Auto Pay Your Mortgage Payment

Auto Pay Your Mortgage Payment

In the time that it takes to write one check, you can set it up with your bank and never have to do it again.  You won’t have to write checks, envelopes or buy stamps anymore.  You’ll save time, money and benefit in other ways too.

  1. Never be late … avoid late fees and protect your credit
  2. Schedule additional principal contributions monthly to save interest, build equity and shorten the mortgage term.
    An extra $200 a month applied to the principal on a $200,000 mortgage at 4.5% for 30 years will result in shortening the loan by 8.5 years.  If the loan was paid to term, it would save $52,977 in interest.  Use the Equity Accelerator to see how much you can save.
  3. It’s convenient … by doing it online with your bank, you’ll have a centralized history of the payments.
  4. Protect your credit … your payment history is the single biggest component of your credit score and accounts for over 1/3 of your credit score.

Establishing the practice of auto bill pay could run the risk of overdrawing an account and incurring overdraft charges.  Monitor your bank account to be sure that you have enough cash to cover your automatic payments.

Schedule the Auto Pay to allow for processing and the time it takes to reach the lender so that you don’t incur late fees.

And even though, you set up the Auto Pay, it is still your responsibility to monitor your bank account to see that they are executing it properly.  If you are making additional principal contributions, you must see that the extra amount was indeed applied to principal reduction and not somewhere else like in the escrow account.

Some banks offer email or text reminders to let you know when checks are about to be written or if your balance is low.

Reasons Rental Homes Rank Highest

Reasons Rental Homes Rank Highest

Single family homes offer the investor an opportunity to borrow large loan-to-value loans at fixed interest rates for long terms.  Lenders will loan 75-80% of the purchase price at 5.5% to 6.5% interest rate for thirty years.  Compare that with other popular investment alternatives like precious metals, commodities, stocks, and mutual funds and it will be hard to find financing available at all.

There may be some short term, one-year, loans at a floating rate tied to prime plus with no guarantee that it will be renewed.  Some of those loans require you to have a 50% margin of equity and if the value goes down, you’ll have to put up additional cash or be forced to sell.

The advantage of having long-term mortgages is that an investor could find the optimal time to sell the property instead of needing to sell it because the term is due, and no other financing is available.   Supply and demand cause the real estate market to be higher and lower and a long-term mortgage provides options to sell when the price is optimal.

Single family homes enjoy distinct tax advantages.  If the rental or investment property is held for more than 12 months, the gain is taxed at lower, long-term capital gains rates rather than ordinary income rates.

Another advantage of rental homes is that the improvements can be depreciated over a 27.5-year life.  This is a non-cash deduction that reduces income and shelters income.  The accumulated depreciation taken over the life of the property is recaptured when the property is sold.

Since rental homes provide income that other investments may not, tax would have to be recognized on the annual income.  IRS allows normal operating expenses like interest, property taxes, insurance, repairs, and management to be deducted including the annual depreciation.

Rental and investment property are eligible for tax-deferred exchanges to avoid paying tax at the time of disposition.  Real estate also enjoys stepped-up basis which means that when an heir inherits a property, instead of having a potential gain from the value the decedent had purchased it for less depreciation taken, the heir’s basis becomes the fair market value at time of death.  All potential gain may be permanently avoided.

Appreciation is a much-anticipated benefit of real estate because value tends to go up over time.

Another big benefit is the control that an investor has with rentals that is not available with other investments like stocks, bonds, or commercial real estate.  It takes a relatively small amount of cash to control the entire investment in a home that wouldn’t be available in other investments without partners or publicly traded companies.

Single family homes are an investment that homeowners understand because they are essentially the same as the home they live in.  They’re used for rental purposes but the maintenance is the same, the service providers are the same, and the neighborhood are the same.  Most homeowners understand rentals far better than alternative investments.

Contact me at (707) 467-3693 if you’d like to know more about rental property.