To Prepay Or Not to Prepay, that is the Question

calculator photo2I was included in a FaceBook thread where a homeowner considered whether to refinance his 30year Fixed rate mortgage into a 15 year fixed rate mortgage, or to find an online calculator that would assist him in creating a prepayment plan.

Here’s his query:
Can anyone recommend a decent mortgage calculator site/app/spreadsheet?
We’re currently on a 30 year/4% fixed. Trying to compare two options:
1) Switch to a 15 year/3.65%.
2) Start paying an additional quarterly payment against principal with the existing mortgage.
I know this isn’t exactly advanced math, but I also feel like someone must have put something together that shows the impact of added payments against principal. Mortgage calculators are great at helping figure out the cost of new mortgages (i.e., option #1 above), but not so good at helping jigger existing mortgages (option #2).
Any help?

Here’s my response:Light-Bulb-Clip-Art
First check with your tax professional before you consider a day in the near future when you “burn the mortgage!” While it may feel great to someday own your home free of any debt, you might lose out on a valuable (in real dollars) tax deduction. Second, rather than refinance and incur closing costs again, prepaying a 30 year mortgage is easy-peasy! Simply add 4% of your current Principal and Interest monthly for year one of your prepayment plan. In subsequent years, add ANOTHER 4% of each years’ NEW monthly payment. Treat your mortgage like an employee with “4% cost of living raises” each year. If you follow this course you can prepay a 30 year loan in 13 years. Hope that helps!


Do you have questions?  Click on ASK TREVOR and I’ll respond to any and all inquiries, even if you’re not buying a home in New York State.

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Happy House Hunting!

Spend Your Tax Refund Wisely

tax refundIt’s tax time and many homeowners receive large tax refund checks. Here’s some advice I’ve put together for you on different ways to use that money.

This article is part of my series “The Affordable Home.”  In the series I seek to focus on the intangible benefits of homeownership by making them, well, tangible.  I believe the affordable home is the sensible and proper approach to homeownership; so many new homebuyers today specifically focus on the affordability of the mortgage loan instead of the “HGTV” aspects of a house. I find this attitude refreshing for two reasons.

First, it’s an “old” attitude: in decades past the idea of buying a home revolved around diligent budgeting to save up the down payment and the concept the monthly payment should be affordable.


The features of the house—granite countertops, high end appliances, paved driveways—were minor considerations and certainly did not make for sound decision-making when buying a home.  Those features could be added later, if one so desired, and those “old-timers” (I was once one of them) knew that.

Second, during the past decade, during the “Boom” the focus was on something I considered completely nuts: buy a home, an amazing home packed with big rooms, big features, and big monthly payments, at any cost.  Affordability be damned.  I struggled as a mortgage professional during those years to try to talk sense into people.

Since it’s tax-time, the advertising from folks who want your refund checks are everywhere.  There was the TV advertisement: “Just in time for your tax refund we’ve received a new stock of bamboo flooring!”


It occurred to me that this is the time of year when many people, especially homeowners, get large tax refunds and the sharks start circling looking to take a bite out of that refund check.  To this I say, “STOP!  Take a minute to reflect on what you should do with your money!  You worked hard for it, and you bought an affordable home so you could get that refund, don’t throw it away without giving it due consideration.”

Here are my suggestions to spend your tax refund wisely:

1. Consider investing the money for your future.  My pal Nick, the owner of the Westside Steakhouse  was at one time a stock broker.  Here’s his take on wisely using your money:: “Never spend more than you make and save some money every week.”  Awesome advice and I believe that fits very handily into my concept of the affordable home.   Especially in this day and age of doubt over pensions, we consumers must be smarter and more responsible with our planning for retirement.  Follow Nick’s advice and invest your tax refund to begin or supplement your savings plan.

The New York Times “Your Money” section featured a wonderful piece recently about a new vehicle that makes it easier for us to create a sound investment strategy without all the costly bells and whistles.  Here’s the link to that article:  Financial Advice for People Who Aren’t Rich

I have long advised my clients to consider retaining a Financial Advisor to provide counsel on all things finance-related: investing, budgeting and insurance.  You can find a local Financial Advisor in the your area here:  National Association of Personal Financial Advisors

And here is sound advice from a CPA about investing not just your refund, but investing throughout the year and the tax benefits/ramifications: Fund Your Retirement Or Your Child’s College?

2. Create an Emergency Reserve.  Take some or all of that refund check and put together your emergency reserves.  Park the money somewhere it’s inaccessible by debit card!  You’ll need ease of access, but putting it within reach of a debit card is a surefire path to disaster.  pile of cash

3. Pay down debt.  This tends to be the long held standard amongst many homeowners I’ve known over the years.  I believe this is an admirable activity, but I believe taking your tax refund to pay down debt should be part of a comprehensive plan for debt management.   To take a page out of my friend Nick’s finance playbook: don’t spend more than you earn.  I advocate tending to your credit use respectfully and as part of your total family budget every month.  This way you won’t necessarily have to take your hard won refund check and pay down a credit card balance.  Of course, if, during the year you experienced an emergency and needed to access your credit to assist with that emergency, then paying off that debt at tax time is a sound strategy since it’s a one time event.

I’ve found that Consumer Action is the best site on the ‘net for sound advice on all things credit related, including how to obtain lower credit card rates and fees and great counselling on preparing and maintaining a family budget.  Find them here: Consumer Action

 Another Smart Strategy for The Affordable Home: Take home more money in your paycheck; get a smaller refund at tax time.

I hope my suggestions are useful to you at this exciting time of year.  Of course, I also advocate that you really shouldn’t get such a large refund at tax time if you’re a homeowner.  I’ve long believed that you should incorporate into your homeowners’ “network of advisors” a great tax professional or CPA.  By doing so, you can lean on your tax professional/CPA to advise you on the correct withholding throughout the year to increase your take-home pay, reduce your end of the year tax refund (and prevent having to pay!), and enjoy the benefits of homeownership every month instead of once a year. Here’s the IRS page on how to calculate correct withholding, but I recommend you do this only under the guidance of your tax professional/CPA:  IRS Withholding Calculator

Do you have questions?  Click on ASK TREVOR and I’ll respond to any and all inquiries, even if you’re not buying a home in New York State.

Check out my Trulia profile HERE

Check out my Zillow profile HERE

Find me on TWITTER: @tcurranmortgage

Ask Trevor A Question

Tax Time: A Journey to getting your MONEY.

Use tax time to get in touch with your money; you can get more of it in your pocket by working with a competent tax professional and by knowing the fundamentals of IRS regulations.

I sat with a family last night preparing to buy a home. I sifted through the documents needed for the loan approval process, paystubs, bank statements, 401k account statements, credit report. Finally I came to the clients’ tax returns.

Mom and Dad have their annual returns prepared by the same tax professional they have used for more than twenty years. I reviewed the documents and thought the returns were adequately prepared.

Then I reached for the Son’s tax returns. HoooBoy. There as I reached across their dining room table was that infamous “green and white” folder. I won’t mention the name of the national service (well-advertised on television and elsewhere), only will I state that when I see that infamous folder, a shiver runs down my spine (the kind you get when you read a really scary Stephen King story late at night).

What followed was some stern talking to by me to the Son. “First thing you’re going to do when you buy your home is meet with your Mom and Dad’s accountant. You will no longer visit the folks who gave you that green and white folder.”

I went on to advise him to bring his previous three years’ returns to Mom and Dad’s accountant when he goes there in a few weeks to have his 2008 returns prepared. The IRS allows us taxpayers to revise our returns up to three years back if we feel we missed some deductions and may be entitled to a larger refund than was originally issued.

Having seen many returns stapled into those green and white folders over the years, I knew there was a REALLY good chance my client could amend one or several of his previous three years’ returns and get some more money back from Uncle Sam.

I also told him, since they are soon to buy a home, that he needs to consult with the accountant in the area of getting a lower refund after he buys a home. Instead of waiting for a refund, he should lower the tax deductions from his weekly paycheck thus enabling him to bring home more money. Uncle Sam still gets his fair share (the IRS allows us to change our withholding as many times throughout the year as we feel is necessary as long as we are meeting our tax liability), and my clients—soon to be Homeowners—get more liquid cash every month to help make the experience of buying their first home a happier one.

More money in your pocket every month when you own a home seems to be a pretty good path to happiness to me, no?

The advice I gave these clients is important as you learn to watch out for your money. Use tax time to get in touch with your money; you can get more of it in your pocket by working with a competent tax professional and by knowing the fundamentals of IRS regulations.

Prepare for Tax Time

Homeowners and Renters alike need to prepare for a different kind of conversation with their tax professional during these troubled economic times.

In the next few weeks, employers all across the country will begin sending out 2007 W-2 forms so that we taxpayers can get our papers together and submit our annual tax returns.

As you await the arrival of your W-2, might I suggest spending a Saturday afternoon preparing for your meeting with your tax professional?

If you are a homeowner, you’ll need also to receive from your mortgage Lender your annual 1098 form indicating how much interest and taxes you paid throughout the year. For most of us, the mortgage interest and property taxes on our primary residences are seriously important tax deductible items. Often, these deductions can bring about a large refund for a homeowning family.

Homeowners should also bring to their tax pro any and all documentation to support any other potential tax deductions they may have the right to claim: charitable contributions, Union dues, unreimbursed employee expenses, proof of medical bills in excess of 2% of your adjusted gross income, and more. Bring as many items as you may feel are deductible; let your tax pro be the judge of what is feasible as a deduction, and what’s not. As a homeowner, you’re most likely filing a Schedule A for itemized deductions and that’s where the mortgage interest, property taxes and all those other deductions will be collected to provide a substantial reduction in your adjusted gross income—usually much larger than the standard deductions provided for by Uncle Sam.

I’d like to suggest this year that you Homeowners also consult with your tax professional about important tax-saving strategies for 2009. In the current state of the economy, we could all use a boost in our take-home pay or at least solid advice on how to save on your 2009 income taxes.

For instance, you can change your withholding at work and reduce the tax dollars deducted from your weekly paycheck, thus taking home more of your hard-earned dollars. Next year, you’ll get a lower refund, but, so what? That’s your money the government is returning to you—a loan you made, interest-free to Uncle Sam—not a windfall from the Treasury.

Your tax pro might also suggest refinancing your mortgage at what are right now the lowest interest rates since a man named Eisenhower was in the White House. Your tax professional will likely tell you to pay points not only to obtain the lowest possible rate, but also to obtain a further tax deduction over the next two years on your annual returns.

Homeowners, when you meet with your tax professional this year, go for the maximum deductions and discuss money-saving, tax-reducing strategies. It’s your money, it’s your home and you worked danged hard for both of them!

For those of you who are renting, I’d recommend similarly probing for the sage wisdom buried in your tax professional’s mind as to ways you can save money on your 2009 taxes. There are certainly things you can do now and throughout the year—contributions to an IRA and the like—that will invest your money for the future and lower your tax liability when you file your 2009 return next year.

I’d bet that for many renters your tax professional may look at your income, look at your lack of deductions and your inability to file a Schedule A for itemized deductions and make a radical suggestion: Buy a Home!

If ever there was a reason to ignore all the bad news about falling home prices, instability in the economy and the payroll of the New York Yankees, buying a home for the purpose of paying less income tax is as good a reason as you can find.

So, renters, get ready for a serious conversation with your tax professional this year. Then, ring me up to get prequalified for a mortgage. I’d be happy to oblige in your quest to pay less income tax next year. And, it would be my pleasure to help you make a dream come true: that of owning your own home!