January 4th, 2017 5:07 AM by Jackie A. Graves, President
Although 2016 has been a relatively quiet year for residential
real estate, 2017 is going to prove interesting. For some, it'll be
For starters, if you've been meaning to pull the trigger on a
refinancing move, 2017 may be the time to do it. Mortgage
rates, as of this writing, have hit levels not seen in two years.
The Federal Reserve, after notching short-term rates up
one-quarter point on Dec. 14, is eyeing more rate
hikes in 2017, meaning mortgage rates will also likely climb
Similarly, if you've been on the fence about a purchase or sale,
2017 may also be a good time to "do." If the U.S. economy continues
to heat up, that usually translates into higher demand for credit, with rates
typically heading north.
Let's take a look at some other possible real-estate-related
decisions to make for 2017, and whether they are do's or don'ts.
Don't just look at your monthly payment when making a decision about whether or
not to refinance. According to Tim Steffen, director of financial planning for
Baird in Milwaukee, you need to look at other factors. Every refinancing move
involves closing costs, which could consume thousands of dollars--unless you
choose to "roll in" those charges into the principal of your
refinanced loan balance.
"You need to be in your home long enough for this to make
sense," Steffen says. "Say you pay $1,000 for closing costs and
you're saving $100 a month on the new (lower) payment. You'd need to be in your
home at least 10 months. Refinancing is not a good idea for those selling
Bottom line: Do refinance, if you'll be in your home long enough to overcome
with a Fixed-Rate or Adjustable-Rate Mortgage
adjustable-rate mortgages, there's always a trade-off. You get some of the
lowest rates around up front, but your rate will reset after a period of time.
That means your payment could rise quite a bit.
A five-year ARM, for example, averaged 3.45% at this writing,
compared to a 4.15% rate for a 30-year, fixed-rate loan, according to
bankrate.com. Don't want to take the risk of your rate climbing in
an ARM? Consider a 15-year mortgage, which was averaging 3.4%. You would pay
off the loan sooner and pay less total interest. Of course, your monthly
payment would be higher than it would be with a 30-year mortgage.
No matter which financing option you choose, know how much you
will pay over time. And understand how your mortgage works. Steffen, who once
had an adjustable-rate mortgage himself, said: "I refinanced out of the
ARM before the lower rate expired so I could still lock in a good rate and
avoid the increase tied to the ARM. I may have given up something on ARM rate
for a bit, but I locked in a better long-term rate."
Keep in mind that in a rising-rate environment--the Fed says three more rate hikes may be looming in the
year ahead--that ARMs can be hazardous. The interest-rate index to which they
are tied will reflect short-term interest rates, so your monthly payments can
The best candidates for ARMs are homeowners who know they will
not be in a property very long, meaning only a few years. Are you going to be
transferred or relocate soon? Always look at when an ARM will reset to
determine which one will work for you. If you want to lock in a rate, as noted
above, a 15-year fixed-rate mortgage will offer you the lowest interest cost.
Bottom line: For most, an ARM isn't a good idea in a rising-rate environment.
to Save Money
Don't make a move just based on one financial consideration; you need to look
at the entire picture. Sure, lower (or no) state income taxes are a draw, but
you may be socked with other taxes that are higher on property or sales.
When considering relocation, what you want to know is the total
local cost of living. Sunbelt states may have little or no income taxes, but
they may have higher sales taxes on goods and services. Run the bankrate.com
cost-of-living calculator to
see how much you would gain or lose in your area of choice. While homes may be
cheaper, other common items might cost more. The question is how far your
income goes based on local living expenses.
Bottom line: Only do once you have a full picture of the financial
ramifications of relocating.
Long-Term Care Costs in Your Relocation Decision
likes to think about long-term care when considering a move--but it's a must.
What happens if you or your spouse becomes disabled and can't live at home? You
may have to sell your home and go into assisted living or memory care. Unless
you move back to where you moved away from, once again you have to consider the
local costs of long-term care.
A year of assisted living care, on average, costs $45,000 a
year, according to
Redfin, the real estate service. Full-blown nursing cost could
easily cost twice that much. If you didn't have any other assets, would you be
able to afford local long-term care with a home sale? It largely depends upon
where you're living at the time. In places where property prices are relatively
high, such the San Francisco Bay area, Southern California, or Seattle, you
could afford from 13 to 22 years in various long-term care settings if you sold
your home there, a Redfin survey found.
Your money would go a lot less further in places like Detroit,
Atlantic City, or Rockford, Illinois, where the range of care coverage is from
one to three years. If you're looking to move in retirement, look down the road
and ask how much it will cost to live outside the home, and would you have the
assets to cover the total costs?
Bottom line: Do consider your long-term care options when deciding to
relocate. For more on the subject, click here.
Out a Reverse Mortgage
you're 62 or older and own your home, you can tap equity via a reverse
mortgage. Instead of you owing the bank, you get a check every month. But these
vehicles, which carry federal insurance, are complex. The bank may own your
home after you die. You need to understand how they work. And if you plan to
move soon, they make little or no sense.
"Reverse mortgages are a pretty attractive thing to
consider," notes Steffen. "But understand your options. Don't do it
if you're going to be selling soon." To understand reverse mortgages, see
Wade Pfau's book, Reverse
Research Media, 2016). You can also read more about them here.
Bottom line: Do only if you completely understand the ins and outs of these
mortgages, and if you have no plans to move anytime soon.
this is a heretical idea for most Americans. Of course you want to own your
home! But that may not be practical if you can no longer maintain it, get
swamped by property taxes, or want to sample another area.
Want to relocate? You may even want to rent--and not buy--before you make a final
decision. Yet don't make a decision based on a need to own. Real estate in many places
won't go up in value; it may be an even worse investment when you subtract the
costs of ownership. Moreover, Steffen tells his clients not to see homes as
assets in their financial plan.
"A primary residence is not a financial asset,"
Steffen says. "Don't go into a home purchase thinking solely about the
investment opportunity. It's a lifestyle choice first, and any investment
opportunity should be a secondary thought."
For more about the rent versus buy debate, click here.
Bottom line: The "Do" or "Don't" here will of course
vary. But do keep an open mind to the idea of no longer owning a home; it may
make sense for you at some point to rent instead.
The best real estate decisions in the coming year will turn on
what works best for you. If you want to be closer to the people and things you
love, that may override any financial reasons.
Whatever route you take, "make sure it fits with what you
want to accomplish," Steffen adds. That way you're looking at your
family's big picture and not one decision in isolation.
By John Wasik - To view the original
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