Short-Term or Long-Term Amortization Periods: Which One is Best For a Mortgage?

There are a number of factors to consider when choosing a particular mortgage product. While the interest rate and fees associated with a home loan are certainly important factors to consider, so is the amortization period.

Basically, the amortization period refers to the length of time that you have to fully repay your home loan. There are different amortization period lengths to choose from, depending on what you’re most comfortable with and what your lender is able to offer you.

But generally speaking, you can choose between either a long-term or short-term amortization period. Both have their perks and drawbacks, which you’ll need to sift through to determine which avenue is best for you.

Pros and Cons of Short-Term Amortization Periods

If you choose a short-term amortization – such as 5 or 10 years – you’ll have a shorter amount of time to pay off your mortgage. Let’s go over some of the benefits and drawbacks of this time frame.

Pros:

Pay off your mortgage sooner – Since the life of the loan is much shorter in comparison to long-term amortization periods, your mortgage can be paid off a lot sooner. Once that loan term expiry date comes and goes (assuming you’ve been diligent with your installment payments), your mortgage will be fully paid off, allowing you to achieve financial freedom sooner rather than later.

Save money in interest – Since you’ll be on the hook for paying your mortgage for a shorter period of time, you’ll spend less time paying into the interest option of your home loan. If you spend more time paying your mortgage, you’ll also be spending more on interest to the lender.

But the opposite is also true: the less time to spend paying the mortgage, the less interest will be paid to the lender, which can save you a bundle at the end of the day.

Interest rates are usually slightly lower – Many lenders reward borrowers for choosing a shorter amortization period with a slightly lower interest rate compared to longer-term time frames. As such, you may be able to save quite a bit of money in interest over the life of your loan.

Cons:

Monthly mortgage payments are much higher – If you have less time to pay off your loan amount, your monthly mortgage payments will be higher. As such, shorter-amortizations often translate into mortgage payments that are not affordable for many borrowers.

Pros and Cons of Long-Term Amortization Periods

Choosing a mortgage with a longer amortization- like 20 or 25 years – also comes with its own set of advantages and disadvantages, which we’ll take a look at.

Pros:

Make smaller monthly mortgage payments – Perhaps the biggest advantage of a long-term amortization period is the fact that the monthly mortgage payments are cheaper. Because you have a lot more time to pay off the same loan amount, each installment payment will be less compared to repaying your loan within a shorter time frame.

As such, long-term amortization periods can make mortgages a lot more affordable for many borrowers who may not otherwise have the budget to accommodate larger monthly payments. This is the main reason why long-term amortization periods tend to be a lot more popular and common among homebuyers, especially first-timers.

Cons:

Takes longer to pay off – The farther out the end date of the loan term, the longer it will take to pay off the mortgage. As such, you’ll be stuck with your mortgage for a much longer amount of time than you would if you chose a shorter-term mortgage. And the longer it takes you to pay off your mortgage in full, the longer you’ll have to be committed to these payments.

More interest is paid over the life of the loan – With every year added to a mortgage term comes more interest paid over the life of the loan. The more time your lender gives you to pay off your mortgage, the more they’ll earn in interest payments from you. This can mean tens of thousands of dollars more spent in interest over the life of the loan compared to a shorter-term amortization period.

To illustrate, let’s compare a $200,000 mortgage with a 4.5% interest rate at a 15-year term versus a 25-year term. Over a 15-year term, the total interest paid would be $65,694, whereas the amount would be $115,612 for a 25-year term. That’s quite a difference in interest paid for the same loan amount, though the monthly payments would obviously be higher for the shorter-term mortgage to compensate.

The Bottom Line

When it comes to short- versus long-term amortization periods, one isn’t necessarily better than the other. It all comes down to what’s more appropriate and convenient for you.

If you’re able to afford larger monthly payments and are working towards financial freedom sooner rather than later, then a short-term amortization might be best. But if you need something that will fit better within your tight budget, perhaps it’s best to go with something more long-term. Discuss your options with your lender to help you make your final decision.

8 Best Paint Colors For Your Front Door

Curb appeal speaks volumes. It not only creates a welcoming vibe to your home, but it also plays a key role in its value, too. Given this, it’s important to keep up with your home’s curb appeal and spruce it up if need be.

And while plenty of things come into play that influences your home’s curb appeal, your front door is an important component. A tired, drab, worn-out front door that’s seen better days can really pull down the look and feel of your home’s exterior. But the opposite is also true: a front door that’s in great shape can make your home seem more inviting and can even help increase the perceived value of your property.

If your front door could use a little extra pep, all it might take is a fresh coat of paint. With a small investment and a little elbow grease, you can almost instantly take your front door from drab to fab. The question is, what’s the best paint color for your front door?

Here are a few suggestions.

1. Fire Engine Red

While not a standard color for a front door, red is still a somewhat popular choice among homeowners who are looking to add a pop of color to their home’s exterior. Red doors work well paired with just about any exterior materials, including stucco, siding, and brick. And with contrasting trim, the color can really make your front entrance stand out in a good way.

2. Orange-Red

Just as vibrant as simple red, tones with a mix of orange are still fiery and playful and go quite well with warm tones on surrounding surfaces.

3. Burgundy

If you’re a little sheepish about going bright with red, then consider a toned-down version of the same hue, like burgundy. It’s a great option for homeowners who love the idea of color but don’t necessarily want to be overly bold. Burgundy is reminiscent of brick red with brown undertones and still offers plenty of pizzazz compared to brighter hues.

4. Lime Green

A non-conventional choice for a front door is lime green, though it’s not just a hue that needs to be reserved for your fruit bowl or flower beds. Instead, lime green has a savvy way of instantly cheering up any surface, and what better spot to do the cheering than with the front door! In fact, any neutral-toned home would do quite well with the addition of a bright and non-traditional color like lime green.

5. Pine Green

You can’t go wrong with green, no matter where you are on the color spectrum. And another shade of green that works quite well on front doors is a deeper pine green. This cool hue pairs really nicely with white, light gray, and navy blue accents.

6. Teal

A vibrant color no matter where you put it, teal works quite well on a front door. If you’re tired of the average browns and taupes on these surfaces, consider trying something completely different with teal.

7. Black

Black has a way of making any home look grand and rich. And painting trim and shutters in the same ebony hue can make your home’s exterior look even more stately.

8. White

Not exactly a color, stark white is a neutral that goes with everything. And while not the most exciting shade, sometimes white works best, especially if all other surfaces are busy in color. On the other hand, even an all-white exterior may pair well with a white front door, particularly when accented by contrasting dark tones.

The Bottom Line

The inside of your home could be amazingly decked out, but there’s little reason not to give your home’s exterior just as much attention. And if you’re planning to sell some time in the near future, then sprucing up your curb appeal should be on the agenda. And one of the best ways to enhance the exterior of your home is to give your front door a face lift. Consider any one of the above colors to instantly brighten your home’s exterior.

6 Ways to Boost Security in Your Condo, Even Without a Concierge

All homeowners want to take measures to make sure their homes are secure and that all occupants within their homes are kept safe at all times. When it comes to condos, there is usually an added level of security in the form of a locked main entrance, security cameras, or 24-hour concierge. In secure buildings, visitors typically have to be buzzed in by a guard or an owner before they’re allowed in.

But as much as homeowners associations are responsible for making sure that their buildings are secure at all times, unit owners can take measures into their own hands as well to ramp up their own personal security.

Here are suggestions to take the level of security of your condo to the next level, whether or not your particular building is armed with 24-hour surveillance.

1. Consider Installing an Alarm For Your Unit

The building itself will come with its own security measures, but you might want to consider having your own security alarm installed in your unit. While you may have to get permission from your HOA to install an alarm, it can give you more peace of mind knowing that there’s another hurdle that thieves must go through in order to cause any amount of harm.

You might be even willing to take things a step further and have an alarm installed in your locker as well, especially if you’ve got valuables stashed away in there.

2. Never Lets Strangers in Behind You When You Enter the Building

Owners of the building are equipped either with a fob or a code that allows them to enter through main entrances of the building. Anyone else who doesn’t have either one of these things will need to be let in by someone who knows them. If you happen to be near the entrance and notice someone you’re not familiar asking to be buzzed in or trying to slip in behind you, resist the urge to be polite for a moment.

You don’t know who the person is, so you could be inadvertently allowing someone with bad intentions into the building. The person that they’re coming to see – if their visit is legitimate – should be the one to let them in. Even if the person is wearing a uniform, don’t allow them to enter unless they’re armed with appropriate identification.

3. Always Keep Your Balcony Doors Locked

Locking the door to your unit is a no-brainer, but are you guilty of leaving your balcony door unlocked from time to time? People with bad intentions will go to great lengths to break into units, including trying to go through balcony entrances.

Don’t underestimate what some people will do to gain entrance to other people’s homes, including climbing walls and making their way through any nook and cranny they can access, and balcony doors are one of them.

4. Block Windows and Install Bars if You’re on the First Floor

There are advantages to living on the first floor of a building; namely, not having to take an elevator every time you want to go in and out. But having a first-floor unit also comes with certain hazards that other unit owners on higher levels might not have to worry about, including being within easier access to criminals.

If you live on the main level, consider blocking out your windows. Thieves like to have a look inside where they plan to break into, and if they can’t see what’s inside, they may be less inclined to break in. You can do this either with blinds or even with frosted stick-ons.

Further, you might also want to install a bar across your balcony sliding doors to make it nearly impossible for bandits to pry the door open.

5. Get Familiar With the Residents of the Building

Knowing who lives in the building and what their regular routines are can help you get better acquainted with normal ongoings versus activities that seem out of the norm.

By paying attention and getting to know who lives in the building and what their routines are, you’ll be in a better position to spot suspicious activity. So get out there and don’t be afraid to mingle a little.

6. Make Sure the Door Closes Behind You After You Enter

When you enter your building, make sure to wait and verify that the door closes behind you so no one can slip in without anyone noticing.

The Bottom Line

Condo living is usually very secure. There are usually multiple layers of security that you can feel safe behind. But if you really want to ensure the ultimate in safety, consider adopting any one of the above tips. There’s absolutely nothing wrong with going the extra mile to ensure your safety and that of your family.

How Do Appraisers Determine the Value of a Home?

Sellers are obviously interested in knowing the value of their homes so they can figure out roughly how much they can potentially sell for. But buyers also want to know the value of homes they’re interested in and may put an offer on, as it will help them determine an appropriate and competitive offer.

Even homeowners who have no intention of selling may want to know how much their home is worth if they plan to refinance their mortgage.

In any case, having the home appraised by a professional is usually the best way to get the most accurate assessment of how much a property is worth according to current market conditions.

While homeowners can always hire an appraiser to assess their property’s value, appraisers usually work for lenders when a buyer applies for a mortgage.

Before final approval can take place, lenders typically send out an appraiser to find out whether the agreed-upon purchase price is an accurate reflection of the current market. This will help lenders determine an appropriate loan amount to approve a buyer for.

The question is, what exactly goes into an appraisal? How do appraisals come up with an accurate value of a particular piece of property?

The Standard Uniform Residential Appraisal Report

In order to take out as much subjectivity in the appraisal of a property, appraisers use what’s known as a Uniform Residential Appraisal Report (URAR), which is a standard report used to determine the overall value of a home. Appraisers must go through all the sections of the report to come up with a final value.

This form ensures that all appraisal reporting and analysis is standard across the board, regardless of the person doing the appraising.

Here are some of the major factors that appraisers look at when coming up with the value of a home.

Location

Location always plays a role in property values. The same home and lot in one location can be worth a lot more than the exact same property in another. As such, the exact zip code and neighborhood will be looked at.

Further, the exact location of the lot in the neighborhood will also be factored in. For example, a pie-shaped lot on a cul de sac will be worth more than a lot abutting the main road, even if they are within the same block.

Lot Size

The size of the property that the home sits on will be assessed. Generally speaking, larger lots are valued higher than smaller lots in the same neighborhood, though other factors will also have to be taken into consideration, such as slope or vegetation.

Square Footage

Not only is the size of the lot important, but so is the size of the home. The exact square footage of the subject property will be factored into the calculations to determine the overall value of the home.

Exterior Condition

The condition and style of the home’s exterior will be looked at. This includes the foundation, roof, and exterior walls to see what condition they’re in.

Interior Condition

Once the outside of the home has been looked at, the appraiser will scope out the interior of the home in great detail. Things such as the doors, windows, floors, ceilings, walls, plumbing system, electrical system, kitchen, and bathroom are all crucial components of a home and the state that they’re in plays a key role in the appraiser’s assessment of the property’s overall value.

Improvements

If any improvements to the home have been made, this will be considered. Many improvements increase the value of the home if they are done properly and use quality materials and finishes. New flooring, granite counters, appliances, windows, or HVAC system are all great examples of improvements that can boost the value of a home.

But some improvements can actually compromise the look and functionality of a home, and the appraiser will take that into consideration when determining its value.

Floor Plan

The functionality and flow of a home are determined by its floor plan. For instance, an open floor plan might be valued higher than a choppy layout that doesn’t make much sense. The appraiser will factor in the layout of the home and jot that down in the URAR form.

Number of Bedrooms and Bathrooms

A home with 4 bedrooms and 3 bathrooms, for instance, will likely be assigned a higher value than a home with 2 bedrooms and 1 bathroom in the same neighborhood, generally speaking.

Amenities

The types of amenities that make a home more comfortable and enjoyable will be accounted for. For instance, a pool, hot tub, master ensuite bathroom, finished basement, and heated flooring are all examples of amenities that can add extra value. The appraiser will make note of such amenities.

Current Market

Of course, the current market will play a key role in the value of a property. What a home may be worth today will be different than what it may have been worth only 6 months ago.

Methods of Assessing Value

On the URAR form, appraisers have three different ways to actually come up with the value of a home: the sales comparison approach, cost approach, and income approach.

Sales comparison approach – This is perhaps the most common way to come up with property values for residential properties. It basically involves comparing the subject property to other similar homes in the area that have recently sold. Ideally, the features of comparable homes should be as close in similarity to those of the subject property.

Cost approach – This approach factors in the cost of the land and construction of the home, minus any depreciation.

Income approach – This appraisal method involves estimating property value by dividing the net operating income of any rent collected by the capitalization rate. This is more suited for investment properties and not for owner-occupied residential homes.

The Bottom Line

No matter what side of the coin you happen to be on, knowing the value of a home is helpful. Sellers will want to know what they can list at, and buyers will want to make sure their offer price is fair. Homeowners may even want to know how much they can refinance at. Regardless, the job of an appraiser is an important one, and it helps to understand how they come up with their values.

How to Deal With Your Debt and Free Up Money For a Home Purchase

Buying a house is an expensive endeavor. Although you won’t have to pay for a property in full thanks to mortgages, there is still the down payment to come up with. Plus, you’ll need to be financially sound enough to get approved for a mortgage.

But if you’re currently drowning in debt, saving up for a down payment can prove to be a tough challenge. And a large debt load may throw a wrench in your ability to secure a home loan.

If your debt situation is a little out of hand, it’s time to do something about it. Here are some tips to help you pay down your debt so you can put more of your money towards a home purchase.

Stop Spending

Sounds obvious, doesn’t it? While it might be, it’s still sound advice that is worth mentioning. The thing is, many consumers still continue on their spending rampage even though their debt issue is out of control. So, if you’re looking to deal with your debt to free up some cash to be used towards a down payment, it’s time to put a stop to excessive spending.

You’re likely in a heap of debt because of this habit, so it’s important to put a freeze on frivolous expenditures – at least for now – in an effort to throw more of your free money towards paying down your debt.

Start Tracking Your Expenses

You might not have a full understanding of how much your expenses are every month. While you might have an idea, you really don’t have an exact picture until you actually make a list of all your expenses.

One way to make this easy is to see how much you’ve spent over the past few months. This can easily be done by using your mobile banking app. If you don’t already have one on your mobile device, consider downloading one.

Banks offer expense tracking software that you can use to see where your money has been going over the recent past. Using the app (or even your online banking platform), you can view a specific date range for expenses. This will tell you how much money has been spent and where it’s been going.

Establish a Budget

Perhaps the first thing you should be doing is making a budget. You can easily and quickly find budgeting tools online that you can use which will help you make sense of your income versus expenses.

Using the information you gathered from your expense tracking efforts, you can plug these items into your budget. Your expenses may have to be categorized into “fixed” and “variable” expenses. While some monthly expenses might stay the same (such as your mortgage or car payments), others might fluctuate (such as gasoline, vehicle expenses, and medical expenses).

You’ll also want to include all the things you’ve spent money on that are outside of required expenses. This can include eating out, clothes shopping, and vacations.

For your income, be sure to include all monies coming in aside from your paycheck. This may include monetary gifts, an inheritance, commissions, tax returns, and so forth.

After you’ve added up all your expenses, subtract that number from your income. Hopefully, you’ll end up with a positive number. Anything left over should be dedicated to paying your debt down. If you’re in the red, there are obviously changes that will need to be made.

Set a Realistic Goal

The ultimate goal is to pay down your debt so that you can free up more money to put towards a down payment. But you’ll want to establish smaller, more realistic and attainable goals that will help you achieve them and gain some momentum.

Paying down your debt might not necessarily be the right goal. Instead, being very specific and establishing realistic numbers and time periods will help you inch your way toward your ultimate goal.

For instance, write down small, smart goals. This can include putting away an extra $100 on top of your minimum credit card payments for the next few months with the money that you saved from cutting down on spending. 

Make More Than Your Minimum Credit Card Payments

Speaking of minimum payments, it’s time to get out of that habit if that’s what you’ve been doing month to month. To be honest, making only minimum credit card payments is only setting you up for a trap that will become increasingly difficult to get out of. The truth is, most of that minimum payment only goes towards interest, which means you’re barely making a dent in your principal amount.

Instead, make an effort to pay more than your minimum payments. Any extra funds that you come across from reducing your spending or increasing your income should be put towards making larger payments so you can finally rid yourself of those balances that get carried over month after month.

Come Up With the Right Repayment Plan For You

Making the decision to pay down your debt and cut back on unnecessary spending can help you put more towards your debt and finally pay it down. But it helps to have a specific plan of attack when it comes to exactly how you’ll tackle this feat.

When it comes to paying down debt, there are usually two popular and effective methods that consumers are recommended to try:

Avalanche debt repayment plan – With this method, you’ll tackle your highest-interest debt first. Usually, this will be your credit cards which tend to have the highest rates among all types of loans and credit.

This method allows to you get rid of a debt that is forcing you to put more money towards interest and instead lets you save more money to pay down your principal balances. If you pay down your debt starting with the highest interest debt first, you’ll end up paying less in interest, which means you’ll pay your debts off faster.

Snowball debt repayment plan – This repayment method involves paying your smallest debt first and making minimum payments on all others, then working your way up to paying down your largest debt. This will allow you to get rid of one debt much more quickly given the smaller balance, which should give you some momentum and motivate you as you see your efforts paying off.

Once the first debt is paid off, the money that would have gone towards the first debt will then be used to pay off the next lowest debt. Carry on until you’ve paid off all debts.

The Bottom Line

Your debt situation might be a little out of control at the moment, but there are things you can do to improve your situation. Start dealing with your debt today. The sooner you do, the sooner you’ll be able to whittle your debt down to a much more manageable level. In turn, this will improve your asset base and make it easier to come up with a down payment and get approved for a mortgage.

Pros and Cons of an FHA Home Loan

Getting a mortgage these days can be quite a challenge. Lenders have adopted stringent lending criteria in order for borrowers to get approved.

A healthy credit score, relatively low debt-to-income ratio, and a decent income are necessary to qualify for a traditional home loan. Plus, borrowers are tasked with coming up with a down payment towards their home purchase, which is typically a minimum of 5% for traditional mortgage products.

But many borrowers aren’t able to come up with this 5% down payment minimum, nor is their credit score as high as traditional loans require them to be.

That’s where FHA loans come into the picture. Backed by the Federal Housing Administration, this program accounts for 21% of all mortgages. These types of home loans are easier to get approved for, which is good news for those whose financial situation isn’t as robust as it could be.

But as good as FHA loans sound, it’s important for borrowers to get familiar with the pros and cons of such a mortgage product before settling on it.

Pros of FHA Home Loans

Lower down payment requirements. As already mentioned, traditional mortgages require a minimum of 5% down payment. And to avoid paying private mortgage insurance (PMI), that amount skyrockets to 20%. 

FHA loans, on the other hand, only require only a 3.5% minimum down payment amount, which can make a big difference in the lump sum amount that borrowers would have to come up. FHA loan also allows borrowers to accept monetary gifts and contributions from family, employers, or even a charitable organization to be put toward a down payment, which might not be permitted with some conventional mortgage programs.

Lower credit scores. Your credit score plays a key role in your ability to secure a mortgage. Generally speaking, a score of at least 680 is required by most traditional lenders who provide conventional mortgages. Plus, a higher credit score will also increase the chances of a lower interest rate.

But with a lower credit score, the chances of mortgage approval are much lower. Even if you were to get approved, your interest rate would likely be higher compared to the rate that a borrower with a high credit score would be offered.

With an FHA loan, however, a high credit score isn’t necessary. Borrowers can still get approved for an FHA home loan with a score lower than 680. That’s because these types of loans are backed by the federal government, so applicants with credit issues may still be eligible for an FHA loan.

In fact, borrowers with a credit score as low as 580 may still get approved for an FHA loan at a 3.5% down payment. That said, lower credit scores may also be OK, but the down payment amount would increase.

Lower debt-to-income ratio. One of the more important factors that lenders use to assess the borrowing power of loan applicants is their debt-to-income ratio, which is basically a measure of your debt relative to your income. More specifically, it tells lenders how much of your income is dedicated to paying off your current debt.

If your debt-to-income ratio is too high, you could be turned down for a conventional loan. But just as with credit scores, the FHA offers much more flexibility with their loans compared to conventional mortgages. It may be easier to get approved for an FHA-backed loan with a higher debt-to-income ratio.

Cons of FHA Home Loans

Properties must meet strict qualifications. Not only do you have to qualify for a home loan as an applicant, but so does the property itself. Not all housing types qualify for FHA loans. That’s because the property must meet specific standards in order for the government to agree to back up the mortgage needed to finance it.

More specifically, properties must meet certain standards that make it safe for people to live it them to be qualified for an FHA loan. In turn, this will help reduce the odds of the home needing major repairs or going into foreclosure.

But it also puts a limit on the homes that borrowers want to buy. Appraisals are usually more stringent compared to those for conventional loans, as are home inspections. If you want a home that needs to be fixed up, it will likely be denied an FHA mortgage. Further, homes in an HOA that are not approved by the FHA cannot be financed with an FHA loan.

Mortgage insurance premiums (MIP) are required. Borrowers who put down less than 20% on a mortgage won’t be able to qualify for a conventional loan. Instead, they’d need to apply for a high-ratio mortgage, which requires that borrowers pay private mortgage insurance (PMI) to insure the mortgage against losses as a result of payments default. But putting at least 20% will allow them to avoid these insurance premiums.

But with an FHA loan, mortgage insurance premiums are required regardless of how much of a down payment is made. Plus, there is also an upfront insurance fee that’s required when the mortgage closes.

Loan limits are lower. Different jurisdictions have their own loan limit requirements as set forth by the FHA. Depending on where you are, you might have a specific loan limit amount that you’ll be able to get. This can put a limit on the home prices that you’ll be able to look at. 

The Bottom Line

FHA loans are definitely easier to qualify for compared to traditional loan products. That said, there are also a handful of drawbacks that you might want to consider before you opt for this type of mortgage. Be sure to speak with a mortgage broker to go over all your options.