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GREETINGS FROM VERNA ACKER
REALTY EXECUTIVES Elite
414.534.7400
FOR YOUR INFORMATION:
Real Estate Information from Western Racine County; Waterford, WI 53185
Newsletter October 4, 2002

SHORT NEWSLETTER THIS TIME:

This is a short newsletter this time, but a topic that I think should be addressed. On several occasions I have found myself at someone's kitchen table discussing the probable sale of their home and find that they have mortgage for more than the home is worth. “How can this be?” is often the question. “But, I have an appraisal that says its worth more than that!” “I owe more than that!” “I'm going to lose my home if I can't sell it for at least what the appraisal is!”

This is an unhappy situation. And, how does it happen? Perhaps the homeowner had an emergency and really needed the money from somewhere and a 125% mortgage was the only way. I remember one family that mortgaged 125% because they wanted to buy a special horse. Sometimes it's only to pay off credit card bills or for a family trip.

Whatever the reason, the homeowner is now in an impossible situation. I often will see that some of the finance companies and on-line lenders, etc. will actually make the paperwork say any value so that the numbers in the file make the mortgage amount work.

From the real estate professional's viewpoint, a 125% mortgage should never be taken out unless the homeowner expects to be in that house long enough that the expected appreciation will cover the 25% over value plus the expected closing costs of a sale.

In this community - Western Racine County - we have been seeing about a 4% per year appreciation average (more for small homes/perhaps less for the high-end homes). Closing costs at a sale would cost an estimated 6% for the selling fee and a round-up estimate of 1% for incidentals. That means, 7 + 25 is 32. You would need to live in that house for 8 years to break even. Understand, this is an oversimplification and does not take into account the declining principal, the volatility of the real estate market or the appreciation rates for real estate sales.

THIS ARTICLE COMES FROM M& I BANK REGARDING 125% MORTGAGES:
125% Mortgages
What are the Risks?
Some lenders now advertise that they are willing to lend you 125% of the value of your property. These ads generally stress the perceived benefits of using the equity in your home to consolidate your bills, get a lower interest rate or increase your tax deductions. While these factors may be beneficial to you in certain situations, using a 125% home equity loan is generally never beneficial. Here's why:
A 125% home equity loan allows you to borrow 125% of the value of your home provided you can still afford the monthly payments. When you borrow more than your home is worth, you will not be able to sell your home and realize any profit from the sale. In fact, you would need to bring in money to your sale closing in order for your sale to close. In most cases your home represents the largest asset or investment you own. When you leverage or borrow all of that equity, it decreases your overall net worth.

The equity in your home is an asset that can be used to cover unexpected financial emergencies. When you borrow all of the value of that equity, you may not have any other financial resource to fall back on should a financial emergency occur.

125% home equity loans are riskier for the lender and as such they generally have a much higher interest rate than other types of home equity loans. Some 125% home equity loans may also have a prepayment penalty.

These are just some of the reasons why 125% home equity loans are risky for the homeowner. Talk to your trusted financial professionals at M&I Bank about your financial position and loan options before you consider using a 125% loan. We can help you make the best financial decision possible. The risks are too great to ignore.

You may wish to call Pam Lanting of M & I Bank, the Waterford office, if you have further questions: 262-534-7292.

BUYER NOTIFICATION SERVICE REVISITED
We heard from many of you regarding the Buyer Notification Service that we are implementing. Remember: we will no longer be listing the properties that have come on the market recently. To receive that information, you must send us an e-mail requesting the service and spelling out the criteria that interests you. Be sure to include some detail, areas, and price range. ALSO, tell us whether you want to be notified within hours of a new listing, weekly, monthly, quarterly… Simple reply to this message and give me your information. We are hearing some excellent feed back from people who are already a part of the service. We look forward to hearing from you.