Quickly Build Home Equity By Refinancing To A 15 Year Mortgage
Twenty percent of all U.S. mortgages are underwater, seventy percent of Nevada mortgages have no equity. Equity rates for homes in Arizona aren’t much better. The only way for underwater homeowners to sell their homes is if they have some serious cash reserves, or can get the bank to approve a short sale.
This percentage of homes with negative equity is hard to believe. The real estate market in Nevada during the boom was too drastic, and their recovery is most painful. The national real estate market will see declines over the next year, how bad the declines will be will vary for Richmond Virginia Homes and Tooele Utah Real Estate.. We probably won’t be seeing any significant price appreciation anytime in the next decade.
Is there anything that can keep our property values from decreasing? Is there any way that we can prevent this from happening to us?
Well… we can’t really control the external factors associated with the real estate market, the federal government has already tried that, but we can control the amount we owe on our mortgages. The way 30 year amortized mortgages are set up, there is very little principle paid and equity gained during the first few years.
An easy way to reduce principle owed is by having a fifteen year amortization period. Right now, the average interest rate for 15 year mortgage loans are the lowest they have ever been. Your monthly payment will likely rise with a 15 year fixed mortgage, but you will pay the loan down substantially more each month.
In just the first year of a 15 year fixed mortgage loan, principle is reduced by nearly 5%. This would keep your equity percentage equal with a five percent market decline.
But, this was JUST the reduction for the first year of the loan. The pay off level compounds, and every year the rate of principle paid off increases.During the fifth year of the loan, the mortgage amount will decline 7.5%, during the tenth year equity is reduced 15%, and during year 14 it is reduced 50.6% and at the end of the fifteen year, is completely paid off. At this point, you will actually OWN the property. After fifteen years with a 30 year mortgage, the loan is only 30% paid off after fifteen years. 50% equity isn’t acheived until after the home owner has made payments for more than twenty years.
Over the last few years attitudes towards home purchases have clearly changed. The commond advice used to reccommend borrowing as little as possible to “leverage” your real estate investment, because home values “always” increase. The smart thing to do is pay off a mortgage so you can own a home free and clear. Those who pay down their mortgage amount are free to sell anytime they need to.
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