Making the Downsizing Decision: Reasons It May Not Be for Everyone

The bulk of money and real estate experts laud downsizing as a fabulous way to get ahead, not just financially, but also socially, physically and mentally. The common advice to declutter and move to a smaller space is not as one size fits all as you might believe, however. In fact, some pretty compelling facts support the concept of staying right where you are with what you have.

Saving Money Might Be a Pipe Dream

Most homeowners who downsize do so in hopes that the move will cut their expenses. For example, they rationalize that they’ll come out ahead with a lower mortgage, reduced heating and cooling expenses and a trimmed-down insurance package. Unfortunately, other costs can negate what you might save. Taxes might be higher in your new neighborhood, for instance, or you could have new homeowners’ association fees to cover. You also need to consider the expenses related to the move, such as truck rental, closing fees, buying new furnishings, making necessary modifications or repairs, closing and opening utility accounts and travelling back to see friends and family members after you’re settled.

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Real Estate Investing: Avoiding the Most Common and Lethal Mistakes

Many investors get into the real estate game because they believe they can get rich quickly.  They buy property, collect great amounts of rent for a couple of years, and then sell when prices appreciate. This is not how real estate investing works, however.

It takes time, even decades, to see significant returns. It also takes care, learning, and a willingness to put in years of effort to make the most of such an investment. When one is willing to invest all this in a real estate venture, returns can be far better than can be realized in the stock market. However, investors who believe they only need to throw money at a property and do little else usually do not do well. This is only one of several cardinal rules of successful real estate investment.

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Is Our Mortgage Payoff Too Aggressive?

Four years ago, we made the decision to refinance our mortgage.  We hit the time when rates were about the lowest they’ve ever been, and decided to get into a 15-year mortgage.  This would increase our payments but lower our total interest.  It would also move forward our mortgage payoff date.

From a financial perspective, the move has been a big win so far.

The Benefits Of Our 15 Year Mortgage

  • Low rate – We got a 3.375% rate, if memory serves, so we are paying very little in interest and more toward principle.
  • Modestly higher payments – Our payments went up a bit from our previous 30-year mortgage
  • Getting in line my payoff date objective – I’ve always said that in an ideal situation, the mortgage would be paid off before our kids started college.  This timing would actually have the payoff occur during senior year of high school for our oldest.  I’d be 52 which is a pretty good target age to be mortgage free, all things considered!

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It’s Been Two Years Since Our Refinance

Two years ago we completed the re-finance of our house.  I thought I would go through some of the numbers and things that have happened.

Original Loan: 30 year mortgage, 5.875%, closed July 2007
New Loan: 15 year mortgage, 3.375%, closed November 2011

Increase in monthly payment: $157.69

Reduction in total term: 10 years, 8 months

Principal paid on new loan in the first 24 payments: 10.67%
Principal paid on old loan in prior 24 payments: 4.97%

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A Rule Of Thumb Estimate For Extra Mortgage Payments

There are thousands of articles available which discuss the pros and cons of paying extra on your mortgage.  Some argue that it’s a great idea, some argue against it, and others discuss various elements regarding the practice.

One thing I haven’t seen is a way to easily show the impact on the end result, specifically, how will paying extra on your mortgage change things for you down the line.

mb-checkbook201308For the sake of argument, let’s say your mortgage payment is $1,000 per month.  That alone is a good start, but for the rule of thumb, you’ll also need to know what your principle payment was for your most recent payment.

With these two pieces of information, you’ll be able to easily estimate what the impact is of paying extra, whether it be a little extra or a whole lot of extra.

Here’s how.

Say your most recent payment of $1,000 had you paying off $400 toward your principle, with the rest going toward interest.   The $400 is the key part here, which leads to the easy rule of thumb:

For estimating the impact of an extra payment, all you need to know is that paying roughly the most recent amount toward principle will shave one month off the end of your mortgage.

This means that if you apply an extra $400, you’ll shave a month off the end of your mortgage.  Because, what you’re doing is making the next payment, and since all of your extra payment goes toward principle, all you have to worry about to knock a month off is roughly what you’d be paying on your next payment, which is still going to be around $400.

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Suing S&P Over The Mortgage Crisis Is Crazy

I often laugh at news stories over at The Onion, which is a news site full of satire.  The headlines and stories are presented as real, but you usually find that they’re written to bring out laughs and are not based in fact.

mb-gavel201302I thought I had to be reading a story on The Onion when I recently saw that the United States of America is planning on suing Standard & Poors for up to $5 billion dollars due to the credit ratings issued by the ratings company on mortgage backed securities prior to the housing crash.

Basically, they’re faulting S&P for giving high credit ratings, which made them seem like good investments, accusing S&P of giving these high ratings even though there was evidence that the underlying mortgages were quickly degenerating into riskier and riskier assets.

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Choosing Your Home Loan

Buying a house is super stressful for a million reasons, and one of the biggest ones is choosing your home loan company.  Your home loan will determine your monthly payment for the next 15-30 years, so it is obviously a pretty important piece to the home buying puzzle.

Plan Your Attack

You will need some basic information about yourself to receive home loan quotes.  The most common questions like if you have a job are going to be easy to answer, but you may not know all of your details off of the top of your head.  Try getting together your job history info, income info, and any of the same stuff you will need for a co-owner before even starting the search.  Also remember to keep in mind other details they will want to know, like if you have another mortgage already, and make a note to ask for any discounts for which you would qualify that could lower your loan interest rate.

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2012 Predictions In Review

With just a few days left in 2012, I think it’s appropriate to check on the list of 7 predictions which I had made at the beginning of the year.  Let’s see how everything turned out:

  1. President Obama will get re-elected – Got it right – I knew without a doubt that Obama would get elected when Romney’s video explaining what he thought of ‘the 47%’ was released.  It proves that Romney, and really the Republican party, is very much out of touch with the voters.  I don’t know that they have a consolidated message and even when they do, they have done a very poor job at translating that into a message that the voters respond to.  This win wasn’t so much a victory for Obama as it was a fear of Romney. 
  2. A downturn on strategic defaults and underwater mortgages – Got it right – I figured that the housing market had hit bottom.  Last year it seemed that while things weren’t on the upswing just yet, we had leveled off.  This year did see an actual upswing in most areas of the country, and part of that included less strategic defaults and less underwater mortgages.  I guess if home values rise, this naturally brings people at or above the ‘underwater’ line, which would give people less reason to walk away. I’m very happy to see this and I hope that the housing recovery market is sustained moving forward!
  3. The Eurozone crisis will not be solved but will get less attention – Got it right – Was anything really accomplished in the European crisis?  Not really.  I think they did kick the can down the road a bit, but as far as actually solving anything, I don’t think that happened to any real degree.  However, the markets and the economy really didn’t react in much of a negative fashion.  There was a couple of months in the middle part of the year where the market did have some rough weeks, and they were tied to the European problems, but that was shrugged off relatively quickly and I don’t think it played much of a factor overall.
  4. Blackberry will be history (or RIM will be out of business) – Not so much – Blackberry is still around, and I’ve heard that the next release (Blackberry 10) is thought to be very well designed, and if it is received well, could put Blackberry back on the map.  I personally don’t see much hope here.  In the consumer electronics market, more often than not when customers abandon a particular company to the degree that has taken place with RIM, it’s pretty hard to convince them to come back.  The only big exception in history that I see here is Apple, but I’ve seen Apple, and I’m sorry RIM, you are no Apple.
  5. Apple will either provide a dividend or make a big purchase – Got it right – Apple instituted a dividend for the first time in 2012.   No big purchases, but since it was an either/or type of statement, I got it right.  The stock for Apple has been on somewhat of a roller coaster ride, rising all the way to $700 per share and dropping down to the low $500’s.  I think investors are finally starting to realize that while Apple is a great company that makes wildly popular products, the amount of growth potential may be slowing.  Wall Street investors live and die by growth, so the perception that Apple may have finally hit a ceiling could make for a bumpy ride moving forward.
  6. Unemployment will fall, the economy will improve,businesses will get better, but consumer spending will lag – Got it right – The economy has definitely continued to improve, and business profits have improved, but not to the robust levels that would indicate a long term healthy economy.
  7. Oprah will lose her network – Not so much – She still has her TV network, but the fact that I had to look this up to see where this stood, well it’s still not doing so well.  I know Oprah said that she wanted to put more of her ‘presence’ into the network this year, and I’m guessing she did that, but to what degree this matters, I really do wonder.  Before she shut down her talk show, you used to hear about Oprah in some fashion all the time.  Her opinion and voice was right up there in the cultural fabric.  Now, I think her voice has lost a lot of luster, so while she still has her ‘own’ network for now, I clearly think it’s been a disaster.

Five out of seven, or just over a 70% ‘success’ rate was how it worked out for my predictions.  That’s not too bad!

How did 2012 turn out for you personally and how did things around the world play out from what you had thought would happen in 2012?

What topics do you think I should predict for 2013?

Get Your Rental Deposit Back After You Move Out

If you rent, as many people do, you likely had to pay a rental deposit before you moved in.  I only lived in one apartment in my lifetime, and we had to pay a month of rent as a deposit.  This was right after college, and my friend and I stayed there for two years, at which point he moved out and I stayed for several more months before moving out myself.

After I moved out, I was not expecting to get much of the deposit back.  Unlike what you might expect from two guys in their early 20’s, we actually tried to keep the place in good shape.  We were pretty clean and kept on top of things, so why, then, was I not expecting to get the deposit back?

Because of the spaghetti sauce incident. 

At the job where I was working, we staffed a 24×7 operation.  As such, we rotated through various shifts.  The ‘night shift’ only required a couple of people, so thankfully we only had to be on this shift for about a month out of the year.  This was my month.

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The One That Thankfully Got Away

This is a story that goes back to when we were house hunting.  It got brought to light because, as you’ll see if you read on, it’s a very small world!

The backstory. In 2007, before my wife and I got married, we knew that we wanted to buy a home to start our marriage and eventually raise our family.  The condo that I’d previously held was nice enough but it wasn’t ideal for family living.

The housing market had already started to trend downward, at least here in Michigan.  Prices had already slipped on average 10-15%. At the time, I foolishly thought that they had neared or hit bottom, not knowing that the worst was yet to come.

As an aside, I sold my condo in just the nick of time.  I sold it for roughly $125,000 and it sold last year (through foreclosure) for $50,000.  No other property in this story lost anywhere near that percentage of its value.

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