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Getting the most out of refinancing

Refinancing your home can have great benefits, giving you lower interest rates and lower monthly payments on your mortgage. However, you should be aware of the costs and added expenses you can incur from doing so. These costs aren't always obvious, and making yourself aware of them will help you make the best choice.

You are probably focusing your decision on one or both of two main factors: interest and payments. How you go about lowering these is very important. For example, some refinance options will reset the term of your loan. If you have been paying on your home loan for 10 years and had 20 years left of payments, and you reset this term to 30 years at the start of your refinancing, your payments will go down simply because you are paying the same amount over more time. To combat this, keep your new mortgage term to the same or less than the existing one.

Another cost to think about is cashing out. This could add to your total debt in the long run. If you have done several refinances over time and added a few thousand to the loan to help with closing costs, you have added a large sum of money to your total debt. This isn't a normal cost, but it is one to consider when thinking about refinancing.

A helpful tool to use when thinking about refinancing is the recapture period. To figure this, take the closing costs and divide them by the monthly savings. For example, if you pay 2,000 in closing costs, and get a $125 dollar reduction in monthly house payment, it will have paid for itself in just 16 months. This can be helpful to consider when weighing benefits of refinancing.

If you would like advice refinancing your home, contact me at myrealtorrob.com

The Fiscal Cliff Deal

            As the fiscal cliff quickly approached, a decision was finally made to avert it. President Obama signed it into law a day after the House and Senate approved the legislation. Here are some main points of the deal that was made:

            A payroll tax reduction that was enacted in 2011 was not extended, leading to an increase in payroll taxes. The goal of this tax cut was to give workers more take home pay in order to stimulate. That cut ended in 2013, and since it was not renewed, the payroll tax will increase. Before the tax cut was enacted, the payroll tax was 6.2 percent, brought down to 4.2 percent in 2011. Since it ended, the tax will return to 6.2 percent. Employers have until mid-February to begin taking the added money out of paychecks.

            Estate tax rates will rise from 35 percent to 40 percent for estates valued for more than $5 million dollars. Republicans did however succeed in building in a provision, which allows the amount of the exemption (currently five million dollars) to be indexed to the rate of inflation.

            The bill also extends unemployment insurance for those actively seeking a job. It also delayed the sequestration, which would take multiple thousands from the budget. The sequestration was pushed back by two months. About half of the budget will be made up for through defense cuts, and the other half will come from non-defense cuts in spending. 

In 2013, Consider an Investment Property

 The investment market in Greater Lansing is hot right now. With students from MSU flocking to find off campus housing in downtown East Lansing, there is fantastic opportunity to have a profitable investment property in the area.  The important thing is to do your homework before jumping in.

A good first step is to look into your area. A seller can downplay negatives about an area, or over embellish how many students look at that area. Therefore, it is necessary to look into it yourself. Check the rental listings for the neighborhood and drawn your own conclusions as to whether student budgets could meet them. If the area you are looking at has an average rental rate of $1200 per person, and a nearby area rents for an average of $500 per person, more students will probably flock to the cheaper area more often.  You can also talk to neighbors about the area. They have lived there for a while and have seen who comes and goes. Keep in mind that you can also confirm any information that you are worried about with your Realtor.

It’s also important to keep in mind how you plan to manage the property. If you will actively manage it yourself, you may want a property that’s reasonably close to where you live. This way, if issues come up with tenants or small repairs are needed, it won’t be a hassle to make a trip. If you are going to have another person or a management company manage it, the proximity to your house will be less of an issue.

In the end, you will definitely want to make sure that you have someone who can help you with several different aspects of the investment property transaction. It’s critical to find a Realtor that is well versed in the guidelines and restrictions around licensing (like myself), to make the transition to rental property owner a smooth one (see my post on rental licensing).  It’s also beneficial to work with someone that specializes in investments and has possible additional knowledge or certifications in this niche (which I do). So, if you would like to look into your first rental property or your fifteenth, I would be happy to speak with you.