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- #EF
- #T15,4,MORTGAGES, REFINANCING, & OTHER HOME-RELATED STUFF
- #C3,R5
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- PURCHASE OR SALE OF A HOME
- OR OTHER RESIDENCE
-
- For most people, buying or selling a home is likely to be the largest
- personal financial transaction they will make in their lives.
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- ~C~IBUYING~N
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- From a financial planning and budgeting point of view, buying a home
- involves a substantial cash outflow - the down payment, closing costs
- and fees, and, possibly, mortgage "Points". It also involves a commit-
- ment to regular monthly mortgage payments. And, finally, because the
- interest portion of the payments is deductible for tax purposes, cash
- flow in all years of the mortgage is doubly affected.
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- ~C~IREFINANCING~N
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- A mortgage is seldom a one-time thing. Interest rates go up and down in
- response to the demand for the total available loan funds. If the rates
- go down, it may (or may not) be to your advantage to renegotiate your
- present mortgage. There are some rough rules-of-thumb to help make a
- decision, but the best decision can be made only if all the pertinent facts
- of your own unique financial position are considered.
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- ~C~ISELLING~N
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- Selling a home will, hopefully, generate a profit. From a financial plan
- point of view, the profit may or may not be taxable - you have an option.
- The amount of the tax depends on your age at time of selling, what portion
- of the sale proceeds is reinvested in another home, and whether or not you
- wish to take advantage on that sale of a once-in-a-lifetime exclusion from
- taxable income of up to $ 125000 of the profit from the home sale.
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- #C3,R5
- THE FINANCIAL PLANNER includes programs to assist your decision making
- in all three of the areas just mentioned:
-
-
- ~C~IBUYING:~N
- The program "MORTGAGE" quickly calculates the periodic payments for a mort-
- gage, as well as the total interest and total payments over the life of the
- mortgage.
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- You can easily compare the cost of various mortgage plans by running the
- program once for each plan.
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- You can choose either a brief payment schedule (summarized by years), or a
- detailed schedule, showing all payments month by month.
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- #C1,R4
- ~C~IREFINANCE YOUR MORTGAGE?~N
-
- Mortgage rates vary from time to time - sometimes rising, sometimes dropping.
- When mortgage rates drop below the rate you are currently paying , you have the
- possibility of refinancing your mortgage at a lower rate. If you do so, you can
- reduce your monthly payment amount, and, over the life of the mortgage, you may
- significantly reduce the total interest paid.
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-
- ~C~IShould you refinance?~N
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-
- That depends. There are costs associated with refinancing. These costs usually
- include "Points", closing costs and fees, and, maybe, a mortgage prepayment
- penalty. If you plan to remain in your present home long enough that the total
- you will save on monthly payments is greater than these costs, you may want to
- refinance.
-
- #BN,5,19,75,23,1,0,1,3,0,3
- A commonly used rule-of-thumb is this: If the new mortgage rate
- is 2% or more under your present rate, and, if you plan to stay
- in your present home at least two more years, then refinance...
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- ~W~ICAUTIONARY COMMENTS~N
-
- However, you should keep in mind that this is only a rule-of-thumb. There's
- a lot of money involved, and a decision-- to refinance or not-- should be
- based on ~W~Iall~N the circumstances of your own individual financial position.
-
- ~C~IExample 1:~N
- Refinancing for a savings of less than 2% might nonetheless be attractive
- if you know you will be staying put quite a bit longer than than two years.
-
- ~C~IExample 2:~N
- Any refinancing arrangement at a reduced interest rate will reduce your
- monthly payment. ~C~IHowever,~N because most such refinancing arrangements not
- only reduce the mortgage rate but also extend the mortgage term back to its
- original length, the reduction in the monthly payment results in part from
- the lower mortgage rate and in part from stretching out the mortgage term.
- Thus, it is possible that the new mortgage at the lower rate may actually
- cost you more over its life--even though it is at a lower interest rate!
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- #C3,R5
- ~C~IMAKING THE BEST OF IT~N
-
-
- To briefly recap:
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- 1. Your monthly payment will be reduced.
-
- 2. Your mortgage term may be extended.
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-
- The Refinance? program in THE FINANCIAL PLANNER assists you in comparing any
- proposed new mortgage terms to your present mortgage terms. It will calc-
- ulate what your new monthly payments would be, how long you would have to re-
- main in your present home to recover the added cost for the up-front "points"
- and new closing costs, how much interest you would save over the entire life
- of the mortgage, and in what year those savings reach their highest point.
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- The program makes the calculations in two ways:-
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-
- (1) ignoring the effects of income taxes (the program refers to this as
- Lender's estimate, as this is the way lender's analyses are made),
-
- (2) more realistically - including your personal income tax and investment
- situations.
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- You can see a worked out example of the program by accepting the sample
- values already entered in the program, just pressing the <ESC> key to
- start the program run...
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