Mortgage hacks under 30

Under 30 Mortgage Hacks

Often, banks, credit unions, and brokers focus on the “mature” homeowner.  That homeowner that is married with children.  They are talking about upgrading their home for a bigger size.  Paying college tuition for their children.  Buying a retirement property.  However, what about you the 30 and under homeowner?

Under 30 Mortgage Hacks #1

FACT, you have the best of all worlds.  For one, you are building a portfolio faster than any other generation.  You are experiencing historically low-interest rates, which allows you to become more aggressive in your financial approach.  What are goals you can accomplish?  Let’s review some of our Under 30 Mortgage Hacks:

  1. Retirement.  Yes, we understand retirement is many years off.  However, consider this illustration.  It is called the theory of compounding interest. Get the details here.  That is the clinical definition. Here is a simple one:

Rule of 72: Whichever number you divide into the number of 72, will be the time it will take for your money to double.  12% or 72 divided by 12% equals 6.  That means at an average interest rate of 12%, your money doubles every 6 years.

This is such a powerful concept to commit to. You will make your years of 45 to 60 stress free. Imagine, if you refinance your mortgage in one year’s time, you save $5,000.  At the end of the first year, you invest that $5,000.  Let’s also say you are 28 years old.  At the age of 68, you have saved $1,200,000.00!  Off of a one-time investment of $5,000.

Mortgage Hack #1: If you refinance your mortgage, that allows you to begin to save your money for retirement or the long term. That is smart money!

Under 30 Mortgage Hacks #2

Let’s stick with the theme of retirement.  If you are a W-2 employee, in many cases you are missing out on free money.  YES, you heard that right!  Free money, in two ways.

  1. In your 401K if you contribute to your retirement, that money is not taxed.  What does that mean?  The government lets you have free money in the form of fewer taxes.
  2. Company match.  On the surface you may think, the company will match my contribution up to 6%.  That is 6% for free, plus the tax money! That is a huge amount of money over the course of your life.

Mortgage Hack #2 – If you can refinance your home to free up monthly cash flow to make yourself money, you are going to be light years ahead of other homeowners.

Under 30 Mortgage Hacks #3

Speaking of making money.  You have heard the expression “work smart, not hard.”  What that really means is, smart people put their money to use.  This is the perfect time to think about becoming a real estate investor.

Anytime there are dramatic changes in the economy, inevitably there are changes in the housing market.  No matter how favorable times are, the opportunity to buy and sell a property is there.  They say it takes money to make money.  Now you have the money.

Additionally, don’t settle on just a single source of income or a single property.  You can get a cash out refinance that will allow you to purchase a rental property.

Mortgage Hack #3 – Smart money makes money.  Becoming a landlord does two amazing things to your bottom line.  You are taking the monthly cash flow and reinvesting and your building equity into yet another property.  

Smart Money for 30 and under homeowners opens you to a world of options in cash and asset accumulation you never thought possible.  However, you were smart enough to become a homeowner, now be smart enough to use your home as a financial tool

Mortgages photo

Making smart financial decisions at times requires you to work from the finish to start.  To do everything backward to ensure you are getting exactly what you want.  So as a smart mortgage customer, please finish this sentence:

“I want my mortgage payment to be ___________.”

Sounds simple enough.  This is something that the automotive industry has been using for decades.  However, theirs is for all the wrong reasons.  In the mortgage industry, this happens on the front end of transactions (purchase) often leading to the wrong product, term, and even the wrong home.

However, as a current homeowner, it’s now time to pick your plan it’s time to pick your mortgage payment.  Do you have the ability to do that? Of course you do.  Banks, lenders, brokers should not be picking this for you.  They don’t have the full scope of your financial situation, you do.  Or at the very least you will.

“I want my mortgage payment to be ___________.”

Now it is time to work backward:

  • By having this mortgage payment_______ and paying off _______ I can save towards _______ and fund _______ I accomplished _________________.
  • By having this mortgage payment and paying off _____ I can save towards ________ and fund_______.
  • By having this mortgage payment and paying off_____ I can save towards __________.
  • By having this mortgage payment I will payoff ____________.
  • I want my mortgage payment to be ____________________.

The goals can be many.  From retirement to debt-free living to ensure your children have no student loans.  All of these goals and many more can be accomplished by asking one single question and starting backward (at the goal) and come back to the sentence you just completed.

“I want my mortgage payment to be ___________.”

There are many tools that will help you get there!  To get there, it is breaking things down to the smallest detail.  Down to the number of bags of Doritos you buy on a monthly basis.  Goals financial or otherwise have to be broken down to the smallest detail to fully be reached.  Then, you commit to that goal.

There is an old saying, “the devil is in the details.”  Let get into that detail here <CLICK HERE FOR YOUR FINANCIAL ROADMAP>

Home photo

In part 1, we covered the basics.  In other words: we covered the normal reasons as to why you would refinance your home. Now, let’s jump into the tier two reasons.

6 Reasons to Refinance Your Home #4

Let’s pay this mortgage off:

In a previous post, we covered the ABC’s of the “cost” of your home.  In many cases, with rates being where they are, it’s now time to get serious about owning your home free and clear.  Making a simple change from 30 years to 15 years can save you tens of thousands, if not a hundred thousand plus!  

6 Reasons to Refinance Your Home #5

I want to utilize my equity:

FACT, equity can be the ultimate savings account.  For many homeowners, they don’t realize the access they have to the money they can use for major purchases or expenses.  In addition, your equity in a first mortgage possibly is the cheapest money you will ever have access to. 

Let’s dive into that:
If you have a major transaction coming up, such as college tuition, home healthcare, buying a second home, investment capital, wedding, or starting a business, people often consider other avenues for cash:

  • 401K
  • Credit Cards
  • Retirement money
  • Cashing out life insurance

Now, not to go down a rabbit hole of losing interest and value. The fact of the matter is you may have a negative tax consequence and you are also losing a potential tax deduction.  In future posts, we will break this down in more detail. But in many cases with the examples above, it is a lose-lose-lose situation.

The potential tax-deductible money in your home is the best way to acquire cash for major purchases.  Equity is buying power!

6 Reasons to Refinance Your Home #6

I want to pay off debt.

On the surface, you may think this is a no-brainer: that as a homeowner you have the ability to consolidate your debt and pay it off through a refinance of your mortgage.  In a recent survey done by Yahoo Finance, it showed only 22% of homeowners knew they could pay off their car, credit card, student loans, installment loans, personal loans, and more by refinancing their home.

Your home is a financial tool.  A refinance of your home can be utilized to achieve a number of financial goals.  These are only 6 examples of these goals; there are many, many more.  That is why the focus should not be on a rate, product, or service.  The focus should be on: what will my home refinance achieve?  Once you can answer that, the goal is accomplished.

 

White and Brown House

If you’re a homeowner, you might be hearing everyone, from your neighbors to news anchors, and everywhere on social media talking about refinancing. So, should you be considering it too? There are many situations in which refinancing your mortgage may be the right move ⁠— let’s go over the 6 reasons to refinance your home.

WAIT, before we go through the reasons, let’s jump back and review the two types of refinances you will consider:

Rate & Term Refinance

The concept of the rate and term refinance is simple.  You are taking the current payoff of your mortgage and choosing the term.  30 years, 15 years, or 10 years.  This is a great way to take advantage of low rates to possibly decrease the term and overall cost of your mortgage.  It offers the flip side if you are just seeking payment flexibility. If you want a lower payment, you can refinance to a lower rate and longer-term.

Cash-Out Refinance

Cash-out refinance gives you the ability to potentially consolidate some if not all of your debt into one single payment.  You may still take advantage of all of the above.  Namely, a lower rate and term flexibility.  In addition to paying off debt that is not tax-deductible, you can use the cash-out portion to fund major purchases.  

6 Reasons to Refinance Your Home: #1

I want to lower my monthly payments:

If rates have dropped since you got your last mortgage, you may be able to refinance into a loan with a lower rate. Why? You can reduce the amount of interest and lower your monthly payments. The result?  You’ll also pay less over the life of your loan. You can check today’s rates or more specifically, your rate to your situation here.

If it is not about the rate, what would be another reason? Are you going through a future career change? Starting a business? If you run into a situation that will lead to a decrease in income, you may be able to lengthen your loan term to pay off your loan more gradually. In switching from a 15-year fixed mortgage into a 30-year mortgage, you can make lower monthly payments.  This would be known as a cash flow tool.

Another big one!  PMI or private mortgage insurance.  Maybe you have achieved that benchmark of 20% equity in your home.  Now you can possibly get rid of that high-cost insurance!  Achieve the best of both worlds.

6 Reasons to Refinance Your Home: #2

My credit score has improved:

If your credit score has gotten a significant boost, you may also be able to refinance and get a better rate. We pay for our credit.  Both good and bad.  It is how lenders mitigate their risk!  However, many homeowners are overpaying on their mortgage because of past credit.  If you have been working hard, taking care of past issues, then seen your credit jump 20+ points and stay there, it may be time to refinance. 

6 Reasons to Refinance Your Home: #3

My adjustable rate mortgage is getting ready to move:

The ARM (Adjustable Rate Mortgage) is a powerful tool in the purchase or a refinance of any property.  However, because of the nature of the product, it is market-driven.  You can go from secure to payment fluctuation that your life and finances are simply not ready to handle.  Also if rates are low on the fixed-rate side, it makes total sense to lock and secure payment for the next 15 or 20 years.

This concludes part 1 in the 2 part series on the 6 reasons to refinance your home.  Come back as we talk about the 3 other reasons that most homeowners miss out on.

 

Close-up Of A House Model With Percentage Symbol And Red Roof On Wooden Desk

The elements of understanding a mortgage seem simple enough.  Your home, rate, term, taxes, insurance, and appreciation; with the primary focus being typically on the interest rate.  However, what if we said your attention shouldn’t be on the interest rate?

Mortgage 101

There are many stages to a mortgage.  They coincide neatly with the many stages of your life.  First-time homebuyers the focus 95% of the time, is “Can I afford the payment?”  Later stage homeowner, it is “Am I building equity in my home?” However, payment and interest rate are often secondary in the true cost of a home.  Today’s borrowers when looking to refinance need to understand the cost of their home.

Understanding Your Mortgage Cost ⁠— Interest Rate?

Let’s keep it simple. We’ll use some simple math to truly understand your mortgage cost or your home cost:

EXAMPLE

$350,000 Mortgage Amount

5.5% Interest Rate

30 Year Term

$1987.26 Principal and interest payment.  This excludes taxes and insurance.

(PLEASE NOTE THIS IS JUST FOR ILLUSTRATION PURPOSES)

That is the cost of your house, correct?  Nope. You have forgotten the most critical step in the process.  See below:

You now take $1987.26 and multiply that by 360 = $715,413.26

That is the cost of your home in mortgage amount and interest payments!  That is more than double the original cost of the home.

However, there is good news…

You have more options than the normal “go-to” terms and conditions.  You have the ability in a refinance to pick the best financial options that make sense for you and your situation.  While a mortgage should be about payment for most, a proper mortgage and proper refinance can do more than that.

EXAMPLE:

$350,000 Mortgage Amount on Refinance

2.99% Interest Rate

15 Year Term

$2415.35 Monthly Payment excluding taxes and insurance.

(PLEASE NOTE THIS IS JUST FOR ILLUSTRATION PURPOSES)

Now, let’s do the math and see what the cost of your home is now?  Take $2415.35 and multiply by 180, the total number of your payments.  That equals $434,763.00

Real world numbers for you:  $280,650.26.  That is real money savings.  Actual dollars, that you work for, that are saved — and almost $300,000 dollars at that!  You may ask, “I am paying slightly more per month!”  That is 100% correct. Your net savings in actual money coming from your checking account at some point is $190,650.26.

Want to see how it works for yourself <CLICK HERE>

The cost of doing business does not have to be extreme (like double the cost).  You can control the cost of doing business with a bank or mortgage lender.  

Understanding Your Mortgage, Why We Shouldn’t Pay Attention to Interest Rates!

The above was a crude example to get you to focus on the fact that the cost of a mortgage is not all about the interest rate and payment.  When doing a refinance, you don’t have to be conditioned to “accept” terms of 30 years.  Truly understanding your mortgage is seeing what in real dollars you are paying today, 5 years from now, 11 years from now and beyond.  That way, you have a plan for putting significant money back in your pocket for retirement, a college fund, and so on.  What would it look like to be debt-free or mortgage-free in 15 years?  Understanding your mortgage is about understanding your options.

Future Plans

Without question, the last 2 to 3 months have reminded us that we need to expect the unexpected.  Whether it’s that you need to ensure cash reserves in the face of income loss, save for college, retirement protection, investments, or if you have plans of being an entrepreneur, we have tools at our disposal.

For the majority of Americans, our wealth is tied directly to our home. Bear in mind that as we’ve made our monthly payments, we got a return on our investment in the form of equity!  Depending on your circumstances, that equity is there for you to use in the form of cash-out refinance. You can use a cash-out refinance as a financial tool. Right now, your plan should be to build up your emergency fund and/or max contribution to a retirement plan.  Or replenishing lost retirement savings. Investing in a college savings fund.  Or for those that want to take it a step further, investing in the stock market or becoming a real estate investor. Let’s take a closer look at how you can use a cash-out refinance.

Expect The Unexpected

Financial wellness. We think of wellness often in nutrition, foods, and our bodies.  However, financial wellness is equally as important.  When you plan for the unexpected, you can deal with even the most stressful of events, with solid financial backing.

Remember the equity?  Yes, you can use this equity to ensure you are able to meet unexpected moments.  Now that the Fed has lowered short-term interest rates, what does this mean for you? Mortgage interest rates are lower.  Now that interest rates are lower you can accomplish two goals.  First, with a cash-out refinance, refinance your current mortgage to a lower rate and payment, cashflow!  Second, use that equity (cash-out) to put a plan and budget in place.

Emergency Fund

Regardless of your current circumstances, you must strategize to ensure you have a savings plan.  There is an old saying “too much month and not enough paycheck!” So how in the world do you save for an emergency?  Step one, we spoke about above.  Step two, debt consolidation.  Consider this scenario for a moment: If you have credit cards and student loans that cost you $800 per month in minimum or slightly above minimum payments.  You take those bills, use a cash-out refinance, and cut that in half or more?  Guess what, now you are saving about $400 per month for an emergency fund! 

Smart money experts recommend having at least 3 – 6 months of necessary living expenses available.  Cash, not credit cards.  Why?  Simple: as one example, in the event of another emergency, you can’t pay your mortgage with a credit card.  There is a reason they say “cash is king.”  While utilizing two methods staying at a maximum 30% level on credit card usage per month while also putting money away, you are emergency ready!

Building Retirement Funds

FACT and there is no other way to put it: tax-free money is the best money.  In fact, if you are a part of a company that has an employer 401k matching program, then tax-free and free money is the best money!  The trick is, you have to be contributing yourself.

As of 2019, the IRS allows you to contribute up to $19,000 per year to your 401(k). If you’re over 50, you’re allowed to contribute anywhere between $1,000 – $6,000 per year if your plan allows for catch-up contributions. The exact limit for these contributions is based on the type of retirement plan you have. 

Are you familiar with the “Rule of 72?”  It is called the Theory of Compounding Interest.  In essence, whatever number you divide into the number 72, is the number of years it will take for your money to double.  12% into 72 means your money doubles every 6 years.  Whatever number, as this is for hypothetical purposes.  In short, retirement in your 401k or IRA allows your money and interest to compound tax-free.  When is the best time to start?  Ask a financial advisor, but the answer is right now.

If you’re behind in building retirement funds, taking cash out of your home is a perfect way to ensure you can retire and retire on time! However, do not rely on a cash-out refinance alone.  A solid plan, by incorporating elements of the above is critical.

College Fund

We have dealt with 1000’s and 1000’s of people. There has not been a single person yet that has said; “Yes, I want my kids to be crushed with student loans.”  No parent wants that for their children.  It is also not something you can save for in just one year.

The cost of college tuition will not go down. In fact, it is one of the fastest rising costs in the US.  With that, you need to be ahead of the curve.  A cash-out refinance is a perfect solution to begin or fully fund a college education. 

These are just a few examples of what a cash-out refinance can do for you and your family.  How much equity do you have?  What is the right mortgage for you?  Will you qualify? Is the time right? Cash-out refinance is a powerful financial tool.  One that many people overlook.  You may have more equity and resources available to you than you even know.  Review this page, see what scenarios you connect with and what makes sense for you.

Worried young Caucasian married couple reading important notification from bank while managing domestic finances and calculating their expenses at kitchen table, using laptop computer and calculator

What is the most common phrase that is being uttered around kitchen tables and on the news? It is usually: “Mortgage rates today, what are they doing?” — but is this the question that the majority of homeowners should be asking?

When you take out a new mortgage or refinance an existing one, you may need private mortgage insurance (PMI). Such insurance provides greater security for your lender, and may help you to qualify for a mortgage. However, it also increases the total cost of your mortgage.

Most mortgages have terms of 15 or 30 years, but some spread payments across 40 years. These longer-term mortgages make it easier to borrow larger sums than you might otherwise be eligible to borrow, but these loans also have a few disadvantages. Consider the pros and cons of a 40-year mortgage carefully before making this serious long-term commitment.

Some financial experts say an adjustable-rate mortgage, or ARM for short, is nothing more than a bait and switch: You take the loan at a low interest rate, only to discover the rate rising a few years down the line. And yet homeowners will find many of these offers when they’re looking to refinance. As it turns out, an ARM isn’t just something to benefit shady mortgage brokers. For some homeowners in certain situations, this kind of refi makes a lot of sense.