Why Escrows Can Increase in Fixed-Rate Mortgages

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Explaining Increasing Escrow: With 2016 just around the corner, many families are looking at their budgets for next year and wondering how the mortgage payment will fit into their finances. Did your mortgage payment increase even though you have a fixed-rate mortgage? That’s because of an increased escrow payment. With any mortgage, there are two reasons why your escrow could increase:

 

  1. Regular Yearly Increase

Your monthly mortgage payment includes more than just the principal and interest on your loan.  It also includes money that goes into an escrow account that pays your property taxes and homeowners insurance.  It is completely normal for your mortgage payment to go up a little bit every year as property taxes increase.  Some of the increase that you’re  seeing on your  2016 mortgage payments is simply your mortgage company anticipating that your taxes will rise, and trying to adjust your payment to make sure that your escrow account will have the funds to pay the taxes.

 

  1. Increase Due to Escrow Shortage

The reason why our payments are going up more than we are used to is because the mortgage companies underestimated the amount that our property taxes would increase in 2015.  Because the mortgage companies underestimated, the escrow payments that we made during this past year were not enough to pay all of our 2015 property taxes.  This is called an “escrow shortage.”

For the sake of explanation, let’s say that you paid $3,000 a year in property taxes in 2014, and that you’re mortgage company assumed that you’d pay $3,400 in 2015.  This would increase your mortgage payment by $33.33 a month in 2015.  But what if you mortgage company underestimated the amount that you had to pay?   Let’s say that you actually had to pay $3,900 in 2015, so you actually should have been paying $75 a month more.  Now that 2015 is over, you’ve underpaid $41.67 per month for 12 months, leaving your escrow account $500 short.

Obviously, you still need to pay this money.  Your mortgage company with give you the option to pay it all as one lump sum, or to spread the amount over your 12 payments in 2016, causing your mortgage payments for 2016 to rise $41.67 in addition to whatever the regularly yearly rise will be.

 

What Can You Do?

The combination of making up the shortage and adding in the estimated increase for 2016 could potentially add up to quite a bit of money for some homeowners.  It’s important that you know that Avesta’s HomeOwnership Center can help you figure out how to make ends meet with your increased housing costs.

We can help you come up with a plan to get through the next year of higher payments.  We also know about money saving  tips, like the Homestead Exemption and energy saving ideas that can help decrease your monthly costs.

Adams School Condos become new home for Boston Marathon bombing survivor

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Sitting on the couch in her new living room at the Adams School Condominiums, Karen McWatters talks about the blue and green rug underfoot – her first purchase for her new home. She built the room around its ocean-like hues, adding green pillows and sea-glass colored vases and candle holders. The whale décor scattered around the condo is a coincidence, she says – her new husband, Kevin, is a fan of the Hartford Whalers ice hockey team, as evidenced by the two ball caps that have prominent (if begrudging, on her part) placement on the console table.

She explains that her recovery has hit a bump, and she needs another surgery to walk comfortably on her prosthetic leg. She faces weeks of post-surgery recovery in a wheelchair. She’s all the more thankful now for her new home, which is fully handicap-accessible.

No matter their provenance, the nautical touches seem right at home in the Munjoy Hill condo, where bay windows afford a glimpse of the ocean. Karen closed on the condo last August, and she’s looking forward to walking down to the ocean this summer. Even though it’s a short walk, completing it would be a milestone for her since she lost her left leg in the 2013 Boston Marathon bombing.

“I wanted to just have my life now,” she says. “It’s like, I know I have this place, and I’m all set. I don’t have to worry, and it’s a huge thing not to have to worry. I can just do what I’ve got to do to get better.”

Searching for a new home

Before the bombing, Karen (whose last name was Rand at the time) and Kevin were living in Massachusetts but looking for a summer home in Old Orchard Beach where they could stay while visiting family. But after the bombing, they realized they needed a year-round home that was handicap accessible.

But it was hard to find that kind of place in Old Orchard Beach, and the search took them further and further away from the center of town. “I’d feel like a prisoner stuck in my house, I couldn’t go anywhere,” she said. Karen and Kevin ultimately decided they needed to look elsewhere.

Their search led them to Portland, where “it was a challenge to find an affordable place, and also handicap-accessible.” When the Adams School Condominiums came on the market, her realtor showed her the listing and urged her to look at it before it sold. Kevin convinced her to drive by just to see it on a Friday afternoon: “He said, ‘Let’s go,’ we pulled into the lot and didn’t even get out of the car. I called my realtor and said, ‘Put in an offer,’” Karen recalls.

Karen and Kevin at the closing of their condo

“From the day I walked through the front door I haven’t regretted it,” she says. “I’m so grateful and so happy to be able to come here and just recuperate – it’s exactly what I needed.”

From her condo, Karen can easily get herself to local shops and restaurants, like Hilltop Coffee, Rosemont Market and The Front Room. And she’s grateful for the new support system she’s found in her neighbors. “They all watch out for me, they know my story. It’s like its own little community.”

The 16 townhouse-style Adams School Condos sit at the corner of Moody, Wilson and Vesper streets in Portland’s desirable Munjoy Hill neighborhood, where rising property values have become increasingly unaffordable to many. Priced below market rate for similar properties and available only to buyers making no more than 120% of the area median income, the Adams School Condos provide homeownership opportunities on the Hill that are affordable to people like Karen.

Moving forward

A Westbrook native, Karen previously spent a couple years living on Munjoy Hill, not far from her new place, while working for Standish Telephone. She went on to become an executive assistance for a chef in Massachusetts, a job she loved. She loved living in Cambridge and “became a city girl,” she says, selling her car and walking everywhere.

On Patriots’ Day 2013, she was at the Boston Marathon cheering on her then-boyfriend Kevin when the bombing happened. It cost her more than her leg. Her best friend, Krystle, did not survive.

“To have everything change in a minute was really a shock,” she says.

She doesn’t like to talk about the bombing or losing her friend. Rather, she likes to focus on moving forward and turning the experience into something positive, like helping others who face similar challenges.

A chance conversation in a furniture store last fall led Karen and her husband to learn about Estefania, a 13-year-old girl from El Salvador who lost one leg and was in danger of losing the other after she was hit by a drag-racer. Karen and Kevin arranged for her to receive free surgeries at Shriners Children’s Hospital in Boston, as well as a donated prosthetic leg from Next Step Bionics, which provided Karen with her prosthetic. The couple also raised $15,000 to pay for airfare and living expenses to allow Estefania and her mother to come to Boston for her treatment.

Since Estefania arrived in February, Karen has visited her many times and was there when she took her first steps on her new prosthetic. Also there was ESPN, which profiled Karen and her work with Estefania one year after the bombing.

Although they don’t share a common language, the bond between Karen and Estefania is obvious. Karen flips through photos she’s taken of the teenager and grins. “I just think she’s adorable.”

Speaking Spanish, Estefania told ESPN, “It makes me happy because we have gone through the same thing. And I love that she is always smiling. I am so grateful to her. I love her, and she is my angel.”

Karen plans to continue working with Shriners Hospital to find other children like Estefania in need of medical care, and she’s also volunteered her time with the Red Cross to promote blood drives and fundraisers. The work has helped Karen stay busy and positive during times when she’s struggled in her recovery.

And, despite it all, Karen is remarkably positive. She’s glad to be back in Maine and close to her mother, friends, siblings and one of her two adult sons. She’s happy to be a newlywed, having married Kevin in March at Cambridge City Hall. And she’s looking forward to the day when she can once again walk to the Old Port, or even get back on her bicycle.

“It’s strange how your life changes,” she says. “In spite of the bad thing that happened to me, I’m happy. I’m married, I’m in a new place I love. I can’t complain about anything, that’s for sure.”

By Mindy Woerter, Communications Manager

Protecting yourself from deceptive debt collection practices

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Nearly 15% of all Americans show at least one item in collection on their credit report, and the average amount of debt in collection is $1,400. Debt collection is a $12.2 billion industry in the United States. Banks and other creditors may collect their own debt, and they can also sell off debt to third parties, which can also choose to collect the debt or sell it off. As a result, it is not surprising that debt collectors sometimes engage in practices that intimidate and harm consumers.

Many debt collection companies play by the rules and treat consumers fairly, but those that don’t can wreak havoc on your finances. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, all covered persons or service providers are legally required to refrain from committing unfair, deceptive or abusive acts or practices. Any entity that is not the original creditor is subject to the Fair Debt Collection Practices Act and is also legally required to refrain from committing unfair, deceptive or abusive acts or practices in the attempted collection of a consumer debt.

But what kinds of debt-collection practices should you be wary of? The following practices are typically deemed to be illegal.

  •   Threatening action the debt collector does not have the authority to pursue. Debt collectors and creditors should not make false threats of lawsuits, arrest, prosecution or imprisonment for non-payment of debt.
  •   Misrepresenting the nature, amount or legal status of the debt. Debt collectors and creditors must not falsely represent who owns the debt, the amount of debt that is owed or the debt’s legal status.
  •   Misrepresenting that a consumer’s debt would be waived or forgiven. Debt collectors and creditors should not misrepresent that a debt would be waived or forgiven if a consumer accepted a settlement offer when the company is not, in fact, forgiving or waiving the debt.
  •   Failing to properly post payments or credit to a consumer’s account with payments. Debt collectors and creditors should not fail to properly post payments or credit to a consumer’s account and then charge late fees to that customer if the customer paid on time.

It is important to point out that debt collection companies must also be careful about making statements regarding the impact of paying a debt on a consumer’s credit score, credit report or creditworthiness. Often times these statements — like telling consumers that paying a debt would improve their credit score — may be deceptive.

The Consumer Financial Protection Bureau has published a consumer bulletin regarding unfair, deceptive and abusive practices, which you can read here.

The CFPB has also published a second bulletin regarding debt collectors discussing consumers’ credit, which you can read here.

Other tips for communication with debt collectors

The CFPB has also published five action letters that consumers can consider using when corresponding with debt collectors. These letter templates are available for download from the CFPB at http://www.consumerfinance.gov/blog/debtcollection/. These letters may help consumers get valuable information about claims being made against them or protect themselves from inappropriate or unwanted collection activities. The letters address the following situations:

Needs more information on the debt: This letter is for consumers who need more information about a debt the collector has told them that they owe. The letter states the consumer is disputing the charges until the debt collector answers specific questions about what is owed. This letter may be useful, for example, for a consumer who may not immediately recognize the debt as their own.

Wants to dispute the debt and for the debt collector to prove responsibility or stop communication: This letter tells the collector the consumer is disputing the debt and instructs the debt collector to stop contacting the consumer until they provide evidence that the consumer is responsible for that debt. For example, consumers who do not want to discuss the debt until they have additional information verifying the debt might use this template.

Wants to restrict how and when a debt collector can contact them: The Fair Debt Collection Practices Act prohibits debt collectors from contacting a consumer about a debt at a time or place they should know is inconvenient. With this letter, the consumer is able to tell the debt collector how they would like to be contacted. This may be a useful option for a consumer who wants to work with a collector to resolve their debt.

Has hired a lawyer: If a consumer has hired a lawyer, the debt collector should be contacting the lawyer instead of the consumer. This letter provides a way for the consumer to give the debt collector the lawyer’s information and instruct the collector to contact only the lawyer.

Wants the debt collector to stop any and all contact: Consumers have the right to tell a debt collector to stop all communication. It is important to note that stopping contact from a debt collector does not cancel the debt or prohibit the collector from potentially pursuing other remedies, such as filing a lawsuit. This letter could be beneficial for consumers who feel they are being harassed by a collector’s communications.

Consumers can submit a complaint to the State of Maine Bureau of Consumer Credit Protection or the CFPB against any company collecting a consumer debt from them. You can submit a complaint at www.credit.maine.gov (BCCP) or www.consumerfinance.gov/Complaint (CFPB), or call their toll-free phone number at 800-332-8529 (BCCP) or 855-411-2372 (CFPB).

David Stolt

By David Stolt, Home Ownership Services Manager

Spring home maintenance tasks to protect your investment

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Spring seems to finally be upon us. This warmer weather may have you dreaming of relaxing outside with a glass of lemonade, but if you’re a homeowner, spring means it’s time for some home maintenance work. Maintenance performed regularly can help maximize the lifespan of your home and its systems and prevent expensive problems and repairs.

Here’s a checklist of tasks you should tackle to keep your home safe and efficient.

Outside

  •    Inspect your gutters. The April showers probably alerted you to any leaks or blockages. Make sure gutters are clear of leaves and debris, and that downspouts are also clear and drain away from your foundation.
  •    Check your roof. From the ground, inspect your roof for any missing, loose or curling shingles, or nails that have popped up. If you spot any problems, contact a professional roofer.
  •    Repair cracks in concrete or asphalt. Winter can be harsh on driveways and walkways, so repair any cracks you find before they get worse and become a hazard. Spring is also a good time to seal your driveway to help extend its life.
  •    If you have a deck, give it a once-over. Decks can also be damaged due to heavy snows like those we had this winter. Check for split or decaying wood, and make sure railings and banisters are secure. If you can take a screwdriver and easily penetrate a board 1/4-1/2 of an inch, break off a sliver without splinters, or if the wood feels soft and spongy, it may be decaying and need replacing. Read more tips for deck maintenance here.
  •    Check doors, windows and trim for finish failure, broken glass and damaged screens. Be sure to check the caulking at doors, windows and all other openings as well as joints between different materials (e.g., wood and masonry).
  •    Check your lawn mower. Make sure your lawn mower starts, change the oil and see if the blades need to be sharpened. You may also want to do a tune-up or hire a professional to do it.

Inside

  •    Check your doors and windows. Check around doors and windows to make sure there are no water leaks or damage. Fill gaps between doors/windows and trim with caulk, install weather stripping or make sure the existing weather stripping has a tight seal. This will help keep the cool air in over the summer if you decide to run an air conditioner.
  •    Inspect your attic and basement. In the attic, make sure there are no signs of pests or animals living there, and look around for signs of roof leaks or water damage. Check your basement for water leaks and ensure your sump pump, if you have one, is working.
  •    If you didn’t change the batteries in your smoke detectors and carbon monoxide detectors on Daylight Savings Time, then do so now.
  •    Do some spring cleaning. Spring isn’t just a great time to wash your windows. You should also make a habit of checking your washing machine fill hose to make sure it’s not cracked, cleaning your dryer vent of lint, and clean your refrigerator coils to help it run more efficiently.

Your home is a big investment, and regular maintenance protects that investment and helps prevent damage down the road that could cost you money. And once these tasks are done, the lemonade will taste that much sweeter.

By David Stolt, Home Ownership Services Manager

What people are saying about the value of our Homebuyer Education Courses

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“I didn’t realize all that was involved with the home buying process, but that has changed by taking this class.”

“More helpful than other homebuyer classes I’ve taken.”

“The best $15 I ever spent.”

We love getting this feedback on the evaluations of our Homebuyer Education Courses. It means we’re succeeding in making sure people enter into homeownership with all the knowledge they need to be successful and to sustain their investment for the long-term. (And yes, our classes are just $15.)

A recent study by NeighborWorks (of which Avesta Housing is a chartered member) found that buyers who go through a pre-purchase counseling program are one-third less likely to fall behind on their mortgage in the first two years of homeownership.

Bri and her fiancé, Chris, recently took the class and used what they learned to buy their first home in Gorham. Here’s what Bri had to say about her experience.

How did you hear about the Homebuyer Education Class?

We got a housing loan through USDA Rural Development and it was a requirement to take this class to get our home mortgage loan. We’re glad it was. 🙂

What did you learn at the class that was the most useful or interesting?

Information on credit and how much it affects the home buying process, and in general a detailed review of all the steps of purchasing a home — there is so much information that we weren’t aware of. Also, learning about programs/loans that assist with home maintenance/making homes more energy efficient.

What did you learn that helped you when you were buying your home?

We were already in the process of purchasing a home when we took this class, so probably just to make sure our credit remained stable, what to look for during inspection, and what’s involved in the closing process.

Would you recommend the class to others?

Definitely! It was interactive and very applicable. David was a great presenter and used a lot of real life examples, which was helpful.

 

Are you looking to buy a home, or just wondering if homeownership makes sense for you? Our next class starts May 13. Click here to register.

By Mindy Woerter, Communications Manager

Why you need to shop around for a mortgage

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Interest rates are at a record low, but many borrowers are still reluctant to shop for the best mortgage loan – a decision that could cost them money.

Looking at data from the November 2012 National Housing Survey, Fannie Mae researchers found that close to half of lower-income mortgage borrowers said they did not obtain more than one quote when signing up for their current mortgage.

Comparatively, three out of four higher-income respondents explored competitive offers and said better deals would definitely have an influence on their decisions.

“Although a home purchase is the largest financial obligation most people will ever make, many borrowers do not fully understand their mortgage products and costs,” said Fannie Mae chief economist Doug Duncan. “As a result, some homeowners in this position may find themselves with unsustainable payments down the road.”

Fannie Mae reported that failing to shop around for a mortgage can end up costing borrowers $1,000 or more in closing costs.

As a housing counselor, it’s my job to educate people on the importance of comparative shopping. I encourage clients to attend first-time homebuyers’ workshops as well as one-on-one pre-purchase and post-purchase counseling.

Education is the best way to avoid paying too much for a mortgage. Want to know more? Get in touch with me.

By David Stolt, Home Ownership Services Manager

How to get the most out of your tax refund

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A recent survey by TD Ameritrade finds nearly half of people expecting a tax refund said they plan to save the money, while 44% intend to pay debt. However, researchers found people tend to spend more of their refund than they anticipate, which means they don’t save as much as they want to, or don’t pay off as much debt as they need to.

Here are some smart ways to use your tax refund to boost your financial health.

Pay off high-interest rate debt, like credit cards

The average credit card interest rate is 15%, and for those with bad credit, it’s close to 24%. The average American household carries $15,000 in credit card debt. Pay down your credit card debt now to save yourself money in interest payments in the future.

Establish or rebuild your emergency fund

It is recommended that you have at least three to six months’ worth of living expenses in savings should you lose your job, get sick or face another challenge that makes it hard or impossible for you to work. Use your tax refund as a starter for this emergency savings fund or to rebuild your emergency fund if it has been depleted.

Set up an Individual Development Account

Individual Development Accounts (IDAs) are matched savings accounts designed to help people with limited income and wealth to save money to buy a home, start a business or get more education. The program provides a match to the funds deposited by the individual. It’s a great idea to use your tax return to start an IDA and start building your assets.

Community Financial Literacy partners with CEI to provide IDAs for immigrants and refugees. CEI also provides IDAs for non-immigrants. Contact CEI or CFL to learn more. A number of organizations in Maine also provide a similar account called Family Development Accounts.

Save for retirement and get a tax credit in return

Have you heard of the “saver’s tax credit”? It’s a federal tax credit that’s available to low- and moderate-income people who make contributions to a 401(k) plan or IRA. The size of the tax credit you are eligible for depends on your income level and how you file your taxes (see the table below).

The credit is applied to contributions of up to $2,000 per person, and the maximum credit amount is $1,000 for individuals and $2,000 for married couples. So, a single filer who makes $25,000 and contributes $2,000 to a 401(k) or IRA will receive a $1,000 tax credit. In addition, the $2,000 contribution will reduce the filer’s tax liability, which saves even more. Deposit your tax refund into a retirement savings plan this year and you will have a tax credit to look forward to next year.

Your employer might also provide a match funds for 401(k) contributions, which is another reason to start saving for retirement today.

Income Range
Credit Single Filers Head of Household Married Filing Jointly
50% of contribution $0-$17,750 $0-$26,625 $0-$35,500
20% of contribution $17,751-$19,250 $26,626-$28,875 $35,501-$38,500
10% of contribution $19,251-$29,500 $28,876-$44,250 $38,501-$59,000
No credit available Above $29,500 Above $44,250 Above $59,000

Invest in your home, or save for one

If you own a home, consider using your tax refund to make improvements which may increase your home’s value. A good place to start is to fix any structural issues (like a leaky roof) or mechanical systems. Energy-efficiency upgrades, like replacing leaky windows or adding insulation, not only improve your home’s value but save money in energy costs. You can also pay down the principal balance of your mortgage, which will reduce the amount of interest you will pay over the life of the loan.

If you don’t own a home and are thinking about buying one, use your refund to begin saving for a down payment. Do you have questions about whether home buying is for you, or do you want to learn more about the process? Sign up for one of our homebuyer education classes.

It may seem like a tax refund is free money begging to be spent on a splurge, but if you use your refund wisely, you’ll set yourself up for future financial success.

By David Stolt, Home Ownership Services Manager