Wednesday , October 22 2014
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Cash versus Mortgage

Marv Needles

We have all heard the phrse, “cash talks”. If you haven’t apparently you were born, raised, and are now living in a cave; because of that your eyes will never view this article.  So, for those of you living outside the cave, you may find this column interesting, helpful, cute or of no value – and you wasted your time.

If you’re considering the purchase of an automobile, appliance or other item considered chattel (property other than real estate), cash may speak loudly and clearly. Consider offerings on Craig’s List, e-Bay and some others. Have you ever been to a garage sale or a flea market? The seller won’t let you get away until he (or she) has your money. Cash does speak and with authority, and especially if it’s a quick transfer of funds. As you may know, in many such transactions, time is more important than dollar amount.

What I find interesting is that many merchants don’t encourage cash. They would rather take a credit card because it’s safe and the funds are “in the bank” immediately. The down side is that they lose, because of fees, two to  four percent, depending on their volume and rating. While this small fee is not significant for a single transaction, when one looks at the year-end we’re talking some serious dollars (euros, pounds pesos).

On the other hand, if we didn’t have the opportunity to use credit cards we wouldn’t be able to build points that go away in a year, before we can use them. If you don’t think that happens, wait until you’re ready to cash them in. To be honest, they don’t all go away annually; some take longer and some are there until your last breath. Considering today’s economic climate and that of some major corporations, I’m cashing mine in.

Enough about something I know nothing about. Let’s talk “real property”; that’s non-chattel or real estate.

While cash does talk, it is not as important as quick action. A few years ago I was looking for a condo for my mother (she would be happy that I mentioned her). When I found one that I thought she would like, I discovered that an offer had been submitted previous to my inquiry. Since I decided that the property was just the one to make her happy in her later years, I decided to offer full price, cash, and closing in 10 days (that’s how long it took for condo approval). I later discovered that the other offer was for the same amount but had a mortgage contingency and called for a 60 day closing. More to my point, I later discovered that the mortgage contingency was not the issue for the seller, but it was the quick closing date.

Now we know that cash and a quick deed transfer may be an issue for a seller, what about you, the buyer? What is best for you: a cash purchase or a mortgage? If you have the ability (not everyone does), buy for cash with a quick closing; then obtain long term financing. If it’s your intention to own the property for five years or more, get a 15 or 30-year mortgage. If you think you’re savvy enough to guess the marketplace and expect a quick re-sale (flip), opt for a three or five- year ARM. That’s an Adjustable Rate Mortgage. The rate is fixed for three or five years, at a very desirable rate, and it gets adjusted after the initial term. But before you make that move, consider that some of today’s foreclosures are because of ARMs being adjusted by several points. So unless your crystal ball is batting 1,000, I suggest the 15 or 30-year fixed rate mortgage.

Now, for my last bit of psychic wisdom: mortgage rates are at the lowest I’ve witnessed in my 40 years in the real estate profession, and they’re not expected to stay low. In case you missed the nightly news, the United States of America has the biggest deficit ever, and if we can depend on the lessons taught by history, interest rates will be on the increase soon. “When is soon?” you ask. Again, I’ll refer to my crystal ball which remains a bit cloudy, but it’s trying to tell me that with what’s happening worldwide, interest rate increases are in the foreseeable future.

My final advice: If you’re considering the purchase of your dream home, vacation home, or a long-term investment, BUY NOW. When interest rates go up, nearly all commodities increase in price and that includes real estate. It’s called inflation and we don’t need a crystal ball or fortune teller to tell us prices will be on the increase. If you buy before prices begin the increase (now seems to be the right time) and get long-term low rate financing, I predict that in the near future you will be a happy camper.

Marv Needles is the broker/owner of ERA Flagship Real Estate which he founded in 1973. He has been a full time resident of Marco Island for over 40 years.


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