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Posts Tagged ‘Mortgage’

Refinancing to save long term…

Monday, May 24th, 2010

Lots of people like to talk about refinancing your home to save money on your monthly payment, and it’s true that if you’re struggling to make your payment, this will help you in the short term, but what if you aren’t struggling to make your payment?  Should you refinance?  Well, if you’re on a 30 year fixed rate monthly payment, then yes, maybe you should.

Plugging in some numbers on Bankrate.com, a 30 year, 6% fixed rate mortgage on $150,000 runs about $899.33, whereas a 15 year 5% fixed rate mortgage (they will usually give a lower rate to a shorter term loan) on the same $150,000 is $1186.19.  Given this information, yes, it’s obvious that the 15 year mortgage is more money per month, even with a lower rate.   However, what I wanted to point out to you is that it’s a little less than $300 a month extra…to pay your mortgage off in HALF the time!  Not only will you be paying off your mortgage in half the time, but the total cost of that 30 year loan will be $323,757.28 versus $213,514.28 for the 15 year loan.  That means you save $110,243 over the life of the loan!  I bet you’d rather that money go toward retirement as opposed to lining the pockets of the bank!  I know I would!

So you say you can’t afford the extra $300 a month?  Well, what can you afford?  After making sure that you don’t have the type of mortgage that penalizes you for paying it off early, you should look into how much extra you can pay toward the principal per month (that doesn’t interfere with your retirement).  Every little bit helps, and you will save thousands more by paying it off early.  Another option, is that if you’re “Gung-Ho” about getting that 15 year mortgage, but can’t afford the payment on the loan amount, perhaps you should look at a less expensive property.  We all have to buy within our means.  This means that some people can afford a half a $500,000 house, and some can afford a $100,000 house.  You shouldn’t be upset or discouraged if you can’t afford the more expensive house…what you should be is excited when you pay off the house you can afford in only 15 years, and know that it is ALL YOURS!  I’d rather own a modest home then be drowning in debt in a nice home that I’ll never realistically own, and I bet most people would if they took the time to think on it.

So, my advice to you for saving on your mortgage is to consider spending a little more now on your monthly payment, as it will save you a bundle over the long run!

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Posted in Mucho Moolah, Monday's Money Saving Tips! | No Comments »

The dangerous reverse mortgage.

Friday, October 23rd, 2009

There’s a lot of talk these days about reverse mortgages, and whether or not they are a good idea.  While I think they are dangerous, I think the real danger is in people not knowing what they are and getting involved with these mortgages anyway.  It’s my opinion that you should never sign your name to anything that you do not completely understand (that is how people got into trouble with the sub prime mortgages), and therefore, you shouldn’t take out a mortgage (or other financial product) you don’t understand.

So, what is a reverse mortgage?  Well, you can read the full description here, but a simple explanation is that it is a loan for senior citizens, used to release (give back to the owner) the equity of the property as one lump sum or multiple payments over time. The home owner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (usually going to a long term care facility). 

Today’s article (CNN Money Blog post) is titled Reverse mortgages: Sub prime mess déjà vu?, by Carla Fried.  It looks at how a lot of retirees are taking out reverse mortgages, since they have insufficient nest eggs to carry them through retirement, and how a lot of people, Comptrollor of the Currency John Dugan included, think these financial products have some of the same characteristics as sub prime mortgages.  Considering the mess to which the sub prime mortgages contributed, that should definitely make us be wary of these products.

Some resources to check into, if you want to learn even more about reverse mortgages and their pitfalls, are as follows:

  • AARP.org – A section on this website is dedicated educating seniors on reverse mortgage basics, their alternatives and ways that the financial product might be abused.  Check out the web page here.
  • U.S. Department of Housing and Urban Development – An informative website put on by the government.  It’s not as suspicious of the reverse mortgage product as the AARP website, but it still speaks of the dangers of scam artists peddling information that they give away on their website for free!

I know that there are some people who think these products have their place, but I have to disagree.  As I have said, I’m fine with 15 yeaar fixed rate mortgages, but products like these, just seem to part people with their money.  Make your own choice, but don’t say I didn’t warn you.

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Posted in Friday's Financial News! | No Comments »

Friday’s Financial News…The decline in America’s wealth.

Friday, June 12th, 2009

Today’s financial topic is a little bleak, but unfortunately, it is something that we feel our readers should know about. Today we will be talking about the decline in Americans’ wealth. This post will be a little different than the previous posts as it will only be a brief summary. I encourage our readers to click on the link and read the full article.

Today’s article is Americans’ wealth drops $1.3 trillion By: By Tami Luhby

Brief summary: The wealth of Americans has been dwindling over the last 7 quarters, to amount to a hefty overall decline. Only only good news from the decline in our wealth is that the average American’s debt has also declined for the first time EVER. During the first quarter of ’09, $1.3 trillion of wealth disappeared from our wallets, and the stock market and home values are still declining according to a government report. Some things may be changing, but not quick enough. Luckily, at least some Americans have learned that debt is a bad thing. According to a source from Moody’s economy.com, “Consumers are cutting back on their borrowing to some extent, but the decline in value of assets is swamping that.” Household debt fell at an annual rate of 1.1% to $13.8 trillion for the first quarter of 2009, after falling off 2% in the fourth quarter of 2008. That was the first time household debt shrank…EVER. All I have to say is that it’s about time.

Alright, there is the brief summary. Now, it is up to you to click the link above and read the rest of the article. We’ve given you the tools, now go use them!

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Posted in Friday's Financial News! | No Comments »

Financial Tips for Buying a Home…

Wednesday, March 11th, 2009

I have to say, I do agree with what I am hearing on the news and talk radio these days…now is the time to buy a home! But, only if you’re ready. As a potential home buyer, you have to have your ducks in a row, and plan out what you want and how you want to achieve those goals!

A friend of mine, who also happens to be a Real Estate Agent, Nicole Maxwell, has a blog that I’m following, that she updates several times a week, all about the Real Estate Industry. From homes for sale and tips for cleaning to cool new things for your home and navigating pitfalls while home buying. If you like to keep up with Real Estate or are looking for a home right now, she can get you started…and she has also put together some tips for me that correspond to this post in a series of 10 basic steps you need to know/take for home ownership. Check out her blog at: http://maxwellsellsgtown.blogspot.com/

The Financial Tips:

Always have a down payment – When you take out a mortgage, the bigger your down payment, the lower your monthly payment and the shorter your finance time can be. We recommend having a 20% down payment and a 15 year mortgage (if you can afford such a short finance time). Another added bonus of a 20% down payment is that you avoid the cost of mortgage insurance!

NEVER finance more than you can afford – Banks will lend you more than you can afford. It’s just the nature of the game, the same as credit cards who give you more credit than you can easily pay off. As the buyer, you should know how much you should spend…DO NOT rely on the bank to tell you what you should spend…rely on YOURSELF or a trustworthy financial counselor. Typically you want to keep your monthly payment below 30% of your take home pay per month. 25% is better, but most people can do 30%. You should know the amount you can afford per month before you look for homes. It will give you a price range of homes to look at.

Emergency Fund – When you buy a home you need an emergency fund. The emergency fund protects you from the unexpected expenses that occur…and you WILL have unexpected expenses. New furniture that you didn’t know you needed, light fixtures that need to be replaced, new paint, plumbing work etc. All of this adds up, and if you don’t have the funds to cash flow the expenses, then you either have to wait to fix it or finance (credit card) it. You should have enough money for at least 3 months worth of expenses, and any additional money to cover incidental and decorating expenses…we recommend $1,000 to $2,000 for decorating/incidentals for the average family.

Know the expenses involved with buying a home – Closing costs, inspection fees and earnest money are all costs that “crop up” when buying a home, and you should be prepared to cover those costs. All of these fees and costs range in price, so ask your Realtor what you should set aside.

Now, I’m sure that there are tons more tips I could give you, but these will get you started, and safeguard you against the basic financial pitfalls of home buying for the average buyer. So, are you ready? Well, if you can say “yes” without a doubt, then you’d better get started on the process!

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Posted in Wild Card Wednesday | No Comments »