Minneapolis, Minnesota is getting more rave reviews…

Minneapolis, MN is again ranked as one of the best cities to earn a great living. According to those brilliant people at Forbes Magazine, Minneapolis is second only to Houston for best places to make a nice living.

Right behind Houston are Minneapolis, home to more of the nation's top companies
per capita than any other city; Boston, fueled heavily by the biotech industry;
and Washington, D.C., where unless the government goes out of business,
consulting firms will continue to make a killing.

SOURCE

The Big House Myth….

This is my personal theory on why it’s not always the best choice for your financial future to buy the biggest home you can afford. I started to think about this during the housing boom when a close friend of mine decided to go against the grain and purchase a bigger house than I thought he should.

I told him, “…if you run the numbers it doesn’t make sense.” There are factors that make this theory invalid such as number of kids and personal needs but, keep this in mind, math does not lie…sales people do!

Let’s look at some numbers,

In this example, I’m going to compare a $225,000 home versus a $325,000 home, using a 6% interest rate over 30 years.

Monthly payments:
$225,000 mortgage @ 6% = $1,348.99 monthly payment
$325,000 mortgage @ 6% = $1,948.54 monthly payment

These simply reflect the Principle and Interest payments that will be made on a monthly basis, for 30 years.

Total Interest Paid over 30 years:
$225,000 @ 6% = $260,635.93
$325,000 @ 6% = $376,474.11

T
his figure will be paid as long as you hold the debt and make regularly scheduled payments every month. A lot of people don’t take the time to learn how much is actually paid for a home when making monthly payments. But, as with all things there is generally a risk-reward relationship and in this case, the risk is the set amount of interest you pay over the loan term, and the reward is the growth in value of the home (Appreciation)

Let’s say these homes were financed at 100% and there was no starting equity in the home, if we assume 3% appreciation over 3 years, we would have gained the following amounts of equity:
$225,000 x 3% = $20,863.58 in equity at the end of the 3rd year
$325,000 x 3% = $30,136.28 in equity at the end of the 3rd year

This figure is looking at the appreciation of your property assuming that home values go up in the future. Most people think that the bigger the house, the more money they will make. It’s just like a savings account, the more you have in the account, the more money you make. This is the argument many people have always had against the theory of the big house myth.
Well, those people are half right. Looking at our example, you will see that 325k house will make $9,272.70 more than the 225k home over the three years. That’s true but, most people forget that the bigger the debt, the more interest you will pay. Even if the interest is tax-advantaged, you will still be paying more on a monthly basis to interest rather than using that money to pay off debt.

Now, let’s look at the numbers behind the mortgage payment:

Interest paid over 3 year period (Total interest paid in payments 1 thru 36)

225k = $13,073.50 interest over the first 3 years
325k = $18,883.94 interest over the first 3 year

On the 325k home will have to pay $5,810.44 more in interest over the first three years. In fact, if you make $9,272.70 more in equity but, have to pay $5,810.44 more in interest that would leave you with merely $3,462.26 more than what you would have made on a 225k home.
So, you’re thinking, “…well at least I’m up 3k on this home, how would it be a bad idea?” People tend to forget about the little things when purchasing a home. The 3k would be wiped out with an increase in property taxes and more costly utilities in a bigger home because, as we all know, the bigger the home the more it costs to keep up.

Let’s take this a step further…Think about this, if you could afford the 325k payment but, only purchased on a 225k loan, then you could afford to pay more on a monthly basis to your mortgage hence, mortgage acceleration.

The payment on the 225k mortgage payment is $599.55 less than the mortgage payment on the 325k home. If you use that extra payment savings and apply it to the 225k mortgage, it would reduce the total interest charges on your loan by 77k and save 73 monthly mortgage payments!! Now, don’t forget that in those three years you paid an additional $21,583.60 to principle, so it would leave with you a savings of 55k in total and that’s only paying extra for the first three years!!!

You think these numbers are mind blowing...The average homeowner does not understand how much money lenders make on mortgages. You see, the mortgage broker makes more, the real estate agent makes more, and the lender makes more the bigger the house you buy. How many sales people (or mortgage brokers for that matter) do you know that encourage you to spend less?

We encourage people to use “smart money”. With the combination of the SWBStm and our top-notch, industry knowledge, we have the ability to show you many ways of paying less to others and more to yourself.

Contact us with any questions regarding your mortgage situation…

The Crystal Ball of the Real Estate Market!!

Courtesy of two media conglomerates: Yahoo and News. Corp, they bring us a story about what to expect in the future of the housing market titled, “Where the Real-Estate Market May Be Headed, and How to Plan for It”, written by Jennifer Openshaw. The article sheds light on where the housing market is going and what to do.

Openshaw breaks the article into a few major sub-points, following with reasons for each. Let’s dive in!

The first sub-section supports evidence of a bottom:

“4. Rate resets on subprime loans to drop. Subprime rate resets are a big
foreclosure driver, and according to the research firm First American CoreLogic,
subprime resets should drop dramatically by October 2008.”

This is true, according to the stats I have seen, the biggest subprime resets were last October, so this means that most of these 2/28 loans will either be refinanced or foreclosed on by this October. From a lender standpoint, these loans have now been off the market for around a year so the crazy, subprime effect should be just about over.

On the flip side, many people chose to do 5 year Interest only ARMS. The problem is that some of these people in these loans can’t refinance again, even if they have outstanding credit scores. A lot of these loans were stated, meaning that there was non-traditional income documentation provided to qualify for the loan. These loans are used mainly by people who are self-employed or idiots who bought too much home and shouldn’t have really qualified. These could become a big issue because most stated programs have gone by the wayside. If people can’t afford their mortgages, they will walk away or get a loan modification.

Flies in the Ointment?

“1. Some principal payments required. Many
option loans allowed borrowers to defer principal payments for several years. As
those years go by, principal payment requirements could act like subprime
resets, pushing some owners over the edge.”

These are also known as negative amortization (or “neg-am”) loans. The resets of these could be very nasty. If home values are up in the area or are going up nationally, these types of loans can work with a savvy borrower; this requires a large amount of discipline and knowledge with investing.

I think some areas will not be affected as much by this type of loan, but states with a very sharp decline in values will be severely affected. The reason is, once these loans increase to a balance that is 115% more than the original, borrowed loan amount, the person is forced to start paying the full amortization amount and in many cases this will double the current payment. When something like this happens and the home can’t be sold because of being over-financed, the only other options are to foreclose or just walk away.

WHAT to do…
“2. Look for bargains this fall. At least three factors should
lead to a price nadir this fall, if it hasn't happened already, and the typical
seasonal fall sales decline will magnify the effect:
REO-holding banks get
more desperate. A lot of banks have been holding a lot of real estate for a long
time, and you know what that means.
Investors sell for tax reasons. A lot of
investors hoped for better but may throw in the towel to capture tax write-offs.
Homebuilders clear inventory, to get it off the books and start 2009 fresh.”

Yep, she is 100% right! There are deals all over the place. If you are looking at buying, this might be the best time to do so. I would say that in the next two years, the housing market should hit bottom and start to go back up. Again, it’s all local. Make sure you shop till you drop and research everything you can. Also, never pay the price they are asking, always low ball!!


Link for source
SOURCE

What is mortgage acceleration…

Mortgage acceleration is basically paying more towards your principle than the schedule payment. If your payment is $1,000 per month and you send in $1,001 or more, you are accelerating your mortgage.

Let’s look at a very simple example…

You have a $100,000 mortgage at a 6% interest rate. Your payment is $599.55 per month for principle and interest. The total amount of interest scheduled to be paid over the life of the 30 year mortgage is $115,838.19.

Now, if you pay $50 (total $649.55) more towards your first mortgage payment, your total interest over the life of the loan would now be $115,588.56. You will save $249.63 on total interest charges, simply by paying $50 more on your first payment.

There are several types of products that can aid in accelerating a mortgage:

1) 15 year mortgage – The 15 year mortgage operates the same as a 30 year mortgage, but you will pay half the total, overall interest, of course with a higher monthly payment. For instance, at a 6% rate on a $100,000 loan, your payment would be $843.46 per month and your total interest charges will be $51,822.13.

2) Bi-Weekly Mortgage – This is where you pay half your mortgage payment every two weeks. In essence, you make one more monthly payment every year. Looking at our 30 year example, on this option you would pay $90,196.39 in total interest. My personal recommendation is that this is the worst method to accelerate your mortgage, and I will elaborate in later editions of this article.

3) Satori Wealth Building System™ (SWBS™) – Our exclusive system is the best system on the market for mortgage acceleration and the reason is, it uses the power of your entire paycheck on a monthly basis. It will pay off your home faster than any option available in today’s market. Two of the major components to be eligible for the SWBS™ are: disposable income and equity. Now, these aren’t the only factors necessary to run the system as there are a wide range of setups. It would be in your best interests to contact our specialists to find out just how the SWBStm could work for you.

Why do it?
The average American does not fully comprehend just how much interest is paid over the life of their mortgage, while at the same time being compensated so little for the money they run through a bank account. In many cases, people can save tens of thousands of dollars in interest over the life of their loan simply paying a little bit more every month. If you are interested in saving thousands of dollars in interest on your mortgage, check out our Your Satori calculator and find how much you can save.

The man who wrecked the Real Estate market…

This article is a great read. It looks at the person who was really behind the whole sub-prime mess. It appears on the Village Voice and written by Wayne Barrett. It will shed light on how America got in to this mess and what was behind it.


Andrew Cuomo was the man who was in charge of HUD. It examines what he was thinking and how we got in to this mess. It all started with trying to improve home ownership percentages in America and with what we are witnessing today.

At least I finally know who I can blame for the collapse of the US housing market!:)

$500 billion and counting...

I have been reading for quite some time on predictions of how much investors will lose on the sub-prime crisis. Well, Bloomberg is reporting today that the number is going to be around $501 billion and counting!! Some experts predict losses will reach $2 trillion be over it is all over.

The collapse of the U.S. subprime mortgage market last year
has saddled banks worldwide with $501 billion of losses from declining values of
securities tied to all types of home loans and commercial mortgages as well as
leveraged-loan commitments.

Wow, that is a lot of money!! I would have to assume the in the next year or so, we will finally reach a grand total on the damages of sub-prime mortgages caused.

And they thought they were clever…

I have not seen this type of fraud for awhile. Most people think real estate fraud is where innocent home owners are swindled out of there life savings by a crooked agent or mortgage broker. Well, this is where the homeowners tried to pull a fast on the bank and got caught!!

“An Oak Grove couple who allegedly devised a scheme to defraud and collect
$690,000 from four mortgage lending companies was charged Aug. 4 with four
counts of mail fraud, the U.S. Attorney's Office said.
…In April 2006, Niska
allegedly filed a fraudulent satisfaction of mortgage form with the Anoka County
Recorder's Office stating that the Bravo loan had been paid off. In May 2006,
the couple sold the home for $675,000. The buyer borrowed $540,000 and got a
$135,000 fraudulent "gift of equity" from the couple, the indictment said.”

And then…

“…the couple induced the title company to pay them $510,000 instead of paying
the money to Bravo. The couple also kept possession of the house, the indictment
said.”

It never surprises me what people do. Do people actually think that lenders just forget about half million dollars?

Source

Its a slow down in the south...

Today on the watch, this article was posted “Housing slump causes more people to stay put”, by Amy Hoak which points out that some of the Mid-Western cities are keeping people, rather then losing people. This is unlike a few years ago where Sotuhern cities in the United States experienced a huge growth rate and Mid- Western cities were losing.

“According to U.S. Census Bureau estimates, the city's population rose 0.3%
between July 2006 and July 2007. While the growth may look paltry compared with
other U.S. cities', it hints at how the sluggish housing market and the credit
crunch is affecting migration trends, demographers say.”

Hoak gives a few reasons for this, but mainly she blames it on the current to real estate market.

“As home prices have plunged, many homeowners who want to move are staying put
instead of selling for less than what they think their homes are worth.”

It looks like more people are staying put rather then flocking to the warmer weather of the South. I’m not sure if I agree with all of Hoak’s points in the article. I would think that it’s not just due to the Real Estate market, but rather energy prices and the local job market.

A lot of Mid-Western major cities have very good job markets. I know for a fact, MN is home to many fortune 500 companies, which people come form all over the world to work for.

Factoid: Plymouth, MN was voted number one city to live in by Money Magazine in 2008!! The Mid-West can’t be that bad.