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Welcome back to Go Gaddis Radio Show. I love that. Now, you did leave out the real estate portion, but I love that you, that's the first time anybody else has said, welcome back to Go Gaddis Real Estate Radio. In this segment of the show are adjustable rate mortgages, really more expensive in some cases than fixed rate mortgages.
And since the masters just came and. While the azaleas were blooming. Mm-hmm. Now it's time to discuss the Augusta rule. Something that could save you if you're listening to the show, Texas. Hmm. Could save you money on your taxes. Remember, if you want to connect with us, it is easy. Go to go gaddes radio.com, G O G A D D I S radio.com.
You can ask questions, you can make comments, you can push back. You can share idea. You can request your neighborhood be featured in our neighborhood Spotlight and you can subscribe to our podcast and you can do it all right there@gogadiradio.com. Tammy, you know that I am looking to buy a new home. Yes.
I'm looking to sell my existing home and buy a new home. And in the last week, you and I mm-hmm. Spent a couple of full days mm-hmm. Out looking for homes and town. In metro Atlanta. Yes. Now I don't plan to be in this next home any more than two or three years, maybe even less. And so the thought of having an adjustable rate mortgage is very appealing to me.
Yeah. But as I look to see what the interest rate was on each of the adjustable rate mortgage options, I was surprised that in all cases for me here in metro Atlanta, the adjustable rate. Higher than the fixed rate. Now, you did some research uhhuh in Dallas Uhhuh, and it didn't turn out to be the same, but there wasn't a huge spread between the two, or maybe, maybe there was, I mean, there was a good, good coin Yeah.
In your area. So first of all, let's, let's discuss what an adjustable rate mortgage is. All right. So we know that when you, you get a mortgage, or most people know that you can have the payment amortized over 30 years or amortized over 15 years, or in some cases amortized over 10. And a fixed rate mortgage means the interest rate is fixed for the entire term.
So if you get a 30 year mortgage, it means your interest rate cannot change over the 30 years. Right? An adjustable rate mortgage should be a way to save a little money cuz you're ex, you're taking a little risk. Fixes the rate for three years, five years, seven years, or 10 years. Some lenders don't offer a three year option, right?
But 3, 5, 7, and 10. And so the rate has an, it has an introductory rate for those 3, 5, 7, or 10 years, and the rate stays fixed for the 3 57 or 10, and then, That initial fixed rate period, then it turns into an adjustable rate mortgage, meaning the rate will go up and down based on some index, whatever index that is specified in the mortgage.
So if interest rates go up a point, your mortgage goes up a point. If interest rates go down a point. Your mortgage interest rate goes down a point now, and I believe that's every six months. Right? So it, it doesn't adjust monthly. It, it will adjust and stay that way for six months and readjust. Yeah. I, so I think it's, it, it, it's probably, uh, more common for it to be one year adjust every single year.
Okay. And so what, what they will typically do, Tammy, is they will say that the rate can adjust no more than X percent in a. So it can't go up any more than one or 2% in a year. Right. And then it'll also give a maximum that it can go up. So it'll say over the life of the loan, it can't go up any more than 5, 6, 7.
I'm just making the numbers up. Okay. I don't know what they are, but you know, there could be some, there could be some adjustable rate mortgages that adjust every day. I mean, I know some people who have home equity lines of credit and they're using it for their mortgage and they pay whatever the going rate is for the date.
A little scary for me. Yes. I wouldn't like to do that, but these adjustable rates, I think they. Fixed for a year. Okay. I could be wrong. Okay. Six months might be the number. Six months might be the number. So I decided that as I move forward buying a house that I would like to get an adjustable rate mortgage.
I'd like to get an arm and really, I would've liked to get gotten a three year arm, but the quote I received on a 30 year fix was, let's just say six and a quarter. And the quote I received on a three year arm, which I don't think there was a three, but maybe it was a five, and I apologize for not. Was like almost a point higher than that.
I was absolutely floored when I saw that and I didn't understand how that could even be possible. Now you immediately started doing some research in Dallas, and what did you find in Dallas when you researched the same topic? Um, pretty much the opposite. So, um, it was a point. Than this, the standard 30 year mortgage.
So, so comparing it with the 30, if a fixed 30 in, in Dallas was six and a quarter, which is probably about right, then you were more like five and a quarter, right? Or 5.375. Yeah. So there was a substantial savings. Mm-hmm. And when you think about it, one point in interest can be a big deal. Let's say you have a $400,000 mortgage.
That's gonna be an additional, almost $4,000 a year in interest. Mm-hmm. So getting a point reduction on a 400,000 or whatever the average mortgage is here in metro Atlanta, that would be a big, big deal. Yeah. So I've got to look into other lending options in metro Atlanta, cuz it could be that I spoke with a lender that doesn't have really good arm products and I need to speak with lenders who maybe have other options for arm products.
But my guess. The reason that in Atlanta, that the arm mortgage rates are higher than the fixed rates, is that lenders are uncertain about what might happen to interest rates, and so they're trying to hedge their bets. Hmm. They're trying to charge enough to make it all worthwhile for them. If you are a.
Here in Metro Atlanta or anywhere in you're listening to the show, I would love for you to go to go gaddis radio.com. I'd love for you to just click on the contact us button and give me your thoughts on why, what it is, what is it about the interest rate environment that would cause. The rates on arm mortgages, adjustable rate mortgages to be higher than the rate on the fixed mortgage, even though that's not the case in Dallas.
What would be something that would cause that? Because I bet there is, I bet there's something that could cause that in, in, in the financial market. Right, and, and I mean I'd be interested in it too, cuz why in two different geographies, although both big metropolitan areas. Mm-hmm. You know, And normally Atlanta's, uh, normally mortgages in Georgia are, are a little cheaper Right.
Than other places cuz our foreclosure laws are so generous, uh, with the, with the lenders. Mm-hmm. Meaning it's easy to foreclose on a property. It could be very well easy to foreclose in Texas as well. I don't know exactly how that works. Good discussion. Anything else Tammy, you wanna leave us with about armed mortgages?
I, they're worth considering, um, obviously not right now. Mm-hmm. Um, but they're worth considering when you think. How often people move. Yeah. So in a high interest rate market, when you can save money on an arm, if you can save money on the arm, I wanna find a way they're absolutely worth considering because people will move less than 10 years.
Yep, yep. Absolutely. Okay. The masters just came to Georgia. Do you remember who the winner was this year? Tammy? John Rom from Spain. Congratulations to John Rom. I think I'm pronouncing that correctly. I didn't watch most of, much of the masters. I did see, uh, him winning and getting his green jacket was, which was very exciting.
But there was a rule created by the IRS that is called the Augusta Rule. Mm-hmm. And the Augusta Rule can save you money on your taxes. Would you mind explaining to the listeners how that might work for you and maybe for them? Sure. So the August rule allows a homeowner Yep. To rent their residence Yep.
To a business. Mm-hmm. For a daily rate up to 14 days a year. Okay. So, as a homeowner, I can rent my personal resident. To a business. Mm-hmm. Up to 14 days a year. That will generate income for me as the homeowner, and it also gives the business a tax write off. Okay. As a homeowner, that income, now I'm not a cpa, but that income as a homeowner is tax free, so it allows a homeowner to generate income that is tax free.
Still, you have to report it, but it is tax rate, tax free. For an individual or for a couple for a homeowner. Interesting. And you, you say, um, that you have to rent it to a business, but I think you can rent it to an individual really as well. Yes. And so I, what's interesting is you're moving into the second benefit, which is how.
Knowing the Augusta rule can help a business owner. Yes, but what it says, and I just looked it up, it says, homeowners can rent their house to individuals looking for vacation opportunities, or they can rent their house to a business owner who intends to use it for business purposes. They can get up to 14 days worth of interest and not pay tax on the 14 days.
So as an independent business owner, we've only got about a minute and 40 seconds left in the. But as an independent business owner, how could the Augusta rule benefit someone like you who owns a brokerage? Dallas, Texas. So as an ho, as a homeowner and as a business owner, I can rent my residence Yep. To my business.
Yep. For up to 14 days. Yep. And hold an event at my business, hold a conference, hold training that allows my business to have a, have a tax write off. And it allows me as an individual to have income that I don't pay taxes on. Wow. Up to $14,000 per year. And that would be, The money is fake. No, no, no.
There's no money limit on it. So it's based upon the going rate 14 in the community. Okay. Yeah. 14 days if it costs not 14,000. Yeah. Cuz it could cost a thousand dollars a day to rent a conference room space. Yeah. It could cost a thousand dollars a day to rent, you know, five hotel rooms if I'm putting up a company for that long.
So it's the going rate, the market rate of the space you're renting. Yep. And whatever that market rate says it is, that's what you would rent to your company. Now, keep good records of what you're doing in your business and in your home. Yeah. Not, not a limit. Not a limit I know of. So interesting. Uh, I just did a little additional research.
It says you don't pay income tax on the income, but you cannot deduct the expenses associated with it. And that makes sense. And it says, it was originally created to protect the residents of Augusta, Georgia, who had rent out their homes to attendees of the annual master's tournament. 14 days. The segment of the show is brought to you by the law firm of O'Kelly and so.
They're a full service law firm with firm with 26 offices throughout Metro Atlanta. They can be reached by calling 7 7 0 4 9 7 1 8 8 0. We gotta take a quick break when we come back, our home appraisers going away. And then what are the realities of trying to buy a home in today's market, especially for those first time home buyers?
Stick with us. We'll be back.