Mortgage Basics

A typical mortgage requires you to pay both the principal and interest on a loan.

A standard 30 year fixed mortgage allows you to slowly pay off the loan over its 30 year term.

The interest payment that you make each month is often tax deductible. You should check with your tax advisor on this. If you have the ability to use the tax deduction of your mortgage interest payments you can end up saving a substantial amount of money each year.

This ability to save on taxes is a major financial advantage over renting a property.

An interest only mortgage will still give you the ability to save on your taxes, if you are able to have this kind of tax deduction.

Property Appreciation

The other major advantage of a mortgage is the benefit of owning a property and being able to profit from the increasing value of the property.

If you own the property the profits will accrue to you. You don’t need to share this profit with the mortgage lender. Their profit is based on the interest payment.

There is also the ability to save taxes on housing profits. Check with your tax advisor on this. Savings in this area can save you hundreds of thousands of dollars.

Some Big Refinance Mistakes

Refinancing tips can help save you thousands of dollars

Refinance mistakes can cost you thousands, even tens of thousands of dollars. Here are some quick tips to help you out:

1.         Wrong time frame

Don’t do a refinance under time pressure. Always be sure you can walk away from a refinance if you are surprised by last minute (usually more expensive) changes to the loan you were expecting. These kinds of shenanigans happen. Sometimes people sign up for a bad deal because they need the money quickly, but could have avoided this with a little planning.

It is harder to walk away from a loan when it is a purchase loan. Make sure the broker or lender verifies in writing the final mortgage rate that was locked in, so there are no surprises.

 2.       Pay too much closing costs

Closing costs can vary greatly between borrowers and between mortgage brokers. A point is 1% of the loan size. If someone charges you 2 points on a $600,000 loan, that is $12,000.

Make sure you get a good faith estimate within 3 days of the loan application. Compare these carefully from multiple sources. Make sure the estimates are thorough so that you are comparing the same items across different offers. If a mortgage broker leaves off certain costs, such as property taxes or prepaid items, then their offer may seem much cheaper when it actually won’t be. Also make sure the quotes are for the same type of loan (30 year fixed, 5 year interest only, etc.) so you are comparing the same loan types. Otherwise you are comparing apples and oranges. 

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