Vail Daily column: Strong market creates opportunities for homeowners
As the real estate market continues to remain active and strong in Eagle County with properties going under contract and closing quickly, potential buyers must act quickly to take advantage of opportunities if they are interested in buying a home. Such circumstances create appreciation in property values. The Vail Valley has a wide range of property types and values, but I would say more or less across the board values are rising due to the recent activity in the market. Increasing property values create opportunities for those who already own their home which should not be forgotten or overlooked in the current environment.
For homeowners with or without a current mortgage, rising property values open doors for them to refinance their existing loans where a lack of equity may have previously been a problem. For example, those homeowners who used mortgage insurance in lieu of a 20 percent down payment to buy their home may now have the required 20 percent equity to eliminate the mortgage insurance premium altogether.
If this is the case, then the homeowner can go down the path of contacting their existing servicer directly to order a new appraisal in order to verify the necessary equity to have the mortgage insurance premium eliminated. Or, the homeowner can apply for a new mortgage altogether to eliminate the insurance. Determining which direction has more advantages depends on the terms of the existing loan and what the homeowner may be trying to accomplish with the refinance. Either way the homeowner goes about it, eliminating the mortgage insurance premium can be a significant improvement to their overall financial scenario.
Leveraging the equity in one’s home can be used for various other means past eliminating mortgage insurance and can be a savvy financial investment if done correctly. Equity can be accessed for investments such as down payment for buying another property or paying for college tuition. Equity can be used to pay down other debts that carry a high rate of interest or that are not tax deductible as is the interest on a mortgage (assuming the mortgage in question is on a primary or secondary home). If a home was purchased in cash and there is no existing debts, then equity or cash can be recouped with a refinance and borrowed at a rate that is still historically low and less than the historical rate of inflation when all variables are factored in.
Accessing the equity can be done in a couple of different ways. Homeowners may access the equity with a new primary mortgage which would probably involve paying off the current loan if there is one and increasing the loan amount to access the funds needed. Or the homeowner may take out a line of credit against the home which would go in to a second lien position behind their current primary mortgage. Every scenario is a little different and determining which course of action is most advantageous requires an in-depth review of what the borrower is trying to achieve with the transaction and their financial scenario as whole.
Increased equity or value in a home presents opportunities. Again, the scenario is complex and should be reviewed with the help of a seasoned mortgage professional. Taking the equity will result in an increase amount of debt which should never be taken lightly. Past the increased debt, there are monthly payments to factor in and tax consequences. In many instances, the monthly payments may be reduced, and in most cases, the tax consequences are a positive factor when determining what is potentially owed to or being reimbursed from the Internal Revenue Service.
Mortgage financing is complex, and a mortgage is no longer just a debt against one’s home. If managed correctly and properly, a mortgage can be the savviest and perhaps most beneficial financial instrument most people have.
William A. DesPortes, of Central Rockies Mortgage Corp., can be reached at 970-845-7000, ext. 103, and william@ds mortgage.org.