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

"OFFICIALLY" OFFICIAL!!! THE MARKET HAS BOTTOMED!

Boy! If people would just listen to me, the world would be a much better place!! (or maybe not! LOL!)

But in this case, it looks like I was right. I've been telling people that we're at the bottom of the market for about a month now, and Arizona State University's W.P. Carey School of Business agrees with me!

"

ASU study: Phoenix-area home prices “at or close to bottom”

Phoenix-area home prices are “at or close to a market bottom,” according to a new Arizona StateUniversity study that offers hope to many Valley homeowners.

The Arizona State University-Repeat Sales Index (ASU-RSI) measures changes in average Phoenix-area home prices from year to year. The latest report confirms home prices are falling at a slower and slower pace.

While Valley home prices saw a 37-percent decline in both the February and March reports, the new April 2008 to April 2009 report reveals a lesser 35-percent drop. Preliminary estimates for May and June show annual drops of 33 percent and 31 percent, respectively.

“April is the first month with a slower annual rate of decline, and the progressively smaller declines over the next two months are pretty good evidence that the worst of the price drops are in the past,” says Karl Guntermann, the Fred E. Taylor Professor of Real Estate at the W. P. Carey School of Business at Arizona State University, who calculates the ASU-RSI with research associate Adam Nowak. “While the housing market is still quite volatile, it may turn out that the low point in terms of price occurred in May, almost three years after prices peaked in the Valley.”

The current slide in home prices is the longest in Valley history at 26 months. This is the first month that Gilbert has been included in the city breakdown of the report. Gilbert and Sun City show the mildest declines in the area from April 2008 to April 2009. The worst drop was in Glendale, where prices plunged more than 40 percent in just one year.

Preliminary estimates show the median Phoenix-area home price for June is $119,000. That’s up from $115,000 in May and $117,000 in April. However, Guntermann says the large number of foreclosed properties being sold at distressed price levels suggests the median price is not likely to go up much for a while.

The ASU-RSI is based on repeat sales, the most reliable way to estimate price changes in the housing market. Repeat sales compare the prices of a single house against itself at different points in time, instead of comparing different homes with different quality factors.

The ASU-RSI is produced through the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. The current report and archived reports are available at the Division of Real Estate – Repeat Sales Reports. Further ASU-RSI analysis is available at http://knowledge.wpcarey.asu.edu."

You can read the full report here

What I've been seeing in the last two months is a lot of competition for "move in ready" homes. And when I say competition, I mean multiple (8 in one case) offers on a home that was ready for immediate occupancy.

The homes that are currently drawing the most attention are Bank Owned Properties. "Why?" you ask? Simply put, you get an answer out of a bank once they've foreclosed on a home that you don't get if you're trying to get Short Sale approval.

It makes a degree of sense. Once a Bank forecloses on a home, they're responsible for it entirely. They pay the taxes, insurance, and other recurring expenses instead of the home owner. They also have to worry about the property being vandalized, which is usually not a concern for an owner occupied home.

Plus, having homes on their books makes the bank look bad financially.

As a result, they want those properties off their books as quickly as they can get an offer and buyers will get an answer in a matter of days, instead of the months you can spend waiting for a short sale approval.

Short sale properties that are move in ready are getting more attention as the number of Bank-owneds dwindles, while "trash-out" short sales are just sitting.

Vanguard Platinum Realty

Erin Goldbach

Owner/Broker

602 524 0186

Erin@ErinGoldbach.com

Investor's Deal of the Day!!!

One of the things I specialize in is helping investors find, buy, and rent or sell investment properties.

This is not as easy as it sounds.

Why? Because you need an agent who can not only look at what price you'll pay for the investment property, but what kind of return you'll get. That's the critical part. If you're an investor, you want a decent return on your money. And while you might be able to find a really good priced investment property, is it going to be one you can make money on?

That's a tough question, whether you're doing a fix and flip, or planning on holding onto it and turning it into a rental. Projecting how well a property will rent can be especially tricky. Fortunately, after 4 years of working heavily with property management, I've developed a very keen sense of what will rent, and how quickly.

So I'd like to present you with two crazy good deals on investment properties.

The first is 8015 W Roma, in Phoenix. Its a 1592 sq/ft 4 bedroom, 2 bath home. It's block construction means that it's going to be structurally sound for a long time (it was built in 1976).

It's got tile in the main areas, but carpet in the bedrooms.

It's listed at (you might want to sit down) $29,900!! Thats right TWENTY NINE THOUSAND!

This is an investor's dream! It's in fair condition, so spend maybe $5000 on paint, carpet, and repairs, and put it back on the market for $55,000. That's a quick $20,000 profit!!

Or, just sit on it, put some renters in it at $750-$850/month, and have a positive cash flow of $400+ per month!

The Second Investment Property of the Day is 6562 W. Orange. This one is a 1529 sq/ft 3bed/2bath with two car garage. Again, block construction, so the house is going to be standing for a long time. And again, this one is basically move in ready! Carpet, paint, minor repairs. This one is listed at $37,125, and would be a perfect "fix and flip" or rental!!

Either of these homes would be a fantastic start to a Real Estate Portfolio, or addition to an existing one!

If you have questions about these properties, or about real estate investing, Give me a call!

602 524 0186

or email!

Erin@eringoldbach.com

Vanguard Platinum Realty

Erin Goldbach

Owner/Broker

602 524 0186

Erin@ErinGoldbach.com