Showing posts with label small house versus big house strategy. Show all posts
Showing posts with label small house versus big house strategy. Show all posts

Tuesday 6 December 2011

Tip: Overpay your mortgage if you can.


Mortgages

The record low Bank Rate has been the saving grace for many households. And it is likely to be a saviour for a good while yet. The dire state of the economy has increased the likelihood that it will remain at 0.5pc for the foreseeable future – perhaps even until 2014, many economists suggest.
However, the downside for borrowers is that house prices are falling and they have done so for 10 months consecutively, according to Land Registry data. It is the price slide that borrowers need to consider when applying for a home loan.
Check out the lender's standard variable rate (SVR) before falling for a cheap two-year deal, as you could end up paying more over the long term. Once the deal is up, you could be stuck on a lender's high SVR for years, if prices have fallen and erased any equity you may have had in your home. This will make it difficult to remortgage.
Ray Boulger of John Charcol, the mortgage broker, suggested that if you were already on an SVR of 3pc or less, you should stay put. He added: "If you want to opt for a fixed-rate deal or a tracker mortgage, don't consider a two or three-year deal."
Tip: Overpay your mortgage if you can. Based on taking out a 25-year home loan of £100,000, overpayments of £300 a month would pay it off 12 years early. You would pay back £123,084 rather than £146,988 – a saving of £23,903.


Friday 2 January 2009

Small house versus big house strategy

Homes: Why Buying Bigger Is No Guarantee of a Rich Retirement
by Jonathan ClementsWednesday, December 20, 2006


This is one tab the house won't pick up. It's among today's most popular retirement-savings strategies: Buy the big house, hope the real-estate boom continues and then trade down at retirement, thus freeing up home equity that will pay for years of early-bird specials. Sound appealing? Trouble is, you will fork over a heap of dollars -- and you'll end up with a surprisingly small nest egg.

To understand why, imagine you are age 35, have a $400,000 home with a $300,000 mortgage and are looking to retire at age 65. What's the best way to build yourself a nest egg?
You might stick with your current home, pay down that mortgage over the next 30 years and stash your spare cash in stock and bond mutual funds. Call this the "small-house strategy" (though, in many parts of the country, a $400,000 home wouldn't be exactly small).
Alternatively, you could opt for the "big-house strategy" -- trading up to a $1 million home and aiming to pay down the resulting $900,000 mortgage between now and retirement. At age 65, you would then cash in a big chunk of your home equity by swapping back to the equivalent of a $400,000 home.

Which strategy would leave you richer?

Read here:

Result:
The small-house strategy would give you not double the spending money, but triple.
"The killer is the expenses on the big house," Mr. Farrell says. "It's costing you a lot to carry this $1 million investment. That money is just going out the window, while the small-house guy is investing the money."
There is, however, an upside to buying the bigger home. For the next 30 years, you would live in a grander place. But that just highlights what this is all about. Buying a bigger house isn't an investment. Rather, it is a lifestyle choice -- and it comes with a brutally large price tag.


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MONEY PIT
Buying, selling and owning real estate isn't cheap.

• Baby-boomer homeowners spent an average of $2,200 on home improvements in 2003.
• On a $200,000 mortgage, closing costs will typically cost you around $3,000.
• In 2004, home sellers paid real-estate brokers an average of 5.1% in commissions.

Sources: Bankrate.com; Harvard's Joint Center for Housing Studies; REAL Trends