Real Estate Market

Getting the most house for the least amount of money

Your objective should be to minimize your total net costs over the 1-2 years you have the mortgage. Gross costs include points and settlement costs, which are paid upfront, monthly payments during the period, and interest lost on both upfront costs and monthly payments. Cost offsets that are deducted from the total consist of tax savings and reduction in the loan balance.

Whether or not the mortgage is an IO hardly affects total net costs. The payment is lower with the IO, but balance reduction, which is a cost offset, is eliminated.

To minimize total net cost over a short period, focus on finding the best combination of interest rate and rebate. A rebate is negative points, where the lender pays you for a higher rate instead of you paying the lender for a lower rate. A rebate will reduce or perhaps eliminate your upfront cost. When your time horizon is very short, paying a higher interest rate in exchange for a rebate is a good deal because you won't be paying the rate very long.

Time-shares became popular in Europe in the 1960's when escalating property prices made it nearly impossible for most people to afford a full-time vacation home. By creating a shared ownership, developers were able to reduce the costs for each owner, allowing them to successfully market and sell properties to a greater number of clients.