7 Things You Might Want To Know About Mortgages
Buying a home with a 5% down payment is available to everyone. Contrary to popular belief, you don’t have to be a First Time Home Buyer, this is available to anyone as long as you qualify. In theory, you could turn your current home into an investment property and buy another home with only a 5% down payment. Newer rules state that any home purchase over 500k requires a 10% down payment. ie. 700k home purchase price. 500k @ 5% down payment = 25k and 200k @ 10% down payment = 20k. 50k + 20k = 70k down payment required.
You can even buy a home with 0% down. Assuming you qualify, you’re allowed to borrow the minimum required 5% down payment from your LOC, Credit Card, Installment Loan, etc, and use it to buy a property. Keep in mind, the lender will need to factor in the monthly payments associated with the borrowed funds.
You could knock 2 years and 8 months off your mortgage by simply changing your payment frequency to accelerated. For example, if your current mortgage payment is every 15 days you would just change it to every 14 days. If your current payments are once a month, just divide that payment by 2 and make that payment every 14 days. I assumed a 25 year amortized mortgage for this example.
The potential mortgage penalty for a fixed-rate mortgage can be 4 to 8 times higher than a variable rate mortgage. Variable-rate mortgages come with a predictable 3-month interest penalty no matter if you break it at month 5 or month 45. Fixed-rate penalties are the higher of 3-months interest or IRD (Interest rate differential). They usually end up being the IRD and every bank/lender has their own formula for calculating this. Both variable and fixed rates have their pros and cons...the variable’s advantage is the potential lower penalty which equals flexibility.
The cost of a daily fancy coffee could take 2.5 years off your mortgage. For example, if you have a $400k mortgage and increase your mortgage payment by $5/day instead of indulging in a fancy coffee (I’m all for this by the way), you would save over $20,000 of interest over the life of your mortgage.
For a refinance, you can borrow up to 80% of the value of your home. For example, based on a home valued at $600k and a current mortgage balance of $380k the maximum mortgage allowed would be $480k. The maximum equity you could access would be $480k - $380k = $100k Equity Take Out.
A Home Equity Line of Credit (HELOC) is a great tool to have. You can use your HELOC to pay off higher-interest debt. Keep making the same payments as you were and the debt will be paid down more quickly. A HELOC arguably gives you access to the cheapest money on the market so you might as well use it when you can. As always, if you have questions about anything, I am here to help.
As always, if you have questions about anything, I am here to help.