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Paying Extra on Your Mortgage Can Go a Long Way

AOL Real Estate Editors — Wed, 12 Dec 2012 12:30:00 EST

By Colin Robertson

Mortgages can be viewed very differently.

Some see them as a positive financial instrument, a way to free up their money so it can be invested elsewhere, ideally for a better return.

Then there are those who view mortgages as the root of all evil, as a debt overhang that must be terminated as quickly as possible.

Whatever your stance, you've probably entertained the idea of making "extra mortgage payments," though you may not know the exact impact, due to the complexity of mortgage amortization.

Fortunately, there are calculators available -- like AOL Real Estate's mortgage calculator -- that take the guesswork out of the process and make it easy to see how much you can save in a number of different scenarios.

Adding $10 a Month

Let's start with a simple scenario where you add just $10 a month in extra payment to principal.

Assuming you've got a $100,000 loan amount set at 4 percent on a 30-year fixed mortgage, that extra $10 payment would save you $3,191.78 over the full loan term.

It would also shorten your mortgage by 13 months, meaning your 30-year mortgage would be a 28-year-ish mortgage.

So that's good news, right? You save thousands and you only have to pay a measly $10 extra per month. You probably wouldn't even notice the difference.

What if you bumped up that extra payment to $25? Well, you would shave 32 months off your mortgage, nearly three years, and reduce total interest by $7,450.01.

Feeling ambitious? Add $100 a month and you reduce your term by 101 months, or nearly 8.5 years, while saving $22,463.76 in interest.

Extra Payments More Valuable Early On

As you can see, it's not that hard to save a ton of money via extra payments, but it also matters when you start making those additional payments.

Using our $100 example, if you started making extra payments in year six of your 30-year mortgage, (month 61) you'd only save $15,095.22, and shed just 78 months off your mortgage.

Even if you decided after just one year to make the extra $100 payment, your total savings drop to $20,989.52, and 96 months come off your mortgage term.

In short, the earlier you start making extra payments, the more you'll save. This is mainly because mortgage payments are interest-heavy in the beginning of the term.

One Extra Lump Sum Payment

Now let's assume that you came upon some extra dough and want to make one lump sum payment to reduce your mortgage balance.

Using our same loan details from above, if you made a one-time payment of $5,000 to principal in month 13, you'd save $10,071.64 and reduce your loan term by 31 months.

If you made that same $5,000 payment at the beginning of year six of the mortgage, the savings drop to $7,944.04 and the term is only reduced by 27 months.

You could also make one extra lump sum payment at the beginning of each year, perhaps after receiving your year-end bonus.

So let's say you make a $1,000 bonus payment each year in January, starting in month 13.
That would save you $19,005.19 in interest and shave 85 months (about 7 years) off your loan term.

As you can see, there are all types of scenarios that abound here, and which one you choose, if any, is up to you.

You might argue that mortgage rates are super cheap, and thus determine that making extra payments now makes little financial sense.

Or you could be living in your dream home and not too far from retirement, with the hopes of living "free and clear" sooner rather than later. If that's the case, making the extra payments now may be very appealing. Refinancing to a shorter term could also make a lot of sense.

The changes coming to the mortgage interest deduction could also come into play, so be sure to watch news on that front as well.

And know that plans (always) change; homeowners are much more likely to move or refinance their loans as opposed to carrying them out to term.

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Multigenerational Homes: Real Estate's Next Big Thing as More Families Share a Space

AOL Real Estate Editors — Fri, 16 Nov 2012 18:15:00 EST

Filed under: Real Estate

Being roommates with your parents after age 21 sounds like a nightmare for most, but Jessica Bruno wouldn't have it any other way. Bruno, a 40-year-old mom, wife and DIY blogger, lives with her 62-year-old parents, Connie and Fred, in their Sutton, Mass., home.

Oh, and there's Bruno's husband, Tony, and their 6-year-old son, Tony Jr.

Think that's a lot of people under one roof? There's more. Bruno's grandparents, Grace, 80, and Fred, 82, live in the house, too. That's seven people from four generations living together in one home. Actually, make that nine: Bruno's two stepdaughters, 12-year-old twins Alexia and Gabriella -- Tony's kids from another marriage -- stay with them on weekends.

It might sound like a crowded living situation, but it's not uncommon. The Bruno family is one of 4.4 million American households who have three generations or more living under one roof. There are also an estimated 51.4 million Americans that currently live in homes with more than two generations. According to the U.S. Census Bureau, multigenerational households are a growing trend, up 30 percent between 2000 and 2010, a figure that will only continue to grow, experts say.

"We've seen a 25 percent increase in demand for multigenerational housing structures over the past two years and expect to see more," said Luis Tusino, CEO of the GBI-Avis building group, which specializes in building custom modular homes.

The Bruno family has gone to great lengths to accommodate all the residents of their home. They've added 2,000 square feet to the original house over the years, expanding it to 5,000 square feet with three spacious and separate "wings" -- one for each family. They've spent about $70,000 in renovations.

"Gram and gramp are in one wing; my husband, son and I are in the middle; and my parents are in the other wing," Bruno said. The home has two kitchens, five separate "living spaces," multiple television areas, two driveways and even a chairlift for Grace. "We have it set up pretty well so that everyone has their own spaces. It was a little tricky in the beginning, but setting ground rules and respecting each other's privacy is the key to success. It's insanely amazing that it works."

Though factors such as high unemployment, a battered economy and the recent housing crisis have pushed more people into multigenerational living, studies show that it's a trend that's circled back from a similar era.

History Repeating Itself

Just prior to World War II, a quarter of Americans lived with extended family, as the U.S. struggled through the Great Depression. But by 1980 the number of such households was slashed by half -- down to 12 percent from 25 percent in 1940. But that number has risen again -- spiking as the Great Recession hit in 2008, experts say. The Pew Research Center now estimates that 16 percent of Americans live in multigenerational households.

However, that may have economic benefits. Pew reports that the poverty rate among those who live in multigenerational homes is significantly lower than those who don't live with other adults other than a spouse or partner. Additionally, multigenerational households have much higher median incomes than other "average" households ($48,542 vs. $41,115 in 2009).

Though it was not financial woes that initially drove Bruno and her family to move in with her parents (they had "temporarily" moved in after the housing collapse made it impossible to sell and buy simultaneously), Bruno admits that their current arrangement certainly helps all family members save money.

"It's a great help having others to share in the expenses," Bruno said. "My mom adds up all the bills at the end of the month -- utilities, etc. -- and we split it right down the middle. Easy peasy!"

A greater division of shared responsibilities and everyday tasks (cooking, cleaning, shopping, errands) in a multigenerational household also makes the environment more conducive to emotional fulfillment, less stress and strengthened family cohesion, experts say. One survey found that 82 percent of adults living in multigenerational households found that the arrangement "enhanced family bonds." This is why in the strongly family-oriented Latino and Asian cultures the percentage of multigenerational households is much higher: 23.4 percent of Latino households and 25.9 percent of Asian households in America are multigenerational. Championed highly in both cultures are the values of interdependence and familial bonds. The national growth of multigenerational households since 1980, according to Pew, is partly a result of a rising immigrant population and the consequent cultural shifts.

"Living together, all of us, is a positive experience for everyone involved," Bruno added. "But I think we are really instilling positive family values for my son. He's 6, and he has the opportunity to live with his grandparents and great grandparents. I cannot think of a better gift to give him."

The Future of Housing?

According to homebuilder Tusino, who owns New England's largest housing developer, the rise in multigenerational households over the past few years has changed the landscape of modern home construction. The GBI-Avis CEO said that many families are now looking to either build a multigenerational-friendly home from scratch -- more informally known as the "in-law" setup, with separate entrances, custom floors and sections that feature senior-friendly kitchenettes, bathrooms and amenities -- or retrofit their existing structure with a modular room to accommodate extended family.

"The most common renovation would have to be adding entire wings to an existing house," said Tusino. These add-ons cost around $130 to $150 per square foot on average, and if they're modular constructions, they can take anywhere from four to six weeks to complete (or four to six months to build on-site), he added.

"Usually the wings are 600 to 800 square feet, depending on the town and their guidelines," Tusino said. "It's much more economical to add on, as you're able to customize the addition with high-end amenities. Although, we do have many clients opt [to construct a multigenerational-friendly] base home as well."

multigenerational home design, LennarFor those who do opt to build or buy such a new home, there are more and more options available. Just last month, Lennar Homes launched a new line of "NextGen" homes built specifically for multigenerational households. Essentially a "home within a home," the new line includes a carved-out space within the house that has its own kitchen, bathroom, bedroom and living area. (See floorplan at right). Similarly, due to increasing demand, custom housing design firm Drummond House Plans recently created a home plan collection specifically to satisfy the need for multigenerational homes -- a need we should apparently expect to see grow in the coming years, says Salon.com.

The rising interest in and demand for these "new" housing structures is also documented by the wealth of online resources targeted to homeowners who want to renovate their existing homes to accommodate their parents, grandparents, or even grown children looking to move back into the nest. In the past two years alone, the proliferation and popularity of DIY forums, how-to videos and blogs -- including Bruno's "Four Generations, One Roof" -- offering homeowners advice and instructions on how to configure their homes for added family members, has been telling.

But will these multigenerational living arrangements stick, or is this just another retro fad? According to Pew, if the demographic forces of immigration and delayed marriage continue, along with economic forces such as unemployment and a depressed housing market, we should certainly expect to see more and more families come together under one roof to rally resources and provide each other emotional support.

Despite some minor challenges, Bruno said, the more, the merrier.

"It's a work in progress," Bruno admitted. "But you can't beat built-in babysitters and multiple fridges to raid if you're hungry!"

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Hurricane Recovery for Homeowners: Surviving and Rebuilding After an Epic Storm

AOL Real Estate Editors — Fri, 02 Nov 2012 09:20:00 EST

Filed under: Real Estate

As Hurricane Sandy showed us this week, the widespread devastation wreaked on cities and communities by natural disasters can be significant, costly and debilitating. Homes often suffer severe structural damage caused by wind and flooding, and a lifetime of personal possessions can go missing forever. Hurricane Sandy alone caused the evacuation of more than a million homes in the Northeast and an estimated $10 billion to $20 billion in damages (including $7 billion to $10 billion in insured losses) -- a costly and long cleanup process that for many homeowners looks seemingly insurmountable.

But making it through a hurricane and tackling the cleanup, repair and renovation of one's home in the midst of catastrophe can be achieved, though challenging. Houston homeowner Vanessa Wade survived Hurricane Ike in September 2008, a monstrous storm that claimed 112 lives in the U.S. and caused an estimated $29.6 billion in damage. Wade said that in the case of extreme natural disasters like Ike and Sandy, the pooling of neighborhood resources and an attitude of cooperation among neighbors is vital to a smoother recovery.

Wade admitted that the most difficult part was jump-starting the initial cleanup and recovery efforts -- especially overwhelming due to lack of power and heat, coupled with low morale.

"I was not prepared for an image that's seen in movies: a huge hole in the roof, missing windows and a breaker box ripped from the side of the house. It was overwhelming because you simply don't know where to start the cleanup process," Wade told AOL Real Estate. "But we all worked together and shared tools, food and words of encouragement. Since power was out for more than two weeks, everyone kept watch when others went to work."

Wade's own home was struck by a large tree knocked over by powerful winds (picture at top). The tree fell and damaged Wade's roof. (Another large tree growing in Wade's yard fell and "mangled" her neighbor's vehicle, she said.) Debris and fallen branches littered her front and back yards. Wade, like millions of other people affected by Ike, lost both power and water for weeks. The initial surface cleanup, Wade said, took two weeks.

Fortunately, Wade added, she had stocked up generously on essentials such as water, flashlights, canned goods, a portable battery-operated black-and-white television (to monitor weather) and batteries prior to the hurricane. Wade also pre-emptively prepared a list of trusted contractors that she knew would perform high-quality damage repair and renovations at non-inflated rates.

"So many people were ripped off by those looking to profit from vulnerable homeowners and renters," Wade said. "Check to make sure [contractors] are licensed and can perform the work, without causing more damage or changing the price. "

Disaster recovery specialist Paul Purcell, author of "Disaster Prep 101," added that in many post-disaster situations such as Ike and Sandy, immediate protection from the elements is the biggest concern for many homeowners who have had their roofs punctured, windows and doors blown out, or are suffering from power outages.

"Late-season hurricanes mean folks are without power, sometimes even windows, roofs, walls, doors or insulation," Purcell told AOL Real Estate. "Keep what doors and windows you have closed, and seal seams with plastic sheets -- think shower curtains -- and any kind of tape you have. Simply cutting down on wind works wonders with keeping warm."

Purcell adds that the most important consideration for homeowners currently stuck in a post-disaster environment, aside from shelter and protection from harsh elements, is maintaining morale. Keeping a community-wide focus on rebuilding -- rather than mourning what was lost -- can be the most challenging but integral part of a successful disaster recovery process.

"A few keys: Stay fed and hydrated and take regular work breaks, take vitamins if you have them, and look at 'devastation' as a clean slate and opportunity to build something you'll enjoy even more," Purcell advised. "Remember, the worst is behind you."

How Homeowners Can Better Protect Themselves

In Wade's case, as with many of the claims brought on by Sandy and Ike, insurance covered very little of the damage to her home. Though most policies cover wind damage (a tree falling on your home, for example), standard homeowner policies often don't cover damage from flooding.

The only way a homeowner would have comprehensive coverage for flood-related damage is to have a separate flood insurance policy. In the United States, this is rare: Only 13 percent of homeowners nationwide have flood insurance plans, down from 14 percent last year. Yet annual premiums for flood insurance on a one-story home average about $400 to $450 nationwide and can save hundreds of thousands of dollars in repairs. (The National Flood Insurance Program and some private insurers provide coverage for up to $250,000 of structural damage to a home and $100,000 for personal possessions). Flood insurance is a must for homeowners in flood-prone or low-lying coastal areas.

Purcell also advised homeowners to take a proper inventory of their home and possessions. The Insurance Information Institute offers a free home inventory app that allows homeowners to download information about where possessions were bought and how much they cost. All the information is stored remotely and can be accessible even if computers or personal devices are destroyed. Keeping digital records of receipts can also save money and lessen costs in the long run, according to Purcell.

"Half of surviving a sizable disaster is setting yourself up to rebuild," Purcell told AOL Real Estate. "Use your phone's camera and video to document property loss and damage. Insurance companies, after a regional catastrophe, will be more concerned with their bottom line than yours, so work now to get all the info you can to help process your claims later."

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