The blog is back! I'm getting an early start on one of my New Years Resolution - to regularly update this blog. I look forward to expanding the blog in 2007 both in the topics that I will cover and in the participation that I encourage from you.
What is one of your resolutions for 2007? Let me suggest something that is far more rewarding then organizing your closet - update or create your estate plan.
If you have always been putting off creating your estate plan as something to do "someday," well, this is the ideal time to turn "someday" into a firm date in January! If you have a plan that is more than 3 years old, schedule a time to review your plan.
Make sure that you are still comfortable with your selection of fiduciaries, such as agents under a power of attorney, personal representatives or trustees. Also decide if it is appropriate to make any changes in your plan of distribution to your beneficiaries. And if you have a trust, make sure that it is properly funded, so that any new assets you may have acquired are properly titled.
There is nothing more gratifying then knowing you have done everything you can to take care of your loved ones. The start of the new year is the perfect time to set a date to review or create these important documents.
As an attorney I am happy to help with your estate plan. As for cleaning that closet, sorry to say you are on your own...
Practical thoughts, commentary, and perspective on legal issues that effect us all. To make the most of this space, I invite your interaction. Now the irksome but important disclaimer - this blog does not offer legal advice and use of this blog does not create an attorney-client relationship.
Friday, December 15, 2006
Monday, June 05, 2006
Ready To Write 600 Mortgage Payment Checks?
A new product is available from many lenders – a 50-year mortgage. Is it right for you? Probably not.
The primary attraction of the 50-year mortgage is that it allows for lower monthly payments. But these lower monthly payments come at a great cost, which for most homeowners would significantly outweigh the benefit.
Three characteristics of the 50-year mortgage that should give any borrower pause before entering into the loan are: (1) slow growth of equity; (2) the substantial amount of extra interest over the life of the loan; and (3) the risk of adjustable rates.
If you take a 50-year mortgage, then be prepared to build equity at a painfully slow rate. Consider a $200,000 50-year, 7.5% mortgage. After the first ten years of payments, you would have paid almost $150,000 in interest payments, and you would have accumulated less than $5,000 in equity. In contrast, consider if you had taken a $200,000 loan at 7.5% interest for 30 years, after the first ten years of the loan you would have paid almost $7,000 less in interest and you would have built over $26,000 in equity.
Clearly the equity builds at a much faster rate under the 30-year loan. This is an important advantage, as one of the main benefits of home ownership is to build equity over time. Also keep in mind that you would be paying an enormous amount of extra interest over the life of a 50-year mortgage. Using the example above, you would pay $264,845.87 extra in interest over the life of the loan!
Of course, the monthly payments on the 30-year mortgage would be $118 higher than the 50-year mortgage. But when taking into account the faster equity growth and the enormous saving in interest expense, it is plainly worth the slightly higher monthly payment.
Also keep in mind that most 50-year mortgages currently offered by lenders provide a fixed rate for the first 5 years, after which the rate becomes adjustable. That means that after 5 years your monthly payment could increase.
With all the potential hazards, who should consider a 50-year mortgage? An ideal borrower would be someone who plans to stay in a home for less than 5 years, and does not want to take an "Interest Only" or "Option ARM" loan. With a 50-year mortgage you do not run the risk of owing more than you borrowed, which is a real possibility with some Interest Only or Option ARM loans that allow a borrower to pay even less than the interest due each month.
While this new product may be a good alternative for a small percentage of homeowners or investors, for most people, entering into a half-century mortgage IS NOT PRACTICAL.
The primary attraction of the 50-year mortgage is that it allows for lower monthly payments. But these lower monthly payments come at a great cost, which for most homeowners would significantly outweigh the benefit.
Three characteristics of the 50-year mortgage that should give any borrower pause before entering into the loan are: (1) slow growth of equity; (2) the substantial amount of extra interest over the life of the loan; and (3) the risk of adjustable rates.
If you take a 50-year mortgage, then be prepared to build equity at a painfully slow rate. Consider a $200,000 50-year, 7.5% mortgage. After the first ten years of payments, you would have paid almost $150,000 in interest payments, and you would have accumulated less than $5,000 in equity. In contrast, consider if you had taken a $200,000 loan at 7.5% interest for 30 years, after the first ten years of the loan you would have paid almost $7,000 less in interest and you would have built over $26,000 in equity.
Clearly the equity builds at a much faster rate under the 30-year loan. This is an important advantage, as one of the main benefits of home ownership is to build equity over time. Also keep in mind that you would be paying an enormous amount of extra interest over the life of a 50-year mortgage. Using the example above, you would pay $264,845.87 extra in interest over the life of the loan!
Of course, the monthly payments on the 30-year mortgage would be $118 higher than the 50-year mortgage. But when taking into account the faster equity growth and the enormous saving in interest expense, it is plainly worth the slightly higher monthly payment.
Also keep in mind that most 50-year mortgages currently offered by lenders provide a fixed rate for the first 5 years, after which the rate becomes adjustable. That means that after 5 years your monthly payment could increase.
With all the potential hazards, who should consider a 50-year mortgage? An ideal borrower would be someone who plans to stay in a home for less than 5 years, and does not want to take an "Interest Only" or "Option ARM" loan. With a 50-year mortgage you do not run the risk of owing more than you borrowed, which is a real possibility with some Interest Only or Option ARM loans that allow a borrower to pay even less than the interest due each month.
While this new product may be a good alternative for a small percentage of homeowners or investors, for most people, entering into a half-century mortgage IS NOT PRACTICAL.
Monday, May 29, 2006
Save Thousands On The Sale Of Your Home By Working With An Attorney
The beginning of summer is also Home Buying Season. For most of us, our home is our biggest investment, so the process of selling or buying a home is not only exciting, it can also be stressful. One of the biggest decisions is whether to work with a real estate agent or represent yourself (for sellers, this means a "For Sale By Owner" or "FSBO" transaction). Another option you may not have considered, but that may be your best option, is to sell your home by owner, and to work with an attorney.
When deciding whether to work with an agent, sell by owner, or by owner with an attorney, there are many important considerations, including costs, savings, and the level of your comfort in handling the responsibilities and risks involved in the transaction.
In the United States, 6% is considered a "standard" residential real estate commission, and it is typically split 50/50 between the listing agent and the buyer's agent. To put that into numbers, on the sale of a $250,000 home, the standard commission would be $15,000 paid by the seller at closing. Clearly, there are significant savings to be had by avoiding the need to pay a 6% commission. There are also significant risks.
If you are willing to do the work required to represent yourself as a buyer or seller, you can save a lot of money. I know, because not only am I an attorney, I am also a licensed residential real estate salesperson in Michigan (although I have chosen to have my license held in escrow with a holding company while I am committed to the full time practice of law), and I recently represented myself in the sale of my condo and the purchase of a home for my family. In my experience, the money that I saved made the extra work well worth the effort.
But with all the legal work and other issues involved in the sale of a home, how do you make sure that you are saving money and protecting yourself in the transaction? THE PRACTICAL THING TO DO is to talk to an attorney before you sign any paperwork.
The cost for the legal services will be thousands, or tens of thousands, less than the cost of using an agent, and you will make sure that your interests are protected. The price for legal services can vary significantly, but it should be easy to find an attorney who can provide a significant level of expertise at an hourly rate of $125 - $225 per hour. At those rates, 10 hours of service would cost a seller between $1,250 and $2,250 per hour, a savings of more than $12,000 using the example provided above!
It may be tempting to use "forms" from friends or associates as a substitute for consulting with an attorney, but remember that this is the largest transaction that you will probably ever be involved in and it is not a matter of "fill in the blanks." An attorney will give you the documents you need, and advise you as to the many requirements that you may not have even considered. As an illustration, most preprinted purchase agreements will not help a seller in Michigan comply with the Sellers Disclosure Act, the Lead Based Paint Disclosure Act, or help the seller with questions relating to title insurance, financing or inspection contingencies.
The right attorney can answer your questions, prepare or review the required paperwork, and guide you through every step of the process. Just as importantly, with their knowledge of other professionals in the industry, they will be happy to refer you to the individuals or companies that you may need along the way, such as mortgage brokers, inspectors, and title agencies. So go ahead and take advantage of the chance to save tens of thousands by selling your house by owner – just make sure to do the practical thing and talk to an attorney first.
When deciding whether to work with an agent, sell by owner, or by owner with an attorney, there are many important considerations, including costs, savings, and the level of your comfort in handling the responsibilities and risks involved in the transaction.
In the United States, 6% is considered a "standard" residential real estate commission, and it is typically split 50/50 between the listing agent and the buyer's agent. To put that into numbers, on the sale of a $250,000 home, the standard commission would be $15,000 paid by the seller at closing. Clearly, there are significant savings to be had by avoiding the need to pay a 6% commission. There are also significant risks.
If you are willing to do the work required to represent yourself as a buyer or seller, you can save a lot of money. I know, because not only am I an attorney, I am also a licensed residential real estate salesperson in Michigan (although I have chosen to have my license held in escrow with a holding company while I am committed to the full time practice of law), and I recently represented myself in the sale of my condo and the purchase of a home for my family. In my experience, the money that I saved made the extra work well worth the effort.
But with all the legal work and other issues involved in the sale of a home, how do you make sure that you are saving money and protecting yourself in the transaction? THE PRACTICAL THING TO DO is to talk to an attorney before you sign any paperwork.
The cost for the legal services will be thousands, or tens of thousands, less than the cost of using an agent, and you will make sure that your interests are protected. The price for legal services can vary significantly, but it should be easy to find an attorney who can provide a significant level of expertise at an hourly rate of $125 - $225 per hour. At those rates, 10 hours of service would cost a seller between $1,250 and $2,250 per hour, a savings of more than $12,000 using the example provided above!
It may be tempting to use "forms" from friends or associates as a substitute for consulting with an attorney, but remember that this is the largest transaction that you will probably ever be involved in and it is not a matter of "fill in the blanks." An attorney will give you the documents you need, and advise you as to the many requirements that you may not have even considered. As an illustration, most preprinted purchase agreements will not help a seller in Michigan comply with the Sellers Disclosure Act, the Lead Based Paint Disclosure Act, or help the seller with questions relating to title insurance, financing or inspection contingencies.
The right attorney can answer your questions, prepare or review the required paperwork, and guide you through every step of the process. Just as importantly, with their knowledge of other professionals in the industry, they will be happy to refer you to the individuals or companies that you may need along the way, such as mortgage brokers, inspectors, and title agencies. So go ahead and take advantage of the chance to save tens of thousands by selling your house by owner – just make sure to do the practical thing and talk to an attorney first.
Monday, May 22, 2006
Practical Law - Where It All Begins
Welcome! You have found the place on the web where legal issues will be discussed and presented in a simple, practical manner. I look forward to your questions and comments. Be sure that if you have a question, there are many others who share your concern, so please share your thoughts.
I hope that through the use and growth of this blog that individuals, families, consumers, professionals and businesses will have a better understanding of the law, and with that understanding a better ability to put the law to their advantage.
I hope that through the use and growth of this blog that individuals, families, consumers, professionals and businesses will have a better understanding of the law, and with that understanding a better ability to put the law to their advantage.
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