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Q&A: First Time Buyer; Paying Off Mortgage

By Ashley Thiesen Caldwell | August 2, 2009

It looks like the real-estate market is beginning to repair its foundation. Here are answers to some question, courtesy of the Associated Press.

Q: What’s the best way to find out about first-time homebuyer programs that offer financial assistance?

A: A good place to start is the Web site of the U.S. Department of Housing and Urban Development.

It has a variety of useful information for homeowners as well as a link by states of its housing-counseling agencies that can provide advice on purchasing a home and brief you on homebuyer programs.

But move fairly quickly if you want to take advantage of the federal break for first-time homebuyers.

Under that program, included in the economic-stimulus plan, those who haven’t owned a home for at least three years are eligible for a tax credit of 10 percent of the value of the home, up to $8,000, if they purchase a home by Dec. 1.

Besides the federal tax credit, a number of state housing-finance agencies offer related or additional programs.

Washington was among the first states to offer bridge loans of the $8,000 tax credit for a down payment.

The list has been growing. Check the Web site of the National Council of State Housing Agencies.

Numerous local government and nonprofit programs also may be available. The National Association of Realtors advises checking with a Realtor to learn about available resources in a given area.

— Dave Carpenter

Q: When does it make sense to pay off a mortgage, rather than continuing to make monthly payments?

A: The first consideration is whether you truly have enough to pay off your mortgage.

Try to anticipate scenarios where you might want that cash, such as for college, a new car or other big purchases.

Beyond that, evaluate it like any other investment decision. How would you put the money to work if you didn’t pay off your mortgage? Would that alternative reap a greater return?

One advantage of paying off your mortgage is that you know exactly how much you’ll be saving — the interest rate on the loan after taxes.

Investing in the stock market could very well be more lucrative but it doesn’t come with any guarantees. Your earnings would depend in large part on how long you invest the money and the market conditions in that period.

“That’s why it’s not a slam dunk. It depends on the economic situation,” said Steven Weinstein, president and chief investment officer for Altair Advisers, an investment consultant in Chicago.

If you have a 30-year mortgage at a fixed interest rate of 5 percent, for instance, you’d be saving 5 percent on the money by paying it off.

Based on historical trends, you would likely earn more than that by investing in the stock market over 30 years.

But the prospects get dicier over shorter time spans.

— Candice Choi

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