Did you know:

• After 30 years, a 30-year term mortgage is paid in full.
• After 30 years, a 40-year term mortgage has 57% of the original borrowed amount remaining.
• After 30 years, a 50-year term mortgage has 81% of the original borrowed amount remaining.

Of course, longer-term mortgage holders don’t have it all bad — the mortgage interest they pay on their primary residence mortgage is tax-deductible.

Longer term loans = more tax deductions over time.

To check how much tax deductibility your home loan is giving to you, speak with your personal accountant.

So you’ve read about the current housing glut and you’ve see stories on TV about it. And yet, you wonder, why are so many new buildings still being built?

The answers lies in timing. Building homes is not an overnight project,

It takes 3-5 years for most projects to move from Plans to Completion and, several years ago, developers were enthusiastic about the housing market’s promise.

Even 12 months ago, with hints that the market might turn, many developers were making the decision to press on.

The new buildings you see being constructed now are projects that started in 2003, 2004 and 2005. And the over-building should continue for the next 2-3 years.

The over-building is no more apparent than in Miami where 20,000 new units are underway despite a 30-year record high unit supply, says Bloomberg.

As more housing supply coming online, newly-constructed homes could present a bargain-hunting opportunity for a home buyer. It’s all a matter of timing.

The Dow Jones Industrial Average lost 311.50 points yesterday. On the rankings of Top 10 Daily Losses of All-Time, 311.50 doesn’t even come close, according to djindexes.com (and the charts above)

So, as we always do, let’s put yesterday’s action in perspective for the average person.

#7 on the “total points” list happened five months ago today — February 27, 2007. On that day, the Dow lost 416.02.

Was it a crisis? Probably not. We know that because if you pulled your money out of the market February 27, you would have missed the 10.3% in market gains since that day.

Yesterday’s loss doesn’t register in the Top 10 on a points basis, and on a percentage basis, it’s even farther off the chart. At 2.3%, the loss is just a blip.

The point is this: If you are invested in stocks, don’t react too swiftly to the headlines. Many passive investors lose money when trying to time the market’s ups-and-downs. If you’re nervous about your exposure to stock market fluctuations, you speak with your wealth planning professional for advice.

The Dow’s worst day ever remains Black Monday on which the market lost 22.61%. Since that date, however, the Dow Jones Industrial Average has added more than 12,000 points. Investors that stayed the course endured temporary pain, but emerged as winners.

Don’t let yesterday’s losses get your down.

This video from CNBC does a terrific job of illustrating how sub-prime mortgage defaults are impacting mortgage rates overall.

There’s some jargon in there, but overall, it’s very easy to follow.

June’s Existing Home Sales reported weaker than expected and dropped from prior levels, according to the National Association of REALTORS.

Because our country (A) loves to discuss real estate, and (B) loves statistical headlines, expect tomorrow’s newspapers to emblazon one (or both) of these data points on the front page:

• Home sales are down 3.8% from May 2007
• Home sales plummet 11.4% from one year ago

Those are two of the negative points from the NAR report.

There were positives in the report as well, but they’ll likely get buried deep in the newspaper coverage.

For example, homes are more affordable today than they were a year ago. Mortgage rates for “A” paper home buyers (i.e. strong income, assets and/or credit rating) are slightly lower today in June 2006.

Additionally. the number of homes on the market dropped in June which led to, in part, an increase in the median home sale price.

We bring the up today because it’s important to remember that real estate is not a national news story — it’s hyper-local. That’s why newspaper headlines need to be taken with a grain of salt.

Your home is a part of your neighborhood and that has its own “real estate market”. Just like on any street in America, your street has good buys and outright lemons listed for sale. What’s happening on the national scene has absolutely nothing to do with what’s happening in your backyard.

Unfortunately, this is a truth that remains largely untold.

Prospective pool of buyers can be frightened by negative headlines like the ones we’ll likely see tomorrow morning. Fewer buyers means less demand for homes, placing additional downward pressure on the housing market.

Mixed news from the sub-prime sector, depending on how you look at it. Many lenders discontinuing their short-term ARM products.

Washington Mutual, Countrywide and Wells Fargo are among the sub-prime lenders no longer offering the 2/28 mortgage product.

The “2/28″ is a adjustable rate mortgage in which the interest rate remains fixed for two years, and then adjusts for the loan’s remaining 28 years.

The 2/28 mortgage was the basis of all sub-prime lending in recent years.

First Franklin has gone a step further, eliminating the 2/28 and the 3/27. As you’d expect, the 3/27 is a mortgage in which the interest rate remains fixed for three years, and then adjusts for the loan’s remaining 27 years.

Lenders are continuing to offer 5/25 mortgages and 30-year fixed mortgages.

The mortgage lenders hope that longer “fixed rate periods” on their mortgage products will help keep their loans from defaulting so soon.

Today, 2/28s originated in 2003 and 2004 are in their adjustment phase and are contributing to rising foreclosure rates across the country.

For homeowners, the downside to loan portfolio paring is that longer fixed-rate periods creates more “time risk” for the lending bank and, therefore, leads to higher interest rates for home loans.

The potential upside, though, is that better sub-prime loan performance overall will reduce the risk levels in sub-prime, thereby lowering mortgage rates. Either way, borrowing money classified as “sub-prime” continues to get more difficult.

If you believe you are a sub-prime borrower, speak with your mortgage lender and/or financial planner and craft a plan to improve your credit rating and lending risk profile.

Sales of homes categorized as “new construction” are slower than in recent years. For May 2007, the Census reported that builders are carrying a 7-month inventory.

This is up from 6.2 months in May 2006 and down from 8.3 months in February 2007. The June 2007 report is due Thursday.

For people considering a move to newly constructed homes (i.e. buying from a builder), the inventory buildup means that homes may be available on the cheap if you’re willing to buy “off the rack”.

The home’s finishes and style may not be exactly what you want, but the price may be right.

This is similar to buying a suit at Brooks Brothers as opposed to having a tailor custom-tailor you one.

As the real estate market continues to favor buyers over sellers, there are two approaches a buyer can take — get exactly what you want and insist on a reasonable price, or go bargain hunting.

Surprisingly, new developments may be a terrific place to find a latter so long as inventory remains high.

If you own a home and somebody else depends on your income, consider that the leading cause of home foreclosures is not “adjustable rate mortgages”.

As cited many times over (including by a Harvard law professor), the answer is medical bills.

Even for the insured, medical expenses can dramatically impact a family’s finances and push it into bankruptcy.

Over one million families discovered that sad fact in 2004 and medical bills have not gotten any cheaper, says the Bureau of Labor Statistics.

Death is another major cause of foreclosure.

When a family’s primary wage-earner dies, the secondary wage-earner is now obligated to pay the family’s monthly obligations and that may include a mortgage payment. Sadly, that income may not be enough to cover the bills.

A strong life insurance policy can offset bills, ease transition periods, and even pay off the home’s remaining mortgage obligation.

Whether you’re a first-time buyer or a seasoned investor, consider protecting yourself and your family with adequate medical and life insurance coverage, as well as taking preventative health care steps.

There are resources online to help you determine what coverage is necessary, but the best place to start for this highly personal discussion is with your personal financial planner.

Life is a series of surprises and it’s never too soon to be prepared.

Creating a garden is part art, part science.

There are plenty of resources that can teach you how to garden, but just like books can’t teach you how to make beautiful art, creating beautiful gardens requires a teacher and a willing canvas.

Fortunately for the aspiring horticulturist, many artful gardeners are passionate about their work and are willing to share their knowledge.

If you live in the same neighborhood as one, talking with an experienced gardener can help you to learn about plants that thrive in the local climate and soil as well as those that don’t.

They may even share plants that they are dividing, if you’re lucky!

In the end, gardening is like any other hobby and the best advocates are the people that are “into it”. It’s easy to spot them — they live in the homes with artful landscaping.

Interest only loans get a lot of bad press — mostly because many people used them as a way to live beyond their means.

However, for a family that actively manages their finances, interest only loans can add an extra dimension to financial planning.

Interest only home loans carry monthly payments that re-calculate based on how much money you are borrowing at that time. The industry term for the re-calculation is “recasting” and all interest only loans feature it.

When an extra principal payment is made on an interest only loan, the loan payment due in the months following is calculated as:

(Outstanding Loan Size) * (Annual Interest Rate) / (12 months)

Therefore, an additional $500 principal payment against a $200,000 interest only loan at 6.000% will reduce next month’s mortgage by $2.50, or $30 annually.

$30 is six percent of $500.

This is in contrast to an amortizing loan in which your mortgage payment never changes until the loan is satisfied. Any additional payments to principal on these types of loans shave months off the end of a loan.

Recasting is not exclusive to interest only loans, though. Many lenders will allow you to recast an amortizing loan for a small fee ($100-500) but may limit the total number of times you can recast over the life of your loan.

Interest only loans recast once monthly.

Interest only loans require discipline and are not proper for every homeowner (the same way that a 30-year fixed is not appropriate for every homeowner, either). Within a balanced financial portfolio, though, they can be a terrific financial planning tool.

The Bureau of Labor Statistics says that the average American family spends $614 a month on automobiles. This includes finance payments, gasoline, repairs, and insurance.

Let’s relate that $614 per month to home buying.

Based on a 6.500 percent, fully-amortizing mortgage payment, that same $614 yields an equivalent of $97,000 in additional home purchasing power.

With an interest only home loan, it balloons to $113,000.

In other words, if your lifestyle does not require the full-time use of an automobile, you may want to consider trading in your car in for a larger and/or upgraded home.

For the temporary use of a car after a trade-in or sale, of course, you can phone a local car rental agency, or ask a friend to borrow (and be sure to fill up the tank as a courtesy).

You can also try priceline.com’s Name Your Own Price feature which makes cars available for a fraction of the “standard” rental cost — sometimes as low as $10 per day.

Don’t mistake the reduction of a home’s listed price as a signal that something is wrong with the home.

In many parts of the country — the supply of homes for sale is outpacing the demand for homes. When supply exceeds demand, there is a downward pressure on price until a balance point is reached.

During the recent boom in real estate, this economic equation was reversed, creating upward pressure on prices.

Supply and demand in today’s market can be illustrated by a seller listing their home at a price and finding few potential buyers. When the price drops, however, more buyers suddenly show interest in the home.

Further price reductions, of course, bring even more interested buyers until a deal is made and the home goes under contract.

When supply exceeds demand over a long period of time, prices tend to drop and that is why a market like this one is called a “Buyer’s Market”.

Price reductions don’t signal problems with a home, but merely that it was priced too high to find a buyer given the current market’s supply and demand.

Before paying down your mortgage balance with extra principal payments, be sure to plan carefully.

Think like the bank for a moment.

The biggest bank risk in lending to you is that you will suddenly stop paying your mortgage. In that event, the banks hope that you owe them as little as possible against the value of the home.

That way, your mortgage balance is covered in full and paid off in a discounted sale via foreclosure.

The fear of foreclosure is why lenders are eager to take your dollars and to help you increase your equity position through bi-weekly payments and other systems.

When banks encourage you to pay down your principal balance, their hope is that you will voluntarily decrease their risk in lending to you.

Important to remember: your interest rate is determined by the risk that you represent to the bank on the day you close. When you pay down your mortgage balance with extra principal payments, your risk to the bank decreases, though/

Do you think that the bank will call you to offer you better interest rates now that your risk is lower?

Therefore, before paying extra principal dollars, consider some of your alternatives first:

• Save for college
• Establish an emergency fund
• Fund a retirement plan
• Invest in stocks or bonds
• Pay down credit card debt
• Pay down installment loans

There are many more options, of course, but just remember that you have choices. Once you give the money to the bank on your first lien, you can’t get it back without a refinance.

The best place to start a conversation on principal paydown is with your financial planner or your loan officer.

How “move-in ready” would you home be if you moved out today and took all of your possessions with you?

We sometimes lose sight of the fact that long after our personal affects are gone, we’ve still left our mark on a home. And a scratch. And a nick. And a ding.

Just because a home is empty doesn’t mean that it’s move-in ready. And, without laws that govern in what condition a home should be left, it’s up to you to determine how far you want to go to please the next owner of your home.

As a common courtesy, remove all of the trash from your home and sweep/vacuum all of your floors. Do this after the home has been emptied. Don’t leave anything behind because “you don’t feel like moving it” or because you think the buyer “would like it”.

Once artwork and photographs are removed from the walls, you should consider patching major holes. Small holes are normal and acceptable; large holes are not. Use your good judgment on this one. If you patch, paint to match the room so there’s no trace of your work.

Empty your refrigerator and freezer completely. If it’s gross in there, clean it. The same goes for your pantry, kitchen cabinets and drawers, and anywhere else you stored food.

You may even consider a move-out housekeeping service to clean and sanitize your home for the new residents.

You can never go too far in making your home move-in ready, but you can absolutely do too little. If you’re unsure of what to do, follow the Golden Rule: If I were moving in, what would I want?

Credit “piggybacking” used to be a handy way to boost a person’s credit score in order to help them get a home loan approval. Starting in September, it’s going the way of the Dodo bird.

Piggybacking involves linking one person’s strong credit rating to another person’s weak credit rating.

By adding the latter as an authorized signer on the former’s credit cards, the weaker credit scores are pulled higher because of better payment histories and lower debt-to-limit ratios.

Recently, credit repair companies began paying people with good credit several hundred dollars monthly to “rent” their credit to people with poor credit scores.

The agencies charged the low credit scoring group up to $1,000 for the service, promising (and delivering) an increase to their FICO. Outed by Kenneth Harney in April and under pressure from credit scoring stakeholders, the practice will soon be halted.

Beginning in September, credit agencies will protect their scoring methods from gamers of the system.

There are no records documented how many people have abused piggybacking and credit scoring loopholes.

The change will negatively impact people that legitimately use authorized accounts, including children and spouses. There are an estimated 41 million people in that category.

There are also close to 2 million people that only have authorized accounts in their credit history. For these people, their credit history is about to go blank.

Source
Can you ‘piggyback’ on a credit score?
Liz Pulliam Weston
MSN Money, June 18, 2007