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Dave Barrow is a Sales Agent with Exit Realty Metro located in Halifax, NS. Each month he publishes a Real Estate Insider newsletter full of excellent information on buying and selling homes.
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Four Questions Help Determine Improve vs. Move
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DAVE BARROWREAL ESTATE INSIDER
INSIDETHIS MONTH’S ISSUE!
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Cover Story - Four Questions Help Determine Improve vs. Move
Featured Story - What Has Your Mortgage Committed You To?
Current Mortgage Rates in Halifax
Super Dave’s Auto Sales Referral Program!
The walls are closing in. Your teenagers are warring over closet space and you long to have a real office room instead of camping out at the kitchen table. What’s the best solution? Should you improve the house or move to another?
The answers to four primary questions are a good place to start in the dilemma to improve the house or purchase another. Homeowners who are happy with their current neighborhood and school district (usually the top two owner’ priorities) are wise to weigh answers to the following:
1. How long do you intend to keep the house?This initial question has impact on several levels. First, it makes little financial sense to pour money into a house only to sell it. Second, if you’ve ever lived around and through a remodeling project, you know that the emo-tional upheaval you suffer during construction needs to be offset by enjoying the benefits once the improve-ments are complete.Even if you aren’t thinking of moving in the near future, be sure to do the math in the following question before wading knee-deep into a project.
2. Will you be able to recoup the cost of improvements when you sell?A real estate agent or appraiser can show you compa-rable properties (comps) of recent sales to determine how much if any the improvements will increase market value. (Cont’d Pg, 3)
This advertisement is not intended to solicit buyers or sellers currently under contract.
NOVEMBER
2010If you or anyone you know are interested in buying or selling real estate I would be happy to hear from you!
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Mortgages are expensive things to mis-understand. What you don’t know could cost you.Too many eager home buyers sign up for a mortgage with their sights trained on their dream home instead of on the details in the mortgage contract they are signing. They forget that, nice as everybody is dur-ing the real estate transaction, they are all salespeople working for companies that earn profit from selling their products—in this case, mortgages.Experienced property owners may be no further ahead since, once they have moved in, few settle back with mortgage and insurance documents to fully under-stand what they signed up for.The first line of defence for consumers is learning as much as possible about relevant real estate topics before it is im-portant or necessary to make a decision. In these changeable financial times, look for new products and choices in the mort-gage world, as in most aspects of real es-tate, but don’t expect them to play by the same rules.If you take advantage of the educational resources available to you, you’re off to a good start. If you wait until a decision must be made and plunge in, you may learn a few expensive lessons. Of more concern is the fact that many property owners and mortgage borrowers never realize how many extra thousands of dol-lars they have paid - often unnecessarily.Consumer protection laws exist to protect consumers, but laws only work if consum-ers understand why and how they need protection. Products and services de-signed to comply with these laws should have explanations of rights and respon-sibilities incorporated in them, but if con-sumers don’t read the fine print and ask questions for more detail, it’s all just so many words.Often the jobs of real estate and mort-gage professionals seem easy to con-sumers because they don’t understand the complexity and liability these profes-sionals wade through in each transaction. Previous columns have introduced read-ers to layers of this complexity. Relevant professional organizations usu-ally offer details on the benefits of working with professionals so Google away.
As new products come on the market, they are not automatically as consumer-friendly as they are portrayed. Some are created to fall under categories not cov-ered by existing consumer protection. They’re still legal, but the differences are not necessarily readily apparent to con-sumers.Can you see what you might misunder-stand?For mortgages with blended monthly pay-ments of principal and interest, the law limits the frequency of interest compound-ing to annually or semi-annually. Mortgag-es outside this category, like variable rate mortgages or collateral mortgages, do not fall under this restriction, so monthly com-pounding would be allowable. Increased frequency of compounding means more interest is paid by the borrower. How fre-quently is the interest on your variable mortgage compounded?Lenders offer a range of repayment plans, marketed to attract business by making life sound easier and cheaper to consumers. That’s business. Along with these variations on traditional mortgages, are those that reduce the choices open to consumers while seeming to increase flexibility. For example, mortgages are contracts set up on two time-frames: The amortization period which is the fi-nancial calculation of how long - usually 25 years - it will take to completely pay the debt of principal and accrued interest;The term which is the period that the inter-est rate and related repayment terms are set, usually 3 to 5 years or longer.Opportunities to extend the amortization period sound great because they lower monthly payments. This flexibility also in-creases the amount of interest paid on the mortgage.
What Has Your Mortgage Committed You To?Since paying off a mortgage may mean paying double or triple the amount of money initially borrowed, how much more can the cost of borrowing increase before you decide this mortgage is too expensive for you?Once the term is set, even if interest rates go down, you’ll pay at that agreed per-centage for the term. When rates are on the rise, locking in for long terms sounds smart. What options does your mortgage contact allow you should interest rates drop below your current mortgage rate?Borrowing plans that allow you to take some money now and more later can limit your borrowing choices in the future. If the mortgage, whatever form it takes or label it carries, is initially set up for a large amount, but you only take some of that at first, that large amount may appear on title. This means, if you want to, or must, borrow from a different lender, you may find the existing mortgage expressed relative to the large amount makes you a less than attractive borrower to the sec-ond lender. Ask how the staged mortgage will appear on title, or be registered, and what your choices will be if you want to switch lenders before the entire initial amount is borrowed.If your mortgage comes up for renewal next year, start your mortgage education now. So many lenders have implemented plans to attract renewing borrowers that you might discover benefits in chang-ing lenders. Before you shop around, ask your lender to review your mortgage contract with you and explain what your choices are. Deciding not to learn how the largest single debt you’ll hold works could be an expensive decision.
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If you make improvements that don’t add to market value, be prepared to walk away from what you’ve spent especially if selling in a short period of time (less than five years on the average, depending on the type of improvement.)
3. Are the improvements you’re consider-ing logical given the age, size, and loca-tion of the house?Just as you wouldn’t install a new sunroof on a dilapidated car, making expensive additions to a house that’s full of func-tional obsolescence makes little financial sense.Many appraisers would tell you that it’s much tougher to recoup the investment from home improvements if they aren’t similar in style and design/era to the exist-ing home. And before hammering the first nail, make sure you check the setback re-quirements for construction especially on rear and side lot lines. What a nightmare it would be to construct a room addition, only to have all or part of it in violation of zoning laws and/or owned in part by your neighbour!
4. Could additions/changes over-improve the house?A house at the top of the market for the neighbourhood can take longer to sell since buyers often purchase on the low side, hoping to maximize equity and im-provements made over time. There are some additions that aren’t welcomed by certain buyer segments.For example, families with young children might shy away from owning a swimming pool since it’s the number one cause of death for children under age five.
Improve vs. Move (continued from Page 1)A remodeled master suite in a third-floor loft could be undesirable if the prospective buyer/target was retirees. Even though you may want to make additions/changes based on your immediate needs and desires, it never hurts to look down stream at who a potential future buyer might be in order to avoid over-improvements you can’t recoup.
By asking these top four questions, you may not have all the information you need to adequately weigh improving the house versus moving to another. But they will serve as talking points to get you focused on solving your homeownership needs in an organized and cost-effective manner.
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*OAC, rates subject to change without notice, rates as of 09/23/2010
Dave Barrow | (902) 802 [email protected]
MORTGAGERATES IN HALIFAX
MORTGAGE RATES
Term PREMIERE Posted
ARM Prime–0.65% Prime
1 YR 2.50% 3.50%
3 YR 3.39% 4.45%
5 YR 3.69% 5.39%
*OAC, rates subject to change without notice, rates as of 09/23/2010
For more information regarding interest rates or mortgage options, please
contact Igor Geshelin at Premiere Mortgage Centre.
(902) 441-6493 [email protected]
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