Which mortgage is right for you? 15 year or 30 year?

There's an interesting article in the Wall Street Journal today about the rise of 15 year fixed rate mortgages in the refinance market.

The 15 year VS 30 year mortgage battle is one that has simmered for a long time. To be honest, the battle has been pretty one sided, with 30 year mortgages being vastly more popular than 15 year. But 15 year are still around, so somebody has to be interested in them.

15 year mortgages, for those of you completely new to the mortgage business, is a home loan that you repay over the course of 15 years. Conversely, a 30 year mortgage is one you pay off over the course of 30 years.

That simple fact is the only difference between the two.

Well, if you're going to owe someone money, it's better to owe them for less time, isn't it? Especially if your interest rate is going to be a half point (1/2 of 1%), or more, lower!!

People LOVE that idea until they see the numbers.

Yes, with a 15 year fixed will pay off your loan sooner, and at a lower interest rate, but your payment is going to be 30%-50% HIGHER than the 30 year fixed.

That simple fact is why the 30 year fixed has ruled the mortgage industry for so long.

The WSJ article cites statistics from Corelogic that in the first 6 months of 2009 (Jan-June), the percentage of mortgage refinances that are 15 year loans increased from 18.5% in all of 2008, to 26%.

That's an increase of 7.5%.

Refinancing is a little different animal than purchasing when you're talking about mortgages though. The people who are doing refi's to 15 year loans are people who A) Have a good chunk of equity in their homes AND plan on remaining there for a long time B) Have excellent credit, and sizable cash reserves. Mainly, these are older people who have settled into their "last home".

But what about for purchasing? Is a 15 year a good idea for you? Yes!

IF you have really good credit and good, solid income.

IF you are planning on staying in your home long term. Did you just start a family, and plan on, and will be able to, stay in that home until the kids leave for college? Then a 15 year might be right for you.

But if you know that your time in a home is limited, lets say you know you'll only be in that location for 4-6 years, then look at a 30 year. Heck, look at an Adjustable rate mortgage. Contrary to popular sentiment at the moment, ARMs are NOT evil. They just got horribly misused by people caught in unfortunate circumstances.

At the end of the day though, the numbers really speak for themselves. Over the course of a 30 loan, at today's rate of 4.375%, you would pay $159,500 in total interest on a $200,000 loan.

Yes, you would pay almost 80% of the loan value in interest!! You've almost paid for the house twice!

On a 15 year, you would pay only $61,800 in interest at today's rate of 3.75%. That's not even 1/3 of the loan amount. Between the two, you'd save $97,700 in interest by going with the 15 year.

The downside? Your monthly payment on the 15 year would be $1454.44.

Your payment on the 30 year would only be $998.57.

My advice? Finance with a 30 year, and treat it like a 15 year. In other words, figure out what your payment would be with a 15 year loan on the amount your borrowing, and make THAT payment, or as close to it as you can get, on the 30 year loan.

Sounds crazy? Not if you're applying that extra to the principle amount of the loan. The faster you reduce your principle owed, the less interest they can charge you, so the faster you pay off the loan, and the less interest you pay.

For example, from WSJ again, if you had a $200,000 loan, at 4.5% for 30 years, and you paid an extra $100 each month towards the principle, you'd save $31,700 in interest, and pay the loan off 5 years early!!

Imagine if you payed them an extra $200-250 a month!

So, if you're thinking about purchasing, or refinancing, strongly consider what a 15 year mortgage can do for you!

Here's the WSJ article for referrence: Paying off the house in 15 years.

If you have any questions, give me a call!

Erin Goldbach

Designated Broker

Vanguard Platinum Realty

602 524 0186

Solar Panels and Sales Prices

Asking "What can I do to increase the sales value of my home?", may seem like an odd question in this real estate market, where many owners are facing negative equity.

However, with the increased push for Alternative Energy, and the incredible tax breaks and incentives offered to defray the initial costs, Solar Panels and Solar Energy for Residential homes has become an interesting prospect to many home owners.

The question then becomes: Are they worth it?

That is a very difficult question with many variables, and the answer comes down to a resounding "maybe".

For some people, with lower energy needs, and who plan on occupying their home for a long period of time, 10-15 years, then, Yes, they may be.

For people with higher energy needs, and no plans to stay in their home for the long term, a smarter choice would be to use their money for upgrades that would improve the energy efficiency of their home. These would include additional insulation, a new, more efficient HVAC system, and new water heaters.

In the Phoenix market, the average 5,000 watt solar panel system, which would power a normal home, costs roughly $35,000. With the tax breaks and incentives, the out of pocket cost to the consumer is usually about $13,500.

*Assuming* the average household has a monthly electric bill of $100, it's going to take a little over 11 years to hit the break even point on that expense.

11 years is a long time. But, there is the possiblity that you could sell any excess power back to the electric co, which would help offset the cost. And there's also the possiblity that energy prices will increase, which would also cause the system to pay for itself more quickly.

In the minus column, though, is the cost of the system's maintanence. And that varies depending on the system you have installed, and who sells it to you.

The other popular option is to lease the system. This carries some risks that I'm not comfortable with.

First of all, the leases are long term, 20 years in most cases. What happens in the meantime?

Who's responsible for maintanence?

What if the system is damaged in a storm? Who's insurance would cover it? Would you even be able to get it covered by your home-owner's policy? Who pays if the system has to be moved to do roof repairs?

What happens at the end of the lease? If you sell your home, is the lease transferrable to the new owners? Do you own it at the end of the lease, or will they remove it?

As tempting as Solar Energy is, especially here in Phoenix, there needs to be some serious consideration that goes into your decision whether or not to invest in a residential system.

There's a good article available at the Wall Street Journal, with some more good info


http://http//online.wsj.com/article/SB10001424052748704407804575425512927624110.html?mod=WSJ_RealEstate_LeftTopNews


If you have any questions about other things that may increase, or decrease, the value of your home, or how to best stage it, feel free to give me a call!

Erin Goldbach
Designated Broker
Vanguard Platinum Realty
602 524 0186

I wrote this in May of 2007

I just found this on my old laptop, and found it both amusing and prophetic.

I'll let you decide how "on the money" I was!

"All Real Estate is an Investment.

People buy and sell Real Estate for any number of reasons. However, the deciding factor is always the financial commitment that property represents.

The nicest home in the world won’t sell if no one is willing to pay the asking price.

If the price is right, someone will buy the most run down of properties.

Why? Because that decision is based on the future perceived value of the property.

However, Real Estate Investment can be a risky venture without a strategy geared towards the current market conditions.

I specialize in helping people develop, and implement, wealth accumulation strategies based on Residential Real Estate properties in the Phoenix Arizona area.

The Phoenix Investment Property market is a dynamic one. Last year's strategy of “fix and flip” will not work in today’s market. Today the focus needs to be “buy and hold”.
Which means finding Renters for your Investment Property, and making it an Income Property.

Today’s market is perfectly suited for this strategy.

Let’s look at some facts:

During the housing boom in 2005, many people purchased properties at highly inflated prices. They financed these homes with risky, Adjustable Rate Mortgages, or Interest Only financing. There is nothing inherently wrong with either of those financing options, in some cases, they are the best option. However, they are both based on the premise that the market will continue to appreciate. It did not. The majority of these loans had two year caps that are now about to expire. Home owners are now looking at drastic monthly mortgage payment increases. Because of the drastic drop in home values, these owners cannot refinance to get out of their current mortgages. This is creating a situation where Properties are being sold in “Short Sales” at lowered prices to avoid foreclosure.

Anyone with good credit, and cash reserves, can take advantage of these circumstances to build an impressive real estate portfolio.

I specialize in finding these properties, and work with a team of financial experts to arrange the safest, most advantageous terms possible. XXXXXXXXXX (Former company) is also one of the largest property management firms in the West Valley.

Let me help you become wealthy."


Obviously, having written that 2 1/2 years ago, some things have changed. Everything I wrote in this piece still applies, but the window of opportunity has begun to close. Granted, it's closing very slowly, but according to a report by ASU's W.P. Carey School of Business, the market here bottomed out in May of this year. And since, we've seen reductions in the number of days a property is on the market, and a rise (small, admittedly) in home prices.

Also, I not only can help you find Income Properties, but I can do the management of them myself!

Interested in putting together a Real Estate Portfolio? Give me a call!

Erin Goldbach
Designated Broker
Vanguard Platinum Realty
602 524 0186

Seller Carry Back: A good approach for you?

In this real estate market, and lending environment, the difficulty for some people isn't finding a home to buy, but getting the financing to buy.

People are coming up with some creative solutions, but one that has been around for many years is a little known, but very simple one: The Seller Carry Back (sometimes also referred to as "the seller holding the Note")

What is a Seller Carry Back? Simply this: The owner of a home, who owns the property free and clear, acts as the lender, and "lends" the buyer the money to buy the home.

Before I get into an explanation of what that means, let me clarify one thing. The Owners MUST own the home outright. It must be free of any mortgage. If it is not, then the situation becomes what is called "A Wrap", which is a more complex, though not undoable, situation.

The thing that confuses people the most about a Carry Back is the notion that the owner/seller is "lending" the buyer the money to buy the home. Obviously, no cash is actually transferred from the seller to the buyer.

The Title of the property is transferred from the Seller to the Buyer in exchange for a promissory note for the sales price of the home. The buyer agrees to make installment payments on the home at a specific interest rate, usually with a balloon payment due in a specific period of time. If you think about it, this is exactly what happens with a conventional loan, but the actual "loaned amount" is on paper only.

Why would a Seller want to do this? Why would a buyer??

The advantage for a Seller is the chance to make substantially more than just the sales price of the home. Imagine if you were a Seller, and you agreed to sell your home to a buyer on a Carry Back for the price of $120,000, at an interest rate of 6% in an amortized 30 year loan, with a balloon payment due at 5 years.

Sounds like gibberish, right? Its actually pretty simple. The Buyer is going to make you monthly payments, of principle and interest, at 6%, with the remaining principle balance due in 5 years.

So, what's the advantage?? Over the course of those 5 years, the Buyer is going to pay you almost $35,000 in interest, while they lower their principle to $112,000. That means, when they refinance the home to pay you the remaining balance, you didn't just make $120,000 off of the sale, you made $155,000 total!!!!!!!

That's Right!!! By carrying the loan, you made yourself an extra $35,000!!

So, what's the catch? What's the down side? The biggest downside is the buyer not paying, and then you have to foreclose on the property. And depending on the condition the buyers leave the home in, that may be a big risk. Another risk is that at the time the balloon payment is due, the buyers may not qualify for a mortgage, or the property may not appraise for the value.

These things to consider, and there are safeguards that can be put in place to avoid, or limit these risks.

Why would a buyer want to purchase a home through this means?

The real estate market over the last 2-3 years could be summed up by saying "Bad things happen to good people". Or, as a lawyer friend of mine likes to say, "Bad luck happens".

Many people who have lost their homes due to the market and the economy are people who in other conditions would be qualified buyers. They're people who need some time to get their feet back underneath them financially, and might not need too long to do so. These are the people who can be good candidates for a Carry Back.

The advantage to these buyers is that they get to buy a home when they can't qualify for a conventional loan, and enjoy all the benefits of home ownership while repairing their credit. People who have sold homes in short sales are primarily the people who fit in this category. A short sale does impact your credit, but for a shorter period of time than a foreclosure, typically less than two years. So, a carry back with a 3 or 5 year balloon would be an ideal means for them to get back into a home, while giving them a great shot at refinancing when they're able.

And there are other variables that can make this more attractive to the Seller. Currently, the minimum down payment required for an FHA loan is 3.5% of the sale price. On $120,000, that's $4,200. There's no reason that a Seller can't require a down payment on a Carry Back as well, so there's the possibility of an up-front lump sum payment, be it a 3, 5, or even 10% down payment. And many buyers would jump at the chance to purchase a home under those conditions!

Carry Backs are a very attractive option, under pretty specific conditions, but they have the possibility of bringing a Seller a handsome return for (in my opinion) a fairly low risk.

If you have any questions about Seller Carry Backs, as either a seller or buyer, don't hesitate to email, or call me!

Erin Goldbach

Designated Broker

Vanguard Platinum Realty

602 524 0186

Erin@ErinGoldbach.com