Real Estate Business and Investing

Refinancing is when you replace your existing mortgage with a new one from either the same lender or a new lending company. This is usually done to get a better interest rate to reduce monthly repayments or to release home equity funds.

In many cases, a refinance loan is used to acquire money for things other than paying off the existing mortgage. In essence, the homeowner borrows more money than he owes on the home. This is referred to as the cash out option since the homeowner opts to take additional cash out of the equity of his home when refinancing.

Although the original mortgage might get paid off with the proceeds from the refinance loan, other financial matters might be taken care of as well. In particular, refinancing an existing home loan for more money than the homeowner owes to the lender is an excellent way to obtain sufficient funds to consolidate debts.

Consolidating debts into one loan typically lowers monthly expenditure while saving exorbitant interest fees. Instead of retaining a lot of individual bills each month, the homeowner is able to consolidate all of his bills into one. Not only does this save him money, but also, it saves him the time and frustration of dealing with lots of small bills that lead to large fees in interest charges or late fees.

Refinancing an existing home loan for more money than the homeowner owes to the lender is also used for other financial matters. Some of these can include but are not limited to home remodeling, education expenses, wedding expenses, vacations, and more.

One of the most common reasons to refinance your current mortgage is to get a better rate which translates into lower monthly repayments. However, you have to keep in mind that you will not see savings right away.

This is because financial institutions charge certain fees when you take out a new mortgage, and often you will have to pay a penalty for canceling your old mortgage.

If you can determine your break even point, then you can start figuring out when you will start saving money. It is a very simple calculation to do

Calculate how much you will save by lowering your monthly payment. Then add the costs associated with refinancing and divide the total by your monthly savings. This will give you an idea of the number of months it will take to recover your costs for refinancing. The so called break even point

Since the equity of the home will come into play with the cash out loan, it is important to understand the meaning of the words, home equity. Home equity refers to the current monetary value of the home. It is calculated by taking the current market value of the property and subtracting the current debt owed on the property.

Any additional structures on the property are included in the market value appraisal. Likewise, all existing loans are included in the determination of the debt owed on the property. For example, the current market value of the home is $150,000.00. The current amount of debt is $50,000.00. You subtract the debt of $50,000.00 from the market value of $150,000.00. The home equity is then determined to be $100,000.00.

Thus, you can use up to $100,000.00 to consolidate debt for example and increase your monthly cash flow.

 

Should I Refinance?

When do you know that refinancing might be in your best interest? Since your home and your mortgage are your largest investments, it is very important to stay on top of appreciation trends, market changes, and other important issues, because unltimately your home can become the most startegic investment that you own. Let’s face it the home is the biggest investment most American’s make. Should you refinance now? Ask yourself the questions below…and then consider

Factors To Consider

Are Rates Lower? Is My Payment Changing? Is My Home Appreciating? Do I Have a 2nd Mortgage? Do I Have Other Debt? Am I Having Trouble Making My Payments? Are Rates Lower Than My Current Rate?

Don’t sell your self short by having tunnel vision when it comes to refinancing. One of the largest misconceptions about refinancing is that there needs to be large swings in interest rates in order to make it worth your while. In reality, interest changes as low as 0.25% can trigger a smart refinance. As a homeowner, it is important for you to be aware of flucuations in the market, and at any time that the prevailing rates seem to be lower than your existing rate, it is time to inquire about refinancing. Notice I said, it is time to inquire. There are many factors that ultimately determine how wise a refinance may be, and believe it or not, the rate is only one of many. Another very important factor is how much longer you plan to remain in the property. If you are planning to sell within the next year or two, then refinancing may not be a smart move for you. However if rates are lower, and there is that possiblity that you might remain after two years, then it doesn’t cost you anything to inquire.

There is no set amount that rates have to come down to make refinancing a good thing. Each individual situation is different, and subject to it’s specific analysis. Sometimes, the solution is to do nothing, but even then we know that the market will continue to change.

Is My Payment Going To Change?

There are only two things that can make your payment change. First, and most common, is that there is an adjustment to the amount of escrows that are being collected to pay for your taxes and insurance when those bills come due. Small changes in those annual bills result in small changes in your monthly payments, however, big changes can become devastating. Let’s assume that two years ago, your taxes were $3500 per year, and this year you get the bill and they have increased 40% (remember your home is going up in value) to $4900 per year. All year when you made a mortgage payment, a prtion of that payment was being deposited to pay this years taxes at $3500, or $292 per month. But when the tax bill comes at $4900, the lender HAS to make that payment on your behalf. What happens next can become truly devastating for some families. The increase in taxes was $1400 per year, or $117 per month, so you would expect the lender to increase the escrow portion of your payment by $117 per month, right? Guess again! The lender will increase your payment by at about $234 per month, or TWICE THE AMOUNT OF THE INCREASE! Why? When the tax bill came it was $4500, and they had been collecting enough funds in escrow for taxes to pay a tax bill of only $3500. So in essence, they have loaned you the $1400 increase in order to pay the bill, and are giving you 12 months to repay them, while simultaneously increasing the amount that they are collecting so that they can now pay $4500 when the bill comes the following year. If your payment is about to increase by even $100 a month, it’s definitely time to review your current situation for refinancing.

The second most common reason for your payment to increase is directly relative to the terms of your current mortgage. Adjustable Rate Mortgages have a predetermined time when the interest rate will adjust, and when the rate adjusts, if it goes up, then so does your payment. On a $200,000 loan amount an increase of only 1% would cause your payment to increase over $125 per month. If you currently have an Interest Only Mortgage, then there will come a time when the Interest Only period will expire, and this will definitely increase your payment. The payment on a $200,000 6% Interest Only Mortgage is $1000 per month, but if the Interest Only period was 5 years and now expires, the mortgage would then convert into a 25 year mortgage (the remaining term of the 30 year mortgage), causing your mayment to increase from $1000 per month to $1288 per month, an increase of $288 per month! Wait, what if your Interest Only Mortgage was also an ARM and it is scheduled to adjust at the same time? Assuming it only went up 1%, then instead of $1000 per month, your payment would jump to $1413 per month. But wait, what if your taxes went up at the same time? Now instead of $1000 per month, your payment will increase by $647 per month, a 64% increase! Now is definitely the time to review your situation.

Is My Homes Value Appreciating?

This may be the most important factor considering what your goals are. It’s really not being a nosy neighbor When you call about a home for sale in your neighborhood. It’s actually a great way to stay up to date on what is happening in your specific market. Or you can find a good Realtor or Loan Officer to help you find out your homes value. Keep in mind that your home is one of the largest investments that you will ever make. If you owned $200,000 in Wal-mart stock, I’m pretty sure that you would be checking on it’s price everyday. Homes almost always appreciate in value over time, but how mich is dependent on other homes in your area that are selling today.

With a conservative level of appreciation, your home may go up in value as much as 10% per year. In a hot market, appreciation could be as much as 40% annually. How much has your home gone up in value? www.zillow.com will give you an broad estimate. Your favorite Realtor will be more than happy to offer an opinion, because they know that quite often, once a homeowner realizes just how much their home has increased in value, they utilize that increase in equity to buy a newer bigger home.

If your home has appreciated in value, other reasons that might make a refinance a smart thing might be if your are currently paying Private Mortgage Insurance or if you have a second mortgage. If your original loan amount exceeded 80% of the purchase price when you bought your home, then most likely you are paying Private Mortgage Insurance, or PMI. This expense, which protects then lender from you not making your payments as agreed, and is not tax deductible, can be removed through a refinance if the current value of your home has appreciated as little as 10-20% since you became the owner. As we have seen, even in a conservative market (10% appreciation), owning your home as little as two years could save you hundreds of dollars per month by being able to refinance out of Private Mortgage Insurance obligations. If you purchased your home with a Combo Loan (an 80% first mortgage and then a simultaneous 2nd mortgage), then you are paying a much higher rate on your second mortgage. Appreciation in your property could allow you to refinance now and combine both mortgages into a single lower payment, and still not have to pay PMI.

In summary make sure you analyze your over all goals for refinancing and market conditions. Over looking any one thing can hurt you in the Refinance game.

COMMUNITY INFORMATION

Chula Vista is situated in the southern region of San Diego County within the state of California. There are approximately 194,939 residents in this community and 62,394 households. The median age of residents is 32.89 years.

TEMPERATURE

The temperature in Chula Vista is relatively moderate. The warmest time of year occurs in August during which temperatures reach an average high of 72°F. The coldest time of year occurs in December with average temperatures falling to 57°F.

HOME AND REAL ESTATE PRICES

The housing options in Chula Vista include single-family homes and properties, condominiums, townhouses, and apartments. The price of housing is as follows:

·One bedroom townhouse/condominium start in the high $100,000s.

·Two bedroom townhouse/condominium start in the high $200,000s.

·Three bedroom townhouse/condominium start in the mid $300,000s.

·Two bedroom single-family homes start in the high $300,000s.

·Three bedroom single-family homes start in the low $400,000s.

·Four bedroom single-family homes start in the high$400,000s.

REAL ESTATE MARKET TRENDS

As with most products and services in the United States, price shifts in the real estate industry are subject to the forces of supply and demand. Whether it’s a buyers market or a seller’s market, it is useful to evaluate home sales data for the most recent month available (June 2006), compared against the same period in the previous year (June 2005).

The median price of single-family homes dropped from $610,000 in June 2005 to $595,000 in June 2006, which represents a 2.5% decline. Fewer more homes sold in June 2006 (127 homes) than in June 2005 (171 homes). The average time to sell a home increased from 47 days in June 2005 to 66 days in June 2006.

The median price of condominiums and townhomes decreased slightly from $382,250 in June 2005 to $382,000 in June 2006, which represents a .1% decline. Fewer units sold in June 2006 (46 units) than in June 2005 (80 units). The average time to sell a unit increased from 52 days in June 2005 to 85 days in June 2006.

Homebuyers and home sellers should keep in mind that the data above is simply a snapshot in time. Therefore, the data must be evaluated over a longer duration to understand enduring market trends.

Central San Diego Real Estate Market – Mid Year Snapshot of Median Prices (2006) – Single Family Homes

As of this writing, the San Diego real estate markets appears to have shifted from one that favors sellers to one that favors buyers. However, this premise may not hold true for all communities within San Diego, as median prices for some communities continue to rise while others fall.

While there are many metrics to evaluate the real estate pricing trends of a community, one commonly used parameter is to evaluate the median price of homes from one point in time against a prior point of time. The median price reflects the point at which half the homes are above a particular price point, and half the homes are below a particular price point. The median price metric provides one method to analyze the direction of home prices, but should not be used as the sole source of data from which to form conclusions.

The data below is a comparison of median prices for various communities in central San Diego County, comparing data from June 2005 against data for June 2006. This information is only one metric at a particular point in time, and other metrics or data from future months may support or dispute the pricing trends noted below. For some of the San Diego communities presented below, very few homes sold during June 2006, which diminishes the usefulness of the median price metric.

COMMUNITIES WITH INCREASES IN MEDIAN PRICE – SINGLE FAMILY HOMES – JUNE 2006

The data below pertains only to the sales of single-family homes, and does not include condominiums or townhomes. The data is organized by the magnitude of change in median price, with the highest change in median price presented first.

For the Coronado real estate market, the median price was $1,775,000, which represents a 14.7% increase from the same time last year. Approximately 15 homes sold in June 2006 (21 homes sold in June 2005).

For the Point Loma real estate market, the median price was $1,024,068, which represents an 11.4% increase from the same time last year. Approximately 20 homes sold in June 2006 (14 homes sold in June 2005).

For the University City (UTC) real estate market, the median price was $780,000, which represents a 10.6% increase from the same time last year. Approximately 5 homes sold in June 2006 (19 homes sold in June 2005).

For the La Jolla real estate market, the median price was $1,692,500, which represents a 10.3% increase from the same time last year. Approximately 28 homes sold in June 2006 (38 homes sold in June 2005).

For the Logan Heights real estate market, the median price was $425,000, which represents a 7.6% increase from the same time last year. Approximately 13 homes sold in June 2006 (14 homes sold in June 2005).

For the Paradise Hills real estate market, the median price was $507,500, which represents a 5.7% increase from the same time last year. Approximately 8 homes sold in June 2006 (16 homes sold in June 2005).

For the Mission Hills real estate market, the median price was $927,500, which represents a 3.1% increase from the same time last year. Approximately 11 homes sold in June 2006 (12 homes sold in June 2005).

For the Scripps Ranch (Scripps Miramar) real estate market, the median price was $759,250, which represents a 2.8% increase from the same time last year. Approximately 34 homes sold this month (43 homes sold in June 2005).

For the San Carlos real estate market, the median price was $563,000, which represents a 2.4% increase from the same time last year. Approximately 12 homes sold in June 2006 (16 homes sold in June 2005).

For the Del Cerro real estate market, the median price was $557,500, which represents a 2.1% increase from the same time last year. Approximately 13 homes sold in June 2006 (30 homes sold in June 2005).

For the Normal Heights real estate market, the median price was $676,250, which represents a 1.7% increase from the same time last year. Approximately 20 homes sold in June 2006 (19 homes sold in June 2005).

COMMUNITIES WITH DECREASES IN MEDIAN PRICE – SINGLE FAMILY HOMES – JUNE 2006

The data below pertains only to the sales of single-family homes, and does not include condominiums or townhomes. The data is organized by the magnitude of change in median price, with the highest change in median price presented first.

For the Old Town real estate market, the median price was $580,000, which was a 19.1% decline from the same time last year. Approximately 5 homes sold in June 2006 (14 homes sold in June 2005).

For the Golden Hill real estate market, the median price was $451,000, which was a 16.4% decline from the same time last year. Approximately 10 homes sold in June 2006 (13 homes sold in June 2005).

For the Pacific Beach real estate market, the median price was $851,960, which represents a 14.8% decline from the same time last year. Approximately 15 homes sold in June 2006 (19 homes sold in June 2005).

For the Tierrasanta real estate market, the median price was $570,000, which represents a 12.6% decline from the same time last year. Approximately 9 homes sold in June 2006 (17 homes sold in June 2005).

For the North Park real estate market, the median price was $560,000, which represents a 9.7% decline from the same time last year. Approximately 31 homes sold in June 2006 (16 homes sold in June 2005).

For the College Grove real estate market, the median price was $475,000, which represents a 5.9% decline from the same time last year. Approximately 38 homes sold in June 2006 (40 homes sold in June 2005).

For the City Heights real estate market, the median price was $390,00, which represents a 5.3% decline from the same time last year. Approximately 17 homes sold in June 2006 (30 homes sold in June 2005).

For the Mira Mesa real estate market, the median price was $510,000, which represents a 4.7% decline from the same time last year. Approximately 45 homes sold in June 2006 (47 homes sold in June 2005).

For the Linda Vista real estate market, the median price was $510,000, which represents a 4.2% decline from the same time last year. Approximately 16 homes sold in June 2006 (17 homes sold in June 2005).

For the Mission Valley real estate market, the median price was $510,000, which represents a 3.8% decline from the same time last year. Approximately 7 homes sold in June 2006 (18 homes sold in June 2005).

For the Encanto real estate market, the median price was $435,000, which represents a 3.3% decline from the same time last year. Approximately 36 homes sold in June 2006 (47 homes sold in June 2005).

For the Clairemont real estate market, the median price was $555,000, which represents a 2.6% decline from the same time last year. Approximately 30 homes sold in June 2006 (34 homes sold in June 2005).

For the Sorrento Valley real estate market, the median price was $861,000, which represents a 1% decline from the same time last year. Approximately 6 homes sold in June 2006 (5 homes sold in June 2005).

ADVISORY

Homebuyers and home sellers should keep in mind that the data above is simply a snapshot in time, and is not conclusive of the pricing trends for any community. For some communities presented above, very few homes were sold during June 2006, which makes the use of the median price metric of limited value. The data must be evaluated over a longer duration, and involve multiple metrics to fully understand enduring market trends. Contact your Realtor to obtain information about enduring market trends for any given community.