Not only does owning a home give you a haven for yourself and your family, it also makes great financial sense because of the tax benefits — which you can’t take advantage of when paying rent.
The following calculation assumes a 28 percent income tax bracket. If your bracket is higher, your savings will be, too. Based on your current rent, use this calculation to figure out how much mortgage you can afford.
Multiplier: x 1.32
Mortgage payment: _________________________
Because of tax deductions, you can make a mortgage payment — including taxes and insurance — that is approximately one-third larger than your current rent payment and end up with the same amount of income.
For more help, use Fannie Mae’s online mortgage calculators.
Brush up on these mortgage basics to help you determine the loan that will best suit your needs.
Mortgage terms. Mortgages are generally available at 15-, 20-, or 30-year terms. In general, the longer the term, the lower the monthly payment. However, you pay more interest overall if you borrow for a longer term.
Fixed or adjustable interest rates. A fixed rate allows you to lock in a low rate as long as you hold the mortgage and, in general, is usually a good choice if interest rates are low. An adjustable-rate mortgage is designed so that your loan’s interest rate will rise as market interest rates increase. ARMs usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. These types of mortgages are a good choice when fixed interest rates are high or when you expect your income to grow significantly in the coming years.
Balloon mortgages. These mortgages offer very low interest rates for a short period of time — often three to seven years. Payments usually cover only the interest so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.
Government-backed loans. These loans are sponsored by agencies such as the Federal Housing Administration
Key Items to Note:
Mortgage rates enjoyed a great week once again last week, improving just a bit on some days and showing great stability overall.
Stocks appear headed for early gains this morning, but I suspect that it’s partly due to Osama Bin Laden’s demise and not solely based on economics. Quite often, good results on the Stock Market comes at the expense of mortgage rates. However, I don’t expect that to happen in this case and I do expect another good week for interest rates. Recent reports on inflation are quite tame, in spite of the high gas prices, and this is what is helping keep mortgage rates low.
On Friday last week, the Dow hit a 3 year high. Can this level of performance be maintained? It’s a bit harder to understand the economic recovery that seems to be driving this as Nevada is still one of just two states that are regarded as still being in a recession.
Quote for the Week:
“Excellence is not a skill. It’s an attitude”. – Ralph Marston
Tip for the Week:
1/3rd of the year is now behind us. Take stock of where you are at in regard to your business plan and goals for this year. If you find you are coming up short, evaluate and adapt.