Mortgage Matters column: Active real estate market creates mortgage opportunities for homeowners
As the 2017 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 homes.
Such circumstance often creates 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 that values are rising due to the recent sales activity in the market. For those who already own their homes, increasing property values create opportunities that should not be forgotten or overlooked.
For homeowners with mortgages in place, rising property values open doors for them to refinance their existing loans, where a lack of equity or down payments 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 homes may now have the required 20 percent equity to eliminate the mortgage insurance premium altogether.
If this is the case, then the homeowner can contact his or her 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 all together to eliminate the insurance.
Determining which direction is more advantageous depends upon the terms of the existing loan and the big picture of 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 the 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 or pay off other debts that carry high rates of interest that are likely 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 are 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 any existing loans 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 into a second lien position behind the currant primary mortgage.
Again, 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 the borrower’s financial scenario as whole.
Increased equity or value in a home presents opportunities, but 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 be factored 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, then a mortgage can be the savviest and perhaps most beneficial financial instrument most people have.
William A. DesPortes works for Central Rockies Mortgage Corp. He can be reached at 970-845-7000, ext. 103, and firstname.lastname@example.org.