Bigger Home Costs Are Higher Than You Think

Bigger is always better, right?  People seem to think so especially when it comes to homes.  How many of us were raised by our parents in homes that we’d now consider much too small?  What people today consider starter homes, many lived their lives in.

There can be many costs involved with a bigger home.  The most obvious one is that they cost more.  A bigger home comes with a bigger price tag.  That makes sense.

Some people say this is worth it.  They look at the 500 extra square feet.  They see that it costs them $40,000 more.  Then, if they can afford the payments, away they go!

But, there are a bunch of other costs that come in that many don’t think of.  If you think that the only cost of a bigger house is the price, think again.  Here are a few things to consider.

Higher Taxes

If you pay property taxes, then you’ll pay more in taxes.  These costs will add up over the years.  For most, you’ll be getting the exact same services as those with lower payments.

Upkeep and Repairs

Eventually things wear out in homes.  A bigger house probably has a bigger roof.  There are probably more windows.  There is much more carpet.  More walls and ceilings to paint.  All of these things will cost you more over time to replace versus in a smaller home.


With a bigger house comes more space.  With more space comes more furniture.  All the extra furniture costs more.  And as your styles change, your replacement costs will be more down the line as well.


A bigger house means more space to heat and cool.  This will mean higher bills to pay every month.

Opportunity Costs

Every dollar you spend on your home is a dollar you don’t have to spend somewhere else.  Keep this in mind.  You might be sacrificing an investment opportunity.  Or an annual vacation.  Whatever the case may be, realize that you’ll likely be sacrificing something for your bigger home.

More Space To Fill

Have you ever noticed that when you have more space you fill it?  I remember my first apartment.  My roommate and I each had a bedroom closet and split one storage closet.  That was it.  And we made it work.  Now, I often wander through our house, with stuff in every room.  In the basement.  In the garage.  And I wonder how did I ever make it work in that little apartment?  The fact is that a bigger house will create more space and that leads to more stuff.

All of the things above will cost you money, and they all come from a bigger house.  Now, a bigger house might be just fine for you.  If it is, great.  Just make sure that you plan not only for the purchase, but for the extra costs you’re sure to face.

Readers, have you ever added up the costs of a bigger house?  Did these ever keep you away from buying a bigger house? What costs did I miss?  Let me know your thoughts and opinions in the comments below.


How to Use a Reverse Mortgage to Enjoy Retirement

It’s official, reverse mortgages are no longer a last resort when it comes to retirement planning.  Instead, it has become an acceptable retirement planning tool, one which an increasing number of seniors are turning to.  With that in mind, here are some ways you can use a reverse mortgage to enjoy retirement.

An Introduction

For those who don’t know, a reverse mortgage is a way to take advantage of your equity without needing to make regular payments.  This differs from a home equity loan or a second mortgage as both require the borrower to make monthly payments.

However, reverse mortgages are not for everyone.  To qualify you must be at least 62 years old.  In addition, you will need to have a certain level of equity built up in your home.  If not, then you might not have enough equity available to justify the cost of the loan.

While some observers are skeptical about reverse mortgages (and this is a good thing) many retirement planners are starting to see them as a valuable tool, one which will reduce the burden of worrying about having enough money for retirement.

Coordinate Spending

Managing withdrawals can be challenging for many retirees.  If their accounts are focus on stock, then the challenge becomes maximizing returns while minimizing capital gains.  In addition, unexpected expenses can force retirees to make withdrawals at the most inopportune times.

Having a reverse mortgage which is set up as a standby letter of credit can help retirees to better manage these issues.   However, the size of the letter of credit depends on several factors.  This includes how much your home is worth, how much you currently owe, and how much you need.

Taken together this will give you an idea of the funds available to you and then you can sit with your financial advisor to figure out the best plan to manage these funds.  This sort of review will also help you to map out contingencies, such as what will you do if your portfolio drops by 5% or 10% or more.

A couple of the plusses to using the line of credit feature of a reverse mortgage is that it is revolving – this means you can continually access the funds if you pay down the balance – and the available line will grow as the value of your home appreciates.   As you can see this function is a great way to coordinate spending to make you can make the most of your retirement.

Put Off Social Security

Ok, it might sound odd to say putting off Social Security is a way to enjoy your retirement.  But did you know that delaying payments until can increase your benefit by more than 30%?

While this sounds great, the challenge for most retirees is that they lack the resources to delay Social Security payments.  This is where a reverse mortgage can come in by providing the extra capital needed to delay receiving benefits until the age of 70 or later.

In fact, this bridge is become more popular as it also increases survivor benefits as well.  The best way to use this option if you plan to sell your home shortly after you begin collecting Social Security payments.  This way you minimize the accrued interest due.

IRA Conversion Time

One of the most dreaded parts of retirement is the IRA conversion.  If you are like most people, then you will need to pay taxes on any disbursements from your IRA account before the age of 70 ½.

This can be quite painful as the taxman will be looking to take a large chunk of your money, as such a reverse mortgage can be a way to cover the fees.  However, you will want to discuss this with your financial advisor as this approach might not work for everyone.

Rainy Day Fund

We are living longer, more active lives.  As such, it is become harder to ensure you will have enough money to live into your 80’s.  Getting a reverse mortgage can give you access to the additional capital you need to fund a long retirement.  In fact, these funds can be used to purchase additional life insurance as well as long-term care insurance.

There you have it, these are just some of the ways a reverse mortgage can help you enjoy retirement. As your situation might be slightly different than some of the scenarios outlined above you want to make sure you talk to your financial advisor to review this options base on where your retirement plan is today and where you need it to be tomorrow.

Smart Single-Family Rental Investing

Opinions often vary regarding the advantages of investing in single-family homes (SFHs) over multi-family complexes (MFCs). Some feel the short-term potential of MFCs surpass that of SFHs. While others cite the long-term potential of the SFH as being a preferable trait. The reality is—of course—it depends.

What are your long-term goals? How much is your available capital? What is your overall tolerance for drama? Depending upon your answers to those questions, smart single-family rental investing in a city can indeed be preferable to multi-family rental investing when you take the following factors into consideration:

Lower Barrier to Entry

On the whole, it’s easier to get started with SFHs. In fact, a good strategy for young investors is to purchase a starter home in which to live while they save and help appreciation bolster the value of the property. Once their equity position becomes sufficient, they can then refinance the house to purchase a larger home. If you start at age 25, repeat this process every five years with 15-year mortgages and acquire your last property at age 50, you’ll have a nice home free and clear when you turn 65 — along with six paid-for rentals from which to derive retirement income.

Easier to Afford

Buying a SFH generally entails much less expense than acquiring a MFC. They are lower-priced, easier to finance and require much less liquid capital to buy. Plus, if you ever need to sell, they also tend to move more quickly when they come on the market—assuming they’re well maintained and in good locations.

Faster Appreciation

Single-family properties tend to appreciate more rapidly in cities than complexes do. The resell market is much broader for SFHs, as they can attract people who need to purchase a home as their primary residence as well as investors looking for nice rental properties to add to their portfolios. On the other hand, MFCs tend to appeal only to investors. As a result, the pool of potential buyers is smaller, so demand isn’t as great and appreciation happens more slowly.

Easier to Manage

Maintaining a SFH is much less involved than keeping up a MFC. In a rental house, you’re likely to have at best three toilets. In a MFC the number of units multiplies the number of toilets. Ditto appliances to fix, carpeting to replace, walls to paint and all of the other aspects of keeping your property in tip-top condition. Yes, good property management companies can relieve you of much of the burden, but even then, your costs are lower with SFHs.

More Desirable to Families

In general, SFHs are easier to rent when they’re in good locations because people with children prefer to live in houses. This also means your turnover rate will be lower because all things being equal, a family is more likely to stay put — as long as the place remains comfortable and meets their needs as a family. Further, most people with children prefer a neighborhood setting with backyards, trees and other like-minded people nearby. This is more likely to be the case in a neighborhood of SFHs, than in an area zoned for MFCs.

Fewer “Personality” Problems

Anytime you put a bunch of people in close proximity to one another, you’re inviting personality clashes. Yes, you can screen your tenants very carefully, but it won’t guarantee Tenant A’s preference for the Raiders won’t irk Tenant B’s love of the 49ers. In SFHs, the person who pays the rent calls the shots for the behavior of the occupants of the entire place. In a MFC the number of units multiplies this factor and everybody doesn’t have the same sensibilities, which can lead to landlords finding themselves in the uncomfortable position of arbitrator.

For these reasons and many others, many people prefer smart single-family rental investing in cities to multi-family complexes. Ultimately, it all depends upon the particulars of your individual situation.

Going All In On Itemized Deductions

Since being married, my wife and I have always been able to itemize our deductions.  Between mortgage interest, property taxes, and state taxes, our itemized deductions have always exceeded the standard deduction amount.  This has been great come tax time.  But, it looks like the ability for us to itemize is coming to an end.

As such we’re going all in this year.

Why Itemized Deductions May Not Happen After This Year

Over the past couple of years, I’ve noticed that the gap between our itemized deductions and the standard deduction has gotten smaller. The main culprit is our mortgage interest.  We are just over five years into our fifteen year mortgage.  Each month a bigger chunk goes toward principal and less toward interest.  In the grand scheme of mb-201403stacksthings, this is fantastic, but it definitely changes strategy when it comes to itemizing.

I’ve calculated that if nothing were to change, we’d end up claiming the standard deduction beginning with our 2016 taxes.  I’ve seen this day coming, so we’ll be doing a couple of things to not only keep the ability to itemize, but maximize the amount.

How We’re Maximizing Our Itemized Deduction

First, we’ll pay our winter property tax in 2016.  The tax bill comes in November and is due in February.  Typically, we pay right around the due date, so that we keep our money in our pockets for the longest possible amount.  This year, we’ll make our payment before the end of the year.  Since we paid last year’s winter bill as well as the summer bill in 2016, we’ll have made three payments this year.  Since the deduction is based on the year you make the payment, this will work in our favor.

Second, we’ll make our January mortgage payment in December.  This means that we’ll make 13 payments this year.  Again, since the amount is based on the date you actually make the payment, we’ll get the extra amount in interest on this year’s taxes itemization list.

That’s cool!

Moving Forward

Looking ahead, we certainly won’t be able to itemize next year.  Which is fine.  I’m hearing that if Trump gets his way with some of his tax plan changes, the standard deduction amount would be going up.  This means that we likely wouldn’t have been able to itemize anyway.

So, the timing couldn’t have been more perfect, as least on how things are looking today.  You never know how things will change, of course.  Still, for now it looks like we’ll end up with a few hundred extra dollars in our favor when it comes time to calculate our 2016 taxes.

Readers, what tax strategies are you employing for the end of the year?  Are you doing anything special because of Trump’s tax plan or are these things you might do otherwise?  Let me know in the comments below.


Now Looks Like A Good Time To Consider A Mortgage Refinance

In 2011,  we refinanced to a 15-year mortgage that had a 3.375% interest rate and I thought we were set.  At the time, that offered us near the best rate that had ever been available, and it put us to a point where the payoff date would be right before our son would start college.  I would be the ripe old age of 52, which seemed like a great number to be potentially mortgage fre.  Yet here we are, about to consider a mortgage refinance.

So what changed that is making us consider another refinance?  There are a few factors.

Rates Are Even Lower

We have great credit, so I think that we could easily qualify for the lowest rates on a 15-year loan, which would put us at 2.75%.  A half-percentage point definitely would offer some advantages over the life of the loan.

A Mortgage Refinance Offers Cash Flow Flexibility

If we rolled over our current balance, we would extend our time to pay it off, but we would free up a few hundred dollars per month.  Right now, with us being a single income household, we definitely have to watch every penny.  Not that we wouldn’t if we suddenly had a few hundred extra dollars per month that was not already accounted for, but it would give us flexibility.  We could pay the same amount as we did and finish the mortgage off anyway, but if we chose to do other things, it would give us the flexibility to do so.

Heck, looking back at the last five years, if we’d have re-financed to a 30-year mortgage and put the cash difference into an S&P index fund, we’d likely be a lot further ahead in terms of our net worth.  So, even using part of the difference to boost our retirement contribution is very well a consideration.  The flexibility isn’t only for spending!

We Re-Evaluated Some Goals

If we re-financed, we’d chart a path to pay off the mortgage when I was 57, and at the points where the kids would be

We would get our mortgage refinance from someone who doesn't have this in the window!   Image from Morguefiles courtesy krosseel
We would get our mortgage refinance from someone who doesn’t have this in the window!
Image from Morguefiles courtesy krosseel

in or nearly done with college.  Since I was pretty proud of our original goals with respect to age and the timing, my wife was surprised I was able to give these up.

Honestly, when I looked at things, neither turned out to be a big deal.  I know I’ll be working at 52.  I know I’ll be working at 57.  So, when I really sat down and thought about it, extending the time to be mortgage free wouldn’t be impacting any major life goals.  I also look at it that the freedom and the savings we’d get along the way are an offset to the earlier payoff advantages.  To me, re-financing would offer a little bit of the best of both worlds.

Our Itemized Deduction Advantage Is Expiring

Currently, we itemize our deductions every year.  The amount of mortgage interest plus the other qualifying items add up to more than the standard deduction.  Because we pay less and less interest each month, we’re near the tipping point.  A lower payment would drop us well below the standard deduction amount, but we’d get to capture that full amount anyway.

In fact, my goal would be to pull off the re-finance by the end of the year so that any closing costs could be itemized, giving us a nice big deduction this year.

It Seems Like Some Windows Is Closing

Everything is speculation, of course, but it seems like these low rates can’t last forever.  I’ve seen that the Fed may hike rates next month, which could start a gradual push upward of all rates, including mortgage.  I’ve also seen that some economist think that Trump’s economic plans could push up inflation.  This would eventually send rates upward.  I know it’s been said before, but it seems like rates have a better chance of going up near term.

We Could Look At Some Home Improvements

I’ve never taken ‘cash out’ of a re-finance. Ever.  During our last re-finance the numbers came up that we were supposed to get something like $500 out, and I refused.  I made them re-write it.  So, my wife was very surprised when I suggested that we could take a modest amount back for improvements.

Here’s the thing.  I’m not opposed to cash out as long as the following hold true:

  • You take out only a modest percentage of your equity.  During the subprime crisis, people were taking out every penny of equity, which left them underwater when prices dropped.  I think taking no more than 20-30% of your equity should be the cap.  The number floating in my head is around 15%
  • You put any cash out back into the house.   My hard and fast rule is that equity taken out goes right back in.  We’d basically be looking at doing some upgrades around the house.  I’ll cover some of the ideas that we have in a later post.

And quite honestly, I’m not even sure we’d take any equity out at this point.  It would raise our monthly payments, reducing the cash flow benefit.  It’s just an idea.

Time To Make Some Calls

I’ve actually had all of my mortgages and re-finances through Citi mortgage, so they’ll get my first call.  Hopefully they give me the best rate, in which case it would hopefully be a quick and easy process.

If we can get this rolling soon and complete by the end of the year, we could be on the way to saving some money and having some flexibility.

Should You Save Money Or Pay Off Debt First?

Whether you’ve gotten a reverse mortgage to dig yourself out of a financial hole, come into some money and are ready to start a more effective approach to budgeting, or are just trying to live a more financially savvy life, you are probably debating a common issue: save money or pay off debt? Opinions abound on each issue. Some financial planners will tell you that paying off debt doesn’t give you anything, so you should save first. Others point out that the interest payments associated with debt are inevitably higher than those associated with saving, so nixing the debt first makes sense. The truth is that you’ll need to consider several factors before making the decision.

Can You Lower the Interest on Your Debt?

The interest you will pay toward debt is almost always much higher than the interest payments you will accrue from savings. This means that, when all other factors are equal, you should pay off your debts first. Of course, all things rarely are equal, so you need to explore all options for paying off debt. One of the best things you can do is transfer your balances to a low or zero-interest card. Then, dedicate yourself to fully paying off the debt until the balance is wiped clean and the introductory period ends.

 Do You Have an Emergency Fund?

What would happen if you were hospitalized or lost your job tomorrow? If you would end up homeless or be immediately unable to pay your bills, it does not matter how much debt you have. You need to begin building your emergency fund right now. Plan on having at least three months of income on reserve; if this goal seems out of reach, a thousand dollars or so should help you get started, and then you can build as you go.

 What Are You Saving For?

If you have an emergency fund and a retirement account, contemplate what you want to save for. If it’s just to have extra money or to be able to indulge in a luxurious vacation, you need to take care of your debt first. But if you’re saving for a specific need with the power to improve your life—such as moving out of your children’s home or moving into an excellent assisted living facility—saving might be more important than paying down your debts.

 How Does Your Debt Affect Your Life?

There’s a difference between owing a few thousand dollars on your credit card and having debt that consumes your life. Not only that, but the source of the debt matters; student loans usually have low interest rates and even lower consequences, but debt to the IRS can ruin your life. And if you’re not making the minimum payments on your debt, you could find yourself in serious legal trouble.  Who needs the added expense of paying lawyers to defend you against civil lawsuits?

Carefully think about the way your debts affect your life. Are you overwhelmed and hopeless? Or just eager to pay your debts down so you can gain more control over your life? Financial decisions play a key role in psychological well-being, so consider how your choices will affect your overall wellness.

Annie Doisy is industry expert who helps seniors enhance their lives by taking advantage of the equity in their homes.