount of money. Each person needs to do this calculation of the opportunity costs, to be able to apply their extra funds in ways that are most beneficial for them.

If you are in the market for a new home or interested in refinancing your current property, be sure to contact your trusted home mortgage professional to discuss current financing options.