Blog :: 11-2020

After more than 25 years of living, working and playing on Cape Cod we have a lot to share about the area.  Our blog topics run the gamut from fun things to do, working with contractors, and homeownership tips and tricks, so check back frequently to see what's new.  If you have questions or would like to learn more about Cape Cod or owning property on this beautiful peninsula please contact us for more information and to set up a showing for any listing. 

Realtor Case file #57 – why local relationships matter

Whether you are buying, selling, or renting your home, one of the most important decisions you will make is who will represent your interests during the transaction. Those representatives should always be experienced local professionals with strong relationships in the community. I recently closed a transaction that perfectly illustrated just how important those relationships may end up being. Take a look:

Three days before closing on a seller client’s home the buyer’s attorney discovered two title issues which were going to prevent us from closing: an undischarged mortgage and an outstanding right of first refusal from the original developer. Title issues are always trouble but this was particularly troubling because my sellers were using the funds from their sale to purchase another home on the same day – a delay on the sale would cause serious complications for everyone involved. But my clients had done the right thing – they had carefully selected a team of experience professionals with strong connections in their respective professional communities. Here’s what happened:

We were in a rush so the attorney asked me (as the seller’s agent) to work on the right of first refusal while she and the sellers dug in on the mortgage. Because of my local knowledge, I happened to know who the developer was, and that he had retired and sold his business about 15 years ago. I also happened to know who he sold the business to, and have a working relationship with that person. So I called him up and got the contact info for his predecessor. I then spoke with the developer who sent me to his attorney here in Yarmouth. I called the attorney, with whom I have closed dozens of deals and asked for a favor. That afternoon the document was prepared and signed. First problem solved.

But what about the second problem? The mortgage on the home had been paid off for 10 years, but the bank never recorded the discharge. [Editor’s note: this happens ALL THE TIME. Always call your bank to make sure they recorded the discharge after your last payment to avoid this issue yourself]. The mortgage was, sadly, with a large national bank, so my sellers’ tearful trip to the branch was useless. So they regrouped and, on a lark, called their financial advisor. At dinner time on a weeknight. He picked right up. They explained the situation and he said, “You know what, I know someone who works in the mortgage department at that bank’s headquarters. Let me reach out to him.” By noon the next day they had satisfactory documentation of the discharged mortgage in hand, thanks to their finance guy’s local relationship within the bank.

We sent the completed file to the buyer’s attorney, the transaction closed as scheduled on Friday, my clients bought their new house that afternoon, and everyone walked away happy. Disaster averted.

So what was the trick? Local relationships. My clients had carefully selected a team of local experts and it paid off big time. Think about it like this – what if their Realtor hadn’t been local? Would the seller’s attorney have known and trusted him to solve part of the problem, or would she have had to extend the closing date to give her time to do it herself? Would the agent have known immediately who to call to track down the long-since retired out of state developer? Would the developer’s attorney have been willing to do the agent a favor by rushing the file? What if their financial advisor had been a nameless associate at a large firm who they couldn’t reach after hours? Or who didn’t have personal local relationships within the industry? Would they have still closed on time? Maybe. Maybe they would have gotten lucky. But why leave it to chance? Real Estate is a team sport – when you assemble your team, make sure to pick local professionals who have the experience and relationships in their industries to give you the best representation possible.

Four ways to pay off your mortgage early

Every few years it is worth evaluating the costs and benefits of paying off your mortgage early.  We'll discuss four scenarios with a home purchased for $450,000, 20% down and 2.75% interest on a 30 year fixed rate mortgage. For the purposes of this exercise we will be calculating principal and interest payments and not including mortgage insurance or escrow payments for taxes and insurance. To see our math you can refer to the embedded Mortgage Payment Calculator at the end of the blog.  Each scenario has a tab at the bottom so you can switch back and forth for comparisons. Let's proceed.

Standard Payment:

In this scenario you pay your mortgage just as it appears on your bill.  Over the course of 360 months (30 years) your entire mortgage is paid off.

Maximum Principal and Interest (P&I) payment: $1,469.67

Payoff time: 30 years

Total Interest Paid: $169,080.57

Scenario 1: Double your monthly principal payment

In this situation you simply mail your mortgage payment with twice the amount of the principal payment.  In our hypothetical, the first payment would therefore include $644.67 more than the standard $1,469.67, or $2,114.34.  This amount would slowly increase each month as your principal payment increases.

Max P&I Payment:  $2,931.26

Payoff time: 15.1 years

Total Interest Paid: $84,843.26

Scenario 2: Add an extra $500 to each principal payment

Here you simply pay $500 more to pay down your principal each month.  

Max P&I Payment:  $1,969.67

Payoff time: 19.8 years

Total Interest Paid: $107,023.83

Scenario 3: Annual bulk payment of $10,000 to your principal

Imagine that you save up all year and pay down a large chunk of the principal in December, we hypothesize $10k.

Max P&I Payment:  $11,469.67 ($1,469.67 max standard month)

Payoff time: 16.4

Total Interest Paid: $88,772.70

Scenario 4: Double principal and $20k annual payment

This situation may not be feasible for many people, but we included it to illustrate a point.  Here we combined strategy #2 and #3 but increased the annual payment to $20k. Using this strategy the payoff time can be brought down to just over 8 years with only about $46k in total interest

Max P&I Payment:  $22,865.24 ($2,930.77 max standard month)

Payoff time: 8.3

Total Interest Paid: $45,906.64

Synopsis: Which is best for me?

There is no one correct solution here. Each homeowner has a different financial situation, and these may change over time anyway.  Consider simply that paying down your principal results in fewer payments and less interest charged overall, but there is a reason that a standard mortgage is paid over 30 years.

 

As always contact us to discuss what buying or selling looks like in today's market.

 

 

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