What to do as your home value sinks
A continuation from last week’s column on things to do as your home value sinks.
For mid-cycle homeowners
If you have owned your home for 10 to 25 years …
The good news: Unless you have remortgaged your home and pulled out cash, you have built up enough equity so you can withstand this market downturn. You may even be able to trade up to a nicer home.
The bad news: If you decide to stay where you are, spending money on remodeling won’t increase the value of your home very much. Even kitchen and bathrooms upgrades (considered the most profitable improvements) may return only 50-75 percent of what you paid when you sell the home, and that’s only if you sell within a couple of years after the project is completed, otherwise it looks dated.
WHAT TO DO:
– Choose projects that preserve your home’s value rather than just beautify it. These include upgrades to the roof, the plumbing and the electrical system.
– Make sure that your upgrades make your home competitive with those of the neighbors. If most houses on your street have three bedrooms and yours has two, you’ll get the most return for your money by adding a third bedroom not something else.
For early-cycle homeowners
If you have owned your home for less than 10 years … You may be able to refinance to take advantage of the lowest mortgage interest rates in the last 50 years.
Rule of thumb for deciding whether it pays to refinance: It is worth refinancing if your current fixed-rate mortgage is high enough (at least 6.5 percent based on current rates) that the savings from the lowered mortgage rate will recoup the price of closing costs in 24 months or less or if you have an adjustable mortgage rate that is set to adjust before you plan to sell the house.
The bad news: If you bought in the past few years and your home value has fallen by 25 percent (in Lee County that is almost a given) or more, you could be upside down on your mortgage. That means you have lost the equity in your home because the mortgage balance is greater than the current value of your home. It’s very unlikely that you can refinance, and selling is a poor option because you would still have to pay money to get out from the mortgage. I have mentioned this next one before-but?
– Ask your lender to modify the mortgage agreement. Ask for a reduction in interest rate or monthly payments. Under the Obama administration’s new (and extending) $76 billion home owner affordability plan, qualifying for better will become easier. (hopefully the banking institutions will release funds) Visit www.whitehouse.gov/blog. Who knows how long any of these programs will be in affect?
– Be prepared to stay put for several years. It took about four years to fully recover from the previous housing slump in the late 80s and the early 90s. This slump seems to be far worse. For now, consider accelerating your mortgage payments so that you increase your equity and reduce (if your funds permit?) your long term interest expenses.
Next week: First-time buyers and ?? Have a Happy Thanksgiving or Holiday.
Have a real estate question? Write, call, fax or e-mail:
Bob Jeffries, Realtor,
Century 21 Birchwood Realty Inc.
4040 Del Prado Blvd., Cape Coral, FL
239-549-5724 Office, 239-542-7760 Fax