Category Archives: Loans

“Refinance” Without The Hassle Or Fees

For those who are disciplined…..

Mortgage refinance comes with somewhat of a hassle and a cost to do so.  That said, if you are disciplined, you can ‘refinance’ on your own.  Although it’s really not considered refinancing, in the end, you do lower your interest rate while you do it, as well as saving mortgage interest cost (depending on what you are paying toward principal.

How it works……   Pay towards the ‘principal only’ on your own.  Decide on a sum of money and call your mortgage lender telling them to put the amount you choose towards principal only.  Doing this, will, in theory, will for that time frame drop your interest rate, and save you the interest you’d be paying for that time frame by bypassing those months you’re paying off with the amount of money you’ve chosen.

You can either pay say an extra $100. a month each month for a year, or make a one time payment of $1,200.  Always remember to say you’re paying it towards ‘principal only’.

Any extra amount you pay towards principal only during the life of the loan, will not only lessen the amount of time on the length of the loan itself, but it will also save you the interest of the amount you choose.

Another way to shorten the length of the loan is to make bi-weekly payments.  This means you pay 1/2 of the mortgage payment every 14 days.  However, you must be very disciplined to do this).

How much you save in interest as well as how much you lessen the length of your loan depends on the amount of your loan, the length of the original loan, and the interest rate.

It would be wise to check with your mortgage lender and ask them to explain it for you.

It only takes a phone call and a few minutes of your time.  Well worth it.

 

Cars…..To Buy or Lease??

Pros and Cons…. Which Works For You?

Whichever you choose, buying or leasing, there is a ‘down payment’ involved.  If you already have a car you’re trading in, that is your down payment whether you choose to buy again, or lease.  If you don’t have a trade-in, you need to put a down payment of cash (an amount you choose) on a purchase. But if you’re leasing, the ‘down payment is a given figure by the dealership.

Cars are very pricey, and are usually put on a financial payment schedule at the time of sale. The length of the loan varies, typically from 2 – 7 years … so choose whichever time frame and its’ cost fits into your budget.  However, when choosing you don’t want to choose say a 7 year loan if you intend to trade it in sooner, leaving you with a balance on the car you will no longer have.The best loan length is probably 2 – 5 years. Then if you choose to trade it in, you have the full amount of the trade in value to put towards your next purchase (a larger down payment).

But buying isn’t for everyone.  When leasing, the dealer sets the cash down payment, and a 2 or 3 year lease. The monthly payment is usually cheaper than a purchase loan, but when your lease is up, you have no car to trade in, so you start again from scratch with a down payment for your next car. Continuous leasing also means you will always be paying a monthly bill for the lease, whereas a purchased car will, when the loan is paid off, you will have the car and its’ trade in value to use towards your next car.

And remember, you don’t need the top of the line, nor do you need all the bells and whistles.  A car with good brakes, a gas tank, and comfortable seating will get you from point A to point B just as well….and the insurance and excise tax will cost somewhat less each year.

So figure out what works best for your budget….. and…..happy and safe driving!

Paying for the Mortgage

Have a plan….. it’s key.

Most people have a 30 year mortgage. There are other time frames to choose from, depending on the lender, such as a 15 year or 20 year.  The interest rate on these is a slightly less percentage point, but unless the monthly payment figure for them is within your budget, stick with the 30 year mortgage. The length of the loan can be changed down the road, as your budget allows, but don’t bite off more than you can chew now.  There is another way to do this yourself, and it will be explained at a later date.

The figure you pay each month is figured out by your lender. They take into account your credit history (credit score), down payment, and your income to debt ratio. Then, the difference between your down payment and the cost of the home is your mortgage (Principal and Interest), added onto that is Escrow (your Real Estate Taxes and Homeowners Insurance)…. these figures they get from your insurance company and the City where your home is located.

The escrow is held by the lender in a separate account, and when the taxes and insurance are due, they pay the bill from your escrow account.  These 4 things are also known as PITI… (principal, interest, taxes and insurance).  The figure for principal and interest remain the same throughout the length of the mortgage loan, but the taxes and insurance figure can fluctuate some each year, which is the only reason your full mortgage payment may change.

An easy way to avoid missing a payment is to set up a separate auto-deposit mortgage account, rounding up the figure is a good idea. Have the mortgage automatically withdrawn by the lender when each payment is due.  Just remember to have a bit extra in the account so if your pay day or holidays overlap when the payment is due, there is still enough in the account to pay the entire bill.  A good rule of thumb is to leave the equivalent of an extra payment in the account as a cushion to begin with.

Usually, once a year, the lender will notify you if any changes, either more or less, is required for your real estate taxes or insurance. They will then update your mortgage account and that would be the new figure until and unless the insurance or taxes change the following year.

As you pay down your mortgage loan, what you pay towards your principal, is called your Equity.  When you sell the home, what is in the Equity account is yours (along with any gain on the sale of the home), but any outstanding debt on the loan is due at closing to the lender.  They’ll figure all this out.

This is why people prefer buying a home as opposed to renting…..   Renting you pay a rent and it is completely gone… to the owner of the home.  When you buy, then sell, you have your equity in your hand to use for a down payment on your next home.

The hard part is to save the 20% plus…..  so start saving!

College Costs

Looking At And Choosing A College That…Fits.

Your child is looking at materials on where to go for college.  If not all along, but at least for the past four years have you been having conversations with him/her about cost of colleges, at home or dorm living, career paths, etc?  If not, it’s a bit late, but better late than never.  Do you have a College Savings Account with your name and theirs on it?  Have they been working and putting money aside for this too?….. or spending it?  Are their grades high enough, and have they been filling out applications for every scholarship out there, with the hopes of getting any. And don’t forget to apply for financial aid. And work study programs mean you work at the college and your wages go toward your tuition bill.  Don’t think you don’t qualify, check everything.

Something else to consider is that the world, and work force, is rapidly changing.  Many careers that have been around for decades, are no longer useful with the ever changing technology.  Some jobs are extinct, or will be by the time, or soon after your child is graduating with a degree in hand.  If the field he/she has been studying for is now extinct, or soon will be, all that time…..and money is for naught.  Discuss with your child newer – and available – options, careers that are and will continue to be there as your child goes through decades of working at it.  You don’t want to put $100,000 – $250,000.. into an education that will be a waste of money, because your child insisted on a soon to be extinct career path.

That said…. now you….the parents, decide where your child will attend.

Reason?   He/she is 18 – and not money savvy. The cost of college costs upwards of $50,000. or more a year.  Most students will change their major by the end of their freshman year.  Choose a college that fits in the amount of money saved, and have the student work off the rest.

Student loans can help but impress upon him/her that the loan is theirs to pay.  It is a binding, legal document, and they are completely responsible for it.  Impress upon them to pay on time and more than the minimum due each month, and it will get paid off quicker.  Doing so, will increase their Credit Score.

There are companies they can work for, part time, who will in turn pay for, or towards, college tuition.  Check around.  Also, for the freshman year, choose a state college, your own or nearby, or a local community college, where it is not only cheaper to attend, but the student can take this opportunity to see if the choices they’ve made career wise – course wise, still fits in their thoughts for the future.  There are many who attend a state or community college until their senior year, then transfer to another, getting their degree from there.  Saving $$$$.

And although a Degree in hand can open doors, there are many in the workforce who don’t, for one reason or another, have that.  They, instead, have a specific talent that is both useful and sought after in the up and coming world of A.I.  They work hard to skillfully hone it and have the experience of working at it, which is a bonus for many companies. And many of these individuals are making more money than those with a Degree which has, or will, lose their usefulness because the recipient no longer wants to work in their ‘chosen’ field, or those fields are no longer used in the workforce.  And, they don’t have a huge financial loan to pay off.

Remember, college isn’t for everyone.  Think wisely.

 

 

Buying a home….Get a Pre Approval Letter

Pre qualified vs pre approved, which is better?

You’ve decided to buy a home…. there’s a lot to know first.

  • You’ve checked and rechecked your budget, and have decided on a price point you can pay
  • You’ve got 20% plus set aside for the down-payment and closing costs
  • You’ve compared interest rates and lenders and have decided on a reputable one
  • You’ve given the lender all necessary data and are waiting….They check your Credit Score and plug in all the data and on an income to debt ratio decide if you’re a risk or not.
  • They call you — Yes, you are Pre-Qualified.  More data, more checking, more, more, more.
  • Back and forth phone calls, and then they call to let you know how much they will allow you to borrow, and approximately how much your monthly payment will be using their ‘borrowed figure’. There will be an interest rate based on the figures.
  • Their figure may be more…or less than yours.  If it’s more, you don’t need to purchase a home that high.  Keep within your  budget comfort zone.  If their figure is lower, you’ll have to think less… smaller, different neighborhood etc.  Not such a bad thing, really.
  • You are now ‘Pre Approved’….meaning you are approved to get a loan for ‘X’ amount.  Once you are pre approved, ask the lender for a letter verifying that.  Have it with you when looking at homes, and should you decide to make an offer on one, show…but don’t give… the seller/realtor your Pre Approval letter.  It shows them you are a serious buyer, and have already done your due diligence in securing the mortgage loan for the amount shown in the letter.
  • Sometimes, if another buyer is interested in the same home, and offers a close figure to yours, the seller is apt to choose you, because you’ve gone that next step done – the pre approval.
  • Again, know it is better to get a smaller home, with a smaller mortgage – one you can comfortably handle within your budget, leaving some wiggle room in the budget for incidentals and ‘what-ifs’.  Where as if you buy too much home, finding too late you can’t handle the payments – you end up being house poor – or worse, losing it completely.
  • Remember:  Staying within your own set limits for mortgage payments, maybe by buying a smaller home, allows you to set aside money each month for not only everything else in your budget, but also those extras…… painting, redecorating, new roof etc.
  • Don’t end up “House Poor”.  Think ahead.

 

Shave Over 2 Years Off Your 30 Year Mortgage

Save thousands of dollars…. and it’s free to do

This can be done at any time during your mortgage loan….but the earlier, the better.

Open a checking account, specifically for your mortgage.  Have a beginning balance of 2 months equal to your mortgage payment.  Then call your mortgage lender and tell them you want to change from a monthly payment plan to a bi-weekly payment plan.

Grab a pen and paper, now divide the amount of your mortgage by 12 and round up the figure. Each month, continue depositing your mortgage payment into the checking account, plus the rounded up figure and as the bi-weekly payments are withdrawn, you’ll notice that each 14 days the lender will withdraw 1/2 of the mortgage payment.  In 1 month, a full payment is made, but in 2 half payments.

Twice each year, usually Spring and Fall, an extra half payment is made (in those 2 months, a third 1/2 payment is withdrawn)…this makes payment numbers 25 and 26.  These 2 half payments go directly to your principle. This is why it is imperative to have that extra cushion of 2 months to start the process, as well as the extra ’rounded up’ figure each month in the account, making sure you’re not short of the extra payment amount in your account.

Example: You have a 30 year mortgage.  Each year (12) months, there are 12 payments.

There are 52 weeks in a year.

But, with a bi-weekly payment plan (every 14 days), in those same 12 months there are 26 payments (52 weeks divided by 2 equals 26).  That extra 1/2 payment and 1/2 payment going directly to the principle, over a 30 year mortgage, saves 2 1/2 years of payments making that same mortgage loan a 27 1/2 year mortgage.

But the real savings is the interest you save over the years…… Thousands of dollars saved!  And all it takes is a phone call to set it up.

The important thing is to have that cushion in the beginning, as well as the ’rounded up’ figure in the account.  It insures the money is in the account when the lender withdraws it. A good idea is to have a year at a glance calendar….. once the by-weekly is set up, circle the first bi-weekly payment on the calendar, and follow through the year circling each date at 2 week intervals.  You will see the two months where that third 1/2 payment comes up.  It’s easy.

 

 

 

 

 

Asked to Cosign a Loan? ….. Do Not Do It

Never.  Never.  Never.  Never do it.

Never do it!……….

For anyone…… no matter who……and don’t fall for any sob stories or guilt trips they’ll hand you.

If someone is taking out a loan, it means they don’t have the money to pay, in full, for what they plan on buying.  Of course most people do take a loan out here and there throughout their lifetime.  College, car, and of course a mortgage.  A down payment is made, and the balance of the item, plus interest for use of the money, is then divided equally for how many months… or years until the loan is paid in full.

But…..if a person is taking out a loan for something, and needs someone to cosign… run!!

Run the other way!  It is a red flag that the person taking out the loan does not have the income to support the loan payments, and in order to secure the loan, they need the signature of someone who will take over the payments for them when they can’t…or choose not to… pay the loan themselves.  Do not let that someone be you.  Never, never, never ever cosign.    …..Never.

Too often what happens is they default on the loan.  They may make the payments for a few months, and then stop…. and you will have to pay it off….whatever the balance is … you have to continue the payments until it’s paid in full.   You signed on the dotted line – taking on the responsibility of payments if the loan is in default…..and their loan is tied to your Credit Score.

A example of what could happen:  Your very best, oldest and dearest friend or relative asks you to cosign for a car.  You hate to say no, so you cosign.  They begin to make payments for a few months….then there is an accident and the car is totaled.  Your friend or relative stops making the payments, but all the payments that remain (car totaled or not) are now yours to pay…. because you cosigned the loan. The loan company comes after you because you are legally responsible. You then have to continue making the agreed upon payments until the loan is completely paid….could be 59 out of 60 payments….and….you have no car…it was totaled.  And remember, all this is on…….. your……Credit Score.

So…..Never….Cosign.

Cars….Buy or Lease

Is buying or leasing the better option for you?

After you’ve looked around, checked types of vehicles, and prices, and have decided which one suits you best, how are you planning to pay for it?

Don’t forget to check out the previously owned cars, sometimes the car dealership will have their own ‘Protection Plan’.  These can be a good choice, especially if you can get a ‘Company Leased’ car, as they are gently used by a company and their clients, and can save thousands.

Leasing:  You will have to put money down, and then make payments over 2 or 3 years as specified in the agreement with the dealership.  Usually, depending on the chosen vehicle, the down-payment is a few thousand dollars, and the monthly leasing loan is a couple of hundred dollars each month until the maturity date of the lease is up.  At that time, you have the option of turning in the vehicle, but if there is any damage, you have to pay to have it fixed.  Then you can walk away, with no money in your hand, or no vehicle to drive…. but you can lease again repeating the process.  Or, you can choose to buy the car you’ve been leasing,  purchasing it at a price specified by the dealer….taking into consideration money, but not the full amount, you have been paying in the lease agreement.  A car loan would be taken out to finish paying for the car, because you are now ‘purchasing’ the car which would then be yours at the end of the loan.

Buying:  Dicker…Make your best deal.  If your Credit Score is high, you can get a lower interest rate on the loan.  Now, put an amount you’ve decided as a down-payment, the more you put down, the less the monthly payments. Take out a car loan for the balance.  Choose a length of time from 2 years – 7 years…most go with 3-5.  Check a few different lengths of time so you’re sure the monthly payment will fit easily into your monthly budget.

When the loan is paid off, the car is yours and you will receive the Title from the lender.  Until the loan is fully paid, the lender ‘owns’ the car and if you default on payments, the lender can/will repossess and sell the car. When you do receive the Title, put it in a safe place, because when you sell the car, you need the Title. It is also wise to save registration and excise tax receipts as well as any maintenance records/receipts to show a new buyer you’ve maintained the car. Of course when you sell the car, the proceeds are yours to put toward another.

**When the loan is paid off, continue writing a check for the loan amount each month, but instead, pay yourself that loan amount.  Put it into your Retirement, or one of your Savings Accounts.

In either case, whether buying or leasing, before leaving the lot, it has to be registered with the DMV, have plates, and insurance coverage.  Within 7 days it needs an inspection sticker.  You will receive an insurance policy, renewable annually.  It’s an important document, keep it safe.

Taking out a Loan

Adding the Cost of a Loan into Your Budget

At some time, maybe more often than a few times, you’ll need to ‘Take out a Loan”.  It may be a Student Loan for College, a Car Loan, an Equity Loan, a Mortgage  Whatever the type, and whatever the length, before you sign on the dotted line, be very sure the payments fit within your budget.  Know before you sign….because for the next several years, the loan is a legal expense. If it doesn’t fit into your budget easily, don’t sign on the dotted line.

If you default on your loan — by not making payments on time, or missing payments altogether, the lender can – an will – repossess your car if its a car loan, or put your home in foreclosure if its your mortgage.  It is imperative that you know  that you can make all the payments for the length of the loan.

Do you homework — check around for rates.  Obviously, the lower the interest rate, the better. If you have a high Credit Score, you can often get a lower interest rate than advertised.  Ask if  should you decide to ‘Prepay’ your loan, you won’t be penalized.  Prepaying means either making extra payments, or paying the loan off completely before the maturity date…a good thing on your part, but some lenders don’t allow that. Once the loan begins, it is imperative that you make your payments as specified within the loan, and make those payments before the due date.  This means you stay in good standing with not only the loan company, but it is a direct link to your Credit Score.

Keep any loan documents in a safe place, and most especially, the final one that says it’s fully paid off….keep the last one indefinitely.

Children Need To Learn Early

It’s Never Too Early To Teach Children

Upon high school graduation most teens know nothing about finances, not even the basics.  Yet, most have signed a college loan agreement, and because during the application process, banks have passed out credit cards, most teens are now in possession of one.  But…..

Do they know that a financial mess is about to happen to them?….unless….someone has spent some time teaching them the rules of how all areas of finances should be handled in order to avoid this from happening.

Early in their life, they should have learned that you don’t slide a card into a little machine at the store and in return you get things.  Or that when you go to a bank, fill out a little piece of paper and go to the teller, you get money. What they see with these scenarios is instant gratification…. not a good thing for a child to learn….or believe.

The earlier the better is the right time to teach them.  Start with the basics….. You can’t always get what you want… they should do chores to earn money, and then, save some of it, and not until the full amount is there for the item wanted does the item get purchased. This will teach them how a credit card works.  So that when they do get that first card, they won’t purchase an item unless they have money set aside to pay the bill in full when it comes in.

Open a savings (custodial if age is under 18) account, take them to the bank to add to their account each time they earn money, letting them fill out the deposit slip. This teaches them how to interact with the business world. It will as time moves on teach them about interest earned (albeit small) every cent matters, and that a part of what they earn goes to savings. And seeing it grow in their account shows them the value of saving.

Give them a paper check register…. teach them how to use it.  Set it up as their ‘company’. Each time they receive money (earned, or as gifts), put that figure in the proper column, when they go to the bank to put some in their savings account, put savings in the memo line and subtract that amount, (it’s ‘gone’ from their money left),  the remaining figure is their balance, and if they’re buying a gift for a sibling, show that in the memo and subtract.  They did a chore, add that income with the chore in the memo line and so forth.

This will teach them not only how to use a check register or a spreadsheet later on, but it will let them know, at a glance, that they have to earn money, save some, and spend some…. where it came from and how, and how it can disappear quickly and where it goes.  It also teaches them discipline habits of saving and spending, and the balance of doing so.  It teaches them how to budget…not spending what they don’t have.  Each, in itself a very good lesson to learn early.

Knowing even these few things, having learned them when small children, they will, at their high school graduation, be a little more prepared than their peers who know nothing of finances when heading out in the world on their own.

Knowledge really is power…..  and with the basics learned, they will be more apt to want to learn and ask questions, moving forward only if answers are understood, when life changes occur, like buying a car or a home.

Knowing what you’re getting into before you get into it, is key.