Saturday, March 28, 2020

What is Equity in Real Estate?

Equity is a term that is used in many facets of business such as Accounting, Shareholders positions, and Real Estate. We're going to focus on Equity as it pertains to Real Estate. First, let's unravel where Equity derives from. History shows that Equity as we know it derives back to Old French word Equite. It originally meant the quality of being equal or fair, used mainly in the context when dealing with others, according to (etmology online)."

In a way, this is similar to the description of Equity as pertains to homeownership. The market value of the home minus how much is owed to the financial institution for the purchase of the home. About 14% of homes in Sacramento, California are purchased with CASH. And CASH is King. The more cash you can bring to make an offer on a home can heighten the chance you’ll  acquire the asset. Similar to how a business can go up and down in value so can the Real Estate market (Less volatile than the stock market). Many factors can influence the Real Estate market (I'll cover this in a different post) but generally, in a healthy market, you can count on your home increasing an average of 3% annually. 

Why people buy homes? Bundle of rights, people have the Freedom to occupy and adjust their domain in ways that they want, they have the right to transfer title, sell or gift it the property. They can leverage the properties value to get a loan.

Equity through homeownership is where one can win big. When the market value of the Real estate in the area increases; ones that are similar to the homeowner's home so can one's Equity. Equity is in many ways can be used as a investment account. You have access to capital from Equity which gives the homeowner options. Maybe they want to send their kids to college or become an investor by pulling money out of their Equity. All of these option and many more are afforded to those with Equity.


Thursday, March 26, 2020

What is a Mortgage?

What is a Mortgage? A Mortgage is a loan that is used to finance a home from a Financial institution. Why are mortgages in place? Mortgages are in place to ensure that the financial institution will be repaid for the home loan. Mortgages are a security instrument used to hold the borrower accountable for the home loan. The title of the home will go to the bank until the mortgage is paid off. When borrowee has repaid mortgage the bank will issue a deed of reconveyance. Transferring the title to the homeowner.

For example, Mark and Lisa just got married. They want to buy their First home, YAY! Together they have saved $12,250. Approximately, 3.5% of the total purchase price. The cost of the home is $337,750. The difference between the down payment and the total cost of the home is $337,750. This amount is the Mortgage. The couple will have to pay the financial institution back each month (principal) plus interest.

Let's say the interest on the amount the bank loans the money to the borrower is 5.5 percent (higher than our current rates, take advantage). If we divide that amount by 12 months we will have .46% that will be accrued on the total loan amount of $337,750, monthly. Accruing an interest of $1,564. Before one gets to paying down their Principal loan of $337,750 their monthly payments of $2,000 would address their interest payment first. As the loan amount over time becomes less the monthly interest accrued becomes less. The Great news is that once payment has been applied to the principal Equity is produced. Equity is a powerful wealth-building tool.

The title of the Home goes to the bank in order for the borrower to secure the loan. The mortgage comes from Old French meaning "Mort"= Dead and "Gage"= Pledge

While the couple is living in their wonderful new home they are paying down their Mortgage, building Equity.

Sunday, March 15, 2020

Lower interest rates! What does this mean for me?

Hello! If you haven't heard the Feds cut interest rates to 0-0.25% down from where it previously was 1-1.25%. Let's unravel what's going on in the economy and what that means for folks like me and you.

Why are the Feds cutting rates? When the Federal reserve Lowers interest rates they are encouraging economic growth in both the stock market and loans assumed. This makes sense with the current epidemic that seems to forecast regulation and uncertainty.

What does this mean for the money in my Bank Account? The money you and I have in the bank will earn even less than it already is due to interest rate cuts. If interest rates go to negative like the president has proposed saver can actually lose money for keeping their money liquid.

How will it affect my credit card? If you have a fixed credit card rate you shouldn't encounter many changes at all. If you have a variable rate and say the rates have been cut then your interest payment should follow.

Can I refinance my current home loan? Yes, some people will want to take advantage of these low rates available to us. They would want to stay in their home for a few years so it can make sense. Money saved from a lower interest rate must outweigh the closing cost associated with the refinance.

Does the rate cut put me in a better position to own my own home? Yes! Future homeowners will be able to get a home loan and be able to pay down the loan (Principle) faster because the interest on the loan is less. Your home loan over time is basically on sale, you will save tens of thousands over the course of your 30 years fixed mortgage.

Overall, I am pleased to hear that the Feds have cut rates. The reason being is because people will be able to pay less overtime for the capitol that is needed for many people to own homes, businesses, and personal property. Ultimately, preserving their wealth overtime by lending at a cheaper rate.