This past year has continued to be a time of new lows in mortgage rates; the 30-year fixed-rate mortgage averaged below 4% for last year (2016), setting a new all-time record lows. The 15-year fixed rate also averaged at historic lows, under 3%. With these super low rates, should you consider the difference in a 15-year or 30-year mortgage?
In 2017, rates are projected to go toward the mid- to upper-4% range. Even so, these are still super low rates historically.
There are many choices in mortgage products today, not just the 30-year mortgage and a 15-year mortgage. When rates are so low, many buyers can take a second look at something other than the typical 30-year mortgage. Many buyers, after seeing the list of mortgage rates, wonder, should I get a 15 year or 30 year mortgage? Good Question.
Besides the obvious pay-off being half the number of years, the difference between the two is mostly experienced by home owners in the monthly mortgage payment. An example of a $300,000 home:
Sample Scenario of two $300,000 mortgages:
|$300,000 Home||Monthly Payment|| Life of Loan
||Total Interest Paid
|30-year-fixed mortgage = 3.5%||$1,347||$484,968||$184,968|
|15-year-fixed mortgage = 2.8%||$2,043||$367,741||$67,741|
|% Difference||48% higher payment||24% savings||63% savings|
You can use this handy mortgage calculator from Bankrate to see the difference in the two mortgage products. You can see that this 30-year fixed mortgage has the advantage of more reasonable payments, while the 15-year fixed mortgage is geared towards long-term savings overall.
The choice between a 15-year or 30-year mortgage comes down to your comfortable monthly tolerances. Some people tell me they don’t want to be “house poor”, or to say they don’t want to have only a little left at the end of the month after paying their mortgage. The 30-year fixed mortgage is the tool that will give you the lowest monthly payment possible by stretching out those payments over 30 years. The cost is more money payed to interest over those 30 years.
With a 15-year mortgage you are paying more towards the balance each month than you would with a 30-year mortgage. Some people live comfortably with higher mortgage payments and less expendable income. Some people buy well below the maximum of what they can afford, using a 15-year mortgage. There is an advantage to having your mortgage paid off in 15 years. The caveat to this payment arrangement is that your tax write-off will be less with a lower amount going toward interest each month.
It’s a lifestyle choice. It’s a subjective choice.
Part of the decision of which mortgage to choose is the consideration of other obligations you may have. If you have other debts with higher interest rates, you may want to consider paying those first, saving money in interest and payments the long run. In our example, the $700 extra you’d have each month by choosing a 30-year mortgage could be used to pay down debt.
Another consideration is the choice of investing that $700. Could you invest somewhere with a greater return than in your home? Using this IRA Investment Calculator from Bankrate, you would have $147,884 in your IRA after investing the maximum $5,500 a year for 15 years. (Subtract the $67,000 you might have saved if you had a 15-year mortgage and you’re still ahead.)
***This is where our DISCLAIMER goes…we are not financial advisers, we are REALTORS. We’re just raising questions for you to ask your accountant or financial adviser.***
Colin Robertson writes a very informative blog, The Truth About Mortgage, with 6+ years of news about the mortgage industry. He has some great charts to compare the payments with different interest rates. Use his handy charts to compare rates: [click to enlarge]
“Should I Get A 15 Year Or 30 Year Mortgage?” It’s nice knowing you have choices, right? Knowing the numbers helps in making the choice.
Thanks to The Truth About Mortgage for these excellent interest rate charts! Be sure to read Colin Robertson’s blog for great information about mortgages.
Colin makes some other points that make sense when you consider them, but might not think about at first:
Check out Colin’s blog for more great information. Another good read for those who want to dive deeper: learn how are mortgages calculated.
Thanks, Colin, for these useful charts!
The Highland Group
Chris & Karen Highland cell 301-401-5119
eXp Realty 410-777-5714
The total cost of a Frederick home is really determined by two factors: the price of the home and the cost of financing, assuming the buyer is not paying in cash, which is about 90% of the time these days. The effect of interest rates on home affordability is larger than any other factor.
While many homesellers are chiefly concerned about the price of their home, home buyers should pay special attention to interest rates. As interest rates go up, the cost of borrowing goes up, and borrowing power goes down.
The interest rate plays a big role in determining your monthly mortgage payment. But how big a role? This chart shows how the payment is impacted as interest rates go up:
You can see that as rates go up, the monthly payment goes up. If the interest rate goes up 1/2 %, you can afford roughly 2 1/2% less in the home value. (These are general numbers, calculated on a mortgage calculator.)
You may have delayed your home purchase decision because of concern over where PRICES may be heading. OR, you may be trying to save for a higher downpayment. Many would-be home buyers are under the mistaken notion that they need to have 20% of the purchase price saved in order to buy a home today. This is a false notion, as there are many loan products available today that require much less than that amount.
FHA loans currently require a downpayment of 3.5%. There are also many conventional loan products that require 10%, 5%, and even as low as 3% down, with contributions from family allowed. And lastly, VA loans are truly no money down loans available to Veterans.
To make the best financial decision for you and your family, also take into consideration where the overall COST of the purchase may be heading. The chart really makes clear the correlation between interest rates and home affordability.
After several years of historically low interest rates, the Fed raised the benchmark federal funds interest rate this week (December 14, 2016). Even with Wednesday’s 0.25 percent hike, interest rates remain at near-record lows. Many mortgage experts are projecting that rates will continue to rise, but not rapidly. As they go up, affordability goes down.
As the economy strengthens, rates tend to go up…although today’s markets are increasingly global. Many things effect rates, not just or own economy. It’s never easy to predict today. Check out Bankrate for rate trends, calculators and general information.
Contact us for our list of preferred lenders to see how much you qualify for today.
The Highland Group
Frederick, Md 21701
If you’ve purchased a home in Maryland any time since 1999, then you should have been made aware of Maryland Agency Laws – who represents whom in a real estate transaction. Maryland has been on the leading edge of consumer advocacy for many years, so the Maryland Real Estate Commission has worked hard to protect the consumer. They’ve created laws to ensure that home buyers, as well as home sellers are aware of the opportunity for representation during the home buying process. Many states in the country still don’t have laws to address to the subject for Buyer Agency.
On October 1, 2016, new laws regarding agency have taken effect, and they will have an impact on home buyers. Here’s what home buyers need to know:
As of October 1st, there will be three types of agency:
What has changed since the 1999 Agency Laws were put into place? On October 1st, there will no longer be the type of agency called “Presumed Agency”. For the last 15 years, when a buyer met with a real estate agent, and didn’t want to sign a Buyer’s Agency agreement, the agent could continue to help the buyer by providing services as a Presumed Agent. That presumptive representation is no longer recognized in Maryland.
What Does this Mean for A Home Buyer?
Before the advent of Buyer’s Agency Laws in 1999, every agent worked for the seller, and represented the seller’s best interests. The Maryland Real Estate Commission wants to ensure that Home Buyers know their rights and understand that they have Buyer Agency available to them. Consumers need to understand that ALL agents are mandated by law to represent the seller’s best interest when there is no Buyer’s Agency Agreement in place.
Please be aware that all real estate agents are required by law to give “Fair and Honest” real estate services, but without a written buyer’s agency agreement, the law states that the agent represents the seller.
After October 1st, home buyers are now presented with a disclosure which explains the various forms of Agency in Maryland, as well as a Buyer’s Agency Agreement. It is the law. When visiting an open house, a new “Open House Disclosure”, notice will be placed visibly, which explains that the agent conducting the open house represents the seller. Real Estate agents are required to educate buyers and sellers on their rights upon the first meeting.
Agency is More Than Information
Today’s home buyers are well aware that this is the “Information Age”, and are able to obtain vast amounts of information on houses, neighborhoods and lifestyles. But this is the important part about Buyer Agency: Without a written agreement, you cannot get any information that is tailored to your interest. Buyer Agency is designed to give the buyer representation. Immediately upon reading these statements, many home buyers will have questions…
This is a cursory overview of the changes in Maryland Agency Laws. For a full explanation and view of the documentation, visit the Maryland Real Estate Commission Website: https://www.dllr.state.md.us/license/mrec/
When you buy a fixer-upper house, you can save a ton of money, or get yourself in a financial fix.
Trying to decide whether to buy a fixer-upper house? Follow these seven steps, and you’ll know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.
TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don’t know how to do will take longer than you think and can lead to less-than-professional results that won’t increase the value of your fixer-upper house.
If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you’ve uncovered and conservatively budgeted for the full extent of the problems.
Get written estimates for repairs before you commit to buying a home with structural issues.
Don’t purchase a home that needs major structural work unless:
Be sure you have enough money for a downpayment, closing costs, and repairs without draining your savings.
If you’re planning to fund the repairs with a home equity or home improvement loan:
Take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes) and subtract the upgrade and repair costs.
For example: Your target fixer-upper house has a 1960s kitchen, metallic wallpaper, shag carpet, and high levels of radon in the basement.
Your comparison house, in the same subdivision, sold last month for $200,000. That house had a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.
The cost to remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000. Your bid for the house should be $160,000.
Ask your real estate agent if it’s a good idea to share your cost estimates with the sellers, to prove your offer is fair.
Don’t rely on your friends or your contractor to eyeball your fixer-upper house. Hire pros to do common inspections like:
Most home inspection contingencies let you go back to the sellers and ask them to do the repairs, or give you cash at closing to pay for the repairs. The seller can also opt to simply back out of the deal, as can you, if the inspection turns up something you don’t want to deal with.
If that happens, this isn’t the right fixer-upper house for you. Go back to the top of this list and start again.
This excellent Guest Post was from G.M. Filisko. We hope you found this information as valuable as we did!
G.M. Filisko is an attorney and award-winning writer whose parents bought and renovated a fixer-upper when she was a teen. A regular contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.
These are the headlines recently…several times, as the record keeps being set. What exactly does the term “Affordability” mean?
The National Association of Home Builders (NAHB) and Wells Fargo have been calculating the Housing Opportunity Index (HOI) for more than 30 years.
The latest HOI data show in all, 65 percent of new and existing homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $65,700. This is up from the 63.3 percent of homes sold that were affordable to median-income earners in the fourth quarter.
The housing cost calculation takes into consideration the price of homes and the interest rate. Today’s sub-4% rates have made a huge impact on housing affordability.
For income, NAHB uses the annual median family income estimates published by the Department of Housing and Urban Development. They use the figure of 28% of gross income as an average amount home buyers can afford to spend on housing. That 28% of average income is divided by 12 to come up with a monthly amount allowable for a mortgage.
When explaining housing affordability, it must be noted that local markets are different. While the National Affordability Index is at 65%, the local markets vary.
Frederick-Rockville-Bethesda, MD has an affordability index of 72%. The median income for this area is $109,200, the median home price is $335,000. (It’s interesting to note that five years ago the median income was $113,000, the average home price is $305,000, and the affordability rate was 75%.)
The median income for Frederick Md residents is $65,328 (down from $66,642 five years ago) according to Google, and the median home price in Frederick is $295,000. Without an exact number, I’m willing to guess that the affordability index for Frederick is higher than Rockville and Bethesda.
Incidentally, the MOST affordable area is Cumberland Maryland, where 98% of households can afford the median priced home of $145,000.
|The Highland Group
Frederick, Md 21704
Buying a house is not an event, it is a process. Most of the time in today’s post-bubble, post-TRID real estate market, the process is a little more complicated and takes longer.
As the process gets more complicated, the anti is upped for everyone, including the buyers. Having a pre-qualification letter from a local, reputable lender is a must before most sellers will consider a buyer’s offer.
When a buyer gets a pre-qualification letter, the buyer isn’t obligated to borrow from that lender; it’s just a conditional promise that the lender is willing to make the loan. We always advise buyers to get pre-qualified with a strong local lender.
Remember, it does no good to hide information, it will eventually come out anyway. Borrowers must be completely forthcoming when it comes to their finances from the beginning to avoid any last minute surprises and disappointments.
Pre-approval is exactly that. A buyer can apply for a loan and go through the process of getting approved by the lender before they even make an offer on a home. In a competitive sellers’ market, it can be a good idea. Then when a buyer finds a home they want, they can make an offer with not just a pre-qualification letter, but with a stamp of approval. The extra leverage of having the proof that the buyer can get financing may just be the additional tool that makes them stand ahead of the pack when there are competing offers.
As a buyer, if you’re a planner, this preliminary step of pre-approval might make sense. However, if you are looking in today’s highly competitive sellers’ market and find your dream home…don’t hesitate. If the home is in great condition and priced well, it may not be available for long. There is always a balance between keeping a cool head and knowing when to jump on the right home. (That’s why you need an experienced agent as your trusted adviser…I know, I seem to say that a lot!)
In today’s times where the process is more complicated, it’s a good idea to get the loan process started as soon as possible. Lenders tell us all the time, the best scenarios happen when buyers are prepared and prompt with their paperwork. With the changes in the process because of new legislation (TRID) it is absolutely necessary to be prompt on the paperwork.
Living Healthy and Green Starts by Kicking Radon Out
Do you want to help your community step out on the green side of living and building healthier? EPA has developed a new media campaign, Living Healthy & Green, to educate Americans about the ease of testing for radon and building new homes radon-resistant. These unique public service announcements (PSAs) help remind Americans that a big part of “living green” starts in their home with breathing cleaner, healthier indoor air. Learn More about Radon Public Service Media Campaigns
Every Living Healthy & Green campaign element can be viewed, heard and ordered free on line at www.epapsa.com
Radon: The Health Hazard with a Simple Solution
Radon is a cancer-causing natural radioactive gas that you can’t see, smell or taste. Its presence in your home can pose a danger to your family’s health. Radon is the leading cause of lung cancer among non-smokers. Radon is the second leading cause of lung cancer in America and claims about 20,000 lives annually.
Test Your Home for Radon – It’s Easy and Inexpensive Fix your home if you have a radon level of 4 pCi/L or more.
The U.S. Surgeon General and EPA recommend that all homes be tested. You can test your home yourself or hire a professional. Fix your home if you have a radon level of 4 pCi/L or more. Radon test kits are available from the National Safety Council (or call 1-800-SOS-RADON). Some home improvement stores sell test kits. (Lowes and Home Depot both do) To find a qualified testing or mitigation contractor, contact your state radon office (see our list of state contacts) or either of the national private radon programs.
Exposure to Radon Causes Lung Cancer In Non-smokers and Smokers Alike
Lung cancer kills thousands of Americans every year. The increase in deaths due to lung cancer has raised public awareness about lung cancer, especially among people who have never smoked. Smoking, radon, and secondhand smoke are the leading causes of lung cancer. Although lung cancer can be treated, the survival rate is one of the lowest for those with cancer. From the time of diagnosis, between 11 and 15 percent of those afflicted will live beyond five years, depending upon demographic factors. In many cases lung cancer can be prevented; this is especially true for radon.
Radon escapes from the soil, into the air and into buildings and homes. The majority (69%) of radon that effects humans comes from the soil.18.5% comes from well water, 2.5% comes from building supplies, and 9.2% comes from outdoor air.
Normal levels found in outside air are 0.4 pCi per liter, which is considered safe by the EPA. The average indoor radon level in the U.S. is 1.3 pCi/L, also considered safe. When levels rise to 2.7 pCi/L, a person’s risk of lunch cancer rises 16%, according to the World Health Organization. The EPA recommends corrective action when the indoor level of radon reaches 4Ci/L.
There are three zones in Maryland, each showing a level of average radon density. in Zone 1, the Red Zone, the following counties have a predicted average indoor radon screening level greater than 4 pCi/L: Washington, Frederick, Carroll, Baltimore, Harford, Howard, Montgomery, and Calvert.
In Zone 2, Orange Zone, counties have levels between 2 and 4 pCi/L: Garrett, Allegheny, Cecil, Ann Arundel, Prince Georges, Charles and St. Marys Counties.
In Zone 3, Yellow Zone, there is low potential of high radon levels, less than 2 pCi/L: Kent, Queen Anne’s, Talbot, Caroline, Dorchester, Wicomico, Worcester, and Somerset Counties.
Montgomery County recently passed a law requiring home sellers to conduct a radon test. The wording of the law is such that sellers can conduct the test themselves, or hire a professional. The test must be from a list of approved radon tests. (which you can find on the NRPP Website) Many on the list are low-priced kits you can get at Home Depot or Lowes. The Pro-Lab test is $20.
As of today, other counties do not require testing, but we expect that it won’t be long before the counties in the red zone follow Montgomery County in this requirement. Even though it isn’t mandatory, we encourage buyers to have a radon test with their home inspection, using a qualified radon tester. Even if the homeowner has carried out a radon test within 12 months of listing the home, it’s still a good idea to have your own test. With radon tests, you can’t know if there was human error involved. Better safe with your own test.
What if the Radon tests high?
If you find that the Radon levels are 4 pCi/L or higher, Radon mitigation will be required. There are three common radon remediation systems used in residential construction:
Active Subslab Depressurization (ASD) is a system designed to lower sub-slab air pressure relative to indoor air pressure by using a fan-powered vent. By drawing the air from beneath the basement slab through a pipe and out of the roof, radon is prevented from entering your home. Often only a single suction is needed. The cost is between $800 to $1500.
Passive Subslab Depressurization (PSD) uses natural pressure differentials and convection to draw air up a vent pipe. New construction homes in Montgomery, Howard, Frederick, Calvert, Washington, Carroll, and Baltimore Counties have PSD systems installed. These systems are ready to install a fan, if needed, to convert to an Active System, ASD.
Block-wall Suction can be used in basement homes with hollow block foundation walls. This method removes radon and depressurizes the block wall, similar to sub-slab suction.
As always, use a licensed, qualified inspector.
Thanks for an informative guest post:
David Goldberg – Home Inspector phone: 301-913-9213 fax: 301-774-4554
ASHI Member #101584 MD License #29322
Reliable Home Services is a qualified Radon Tester
I like to watch several series on HGTV. “House Hunters” is one of them. I like to see the different home values in different locations across the country. One of the things that always makes me scratch my head, though, is when they use the price-per-square-foot calculation.
In the real world of real estate, no one really does that, at least not when it comes to market value and what buyers will and have been paying for a home. Builders use price-per-square-foot calculations for their own purposes, and commercial real estate uses that statistic to price out properties for rent.
When referring to residential real estate, comparing home values from one home to another is rarely ever an apples-to-apples comparison. Determining the market value of a home is a multi-faceted process. There are several reasons…
To calculate square footage, you take the dimensions of the first floor, and double that amount for the square footage. This traditional Colonial home has about 2000 square feet, 1000 on each level.
Now consider a contemporary 2-story house of 2000 square feet…If it has a 2-story foyer or a 2-story great room, like the picture below, it still may have the same 1000 square-foot footprint, the same square footage as the Colonial without the 2 story rooms. The two don’t completely compare.
You might pay more for the dramatic 2-story rooms than you would for the basic home, depending on the market, even though the basic home had more actual floor space.
This is like comparing apples to oranges.
Because mistakes are made, and human error is always a possibility, buyers should always make it their responsibility to check the square footage of a home they are interested in purchasing, and not rely on the owner, the agent, or even the State tax record.
There are several apps available to serve the purpose, why not do your own quick measurements yourself?
Your listing agent or buyer’s agent will be able to do a custom CMA, by carefully studying comparable homes that have recently sold and that are currently on the market. This is the best way to determine fair market value. After that, if the home is being financed, the bank will require an appraisal, which will be the deciding factor in the value of the home.
An experienced agent will do a custom CMA, taking into account all of the various market factors, unique features and neighborhood nuances. No other valuation can compare for an accurate measure of what a home is worth in the present market.
If you’re considering selling your Frederick Md Home, contact the Highland Group regarding our High-Tech, High-Touch Listing Plan. 301-401-5119