My First Mortgage: Part Three
Posted by Mike
We've discussed a little bit about how mortgages work, and what kind of options are out there. Now we're going to take a few minutes about the hard part: negotiating.
Negotiating your first mortgage can be tricky - it involves researching, budgeting, shopping around, and planning or weighing possibilities about where you want to be for up to 30 years into your future. Oh yeah, and negotiating. Now I'm not sure what I can do about your negotiating skills, but here are some resources to help with the rest of it:
To start, eHow has posted a list of the first moves you should make, from improving credit to talking to multiple brokers. You can also watch this interview with Doug Melville, Canada'a banking ombudsman (yes, Canadians get mortgages too, eh!).
Perhaps most important in the negotiation process, you should get an idea of what part of your quoted price is negotiable. Specifically, you should pay attention to when you can negotiate interest rates, and what fees you can reduce. (That last one isn't fantastically well written, but might be helpful.)
Next, you should keep up to date with interest rates so that when you walk into your broker's office you know how what kind of offer you're getting. Check out the mortgage rates posted on CNNMoney, which can be specified to your zip code.
Finally, although I'm not sure I totally agree with these tactics, if you want some advice with how to negotiate, you can check out this article that suggests you resort to a "higher power" to do your bidding...
Borrowing times?
Posted by Mike
In between countless articles about BP stock prices, dividend pay-outs, and compensation funds, an interesting piece just popped up that might be worth a read:
As bad as things may seem right now, the fact is that it may be the perfect time to borrow:
Not only are interest rates just about as low as they can get, but future inflation could erode the paper value of loans, making debt even cheaper over the long run.
Take the example of the mortgage - even if you have the cash available to buy a house, it may be better to take out a loan and invest your money than to buy outright:
If that hypothetical investor were to take out a $400,000 loan at 4.5%, he would come out ahead if his portfolio makes more than 3.015% a year after taxes, says Terry Siman, a wealth adviser in Spring House, Pa. If you assume 2% a year is lost to taxes, such as capital gains, dividends and interest income, then the portfolio needs to return 5.015% annually to break even. "Anything better than that and you're in a winning situation," says Mr. Siman.
I find this a very interesting concept - that we're at just that point where you might get richer by borrowing half a million dollars. But it makes sense. If you can get a higher return on your investments than you'd be paying in interest (especially after inflation), then why not?
The value of education
Posted by Mike
I've just received a bill for the next few years of my life, and it's rather daunting. In fact, it's greater than any other bill I've received - by at least two zeros.
Tertiary education is expensive. Period. Sure, many students get funding and win scholarships, but for most of them, the few hundred dollars they get won't go too far. And saving up for your child can be difficult too - in fact, a child born today will already cost about $222,360 to raise, without any higher education.
There are ways to make things a little easier though:
- 529 college funds lets you invest in higher education for anyone. With low minimum contributions, you can simply invest a couple dollars a month so that by the time you need it, there's a nice amount to help with tuition, book, and living expenses. Picking a fund may be tricky, but there are some articles out there that can give you a few tips. All this said, a 529 may not be your best option.
- Student loans are a useful option, but don't forget you need to start paying them back when you graduate...
- On that note, 50 colleges in the US recently announced major changes to their financial support structure in an attempt to reduce debt load and financial hardship of their graduates. Harvard, Yale, Stanford, and others will be reducing or eliminating loans from their financial aid and replacing them with other debt-free options.
- Read up on how to be financially smart when it comes to university, and of course, plan ahead. You can easily find out about costs involved and and budget accordingly. If you'd like to compare tuition rates in the US, a couple sites offer a quick tuition look-up. (Here's a student budget calculator to help too.)
So is it worth the trouble? Absolutely. With a college education, your children are more likely to get a better job with a higher salary, which means that you'll have less to worry about when your grandkids get their tuition bills.
My First Mortgage: Part One
Posted by Mike
One of the biggest pieces of financial advice people look for is how to buy their home. Most people who are looking probably already know about the basics, but we want to offer a little introduction to those who may not.
Mortgages may seem complicated when you're looking for your first one, but they're actually quite simple. When you want to buy a home, but don't have enough to pay for it in its entirety, you borrow money from the bank with the property as collateral. Essentially the bank buys the house for you, and you pay back the bank over the period of your mortgage (or amortization).
To make this profitable for the bank, it charges you an annual interest rate on this loan. This is one point where things can seem intimidating. Because of the large amounts and long time-periods (usually 30 years) involved in these loans, even the most competitive loan rates can lead to you paying almost double the amount you borrow. So know the facts and details about your specific loan offers before buying.
There are two main kinds of mortgage. Fixed-rate mortgages will set the interest rate in advance for the entire length of your mortgage. Variable-rate mortgages (also known as floating- or adjustable-rate mortgages), on the other hand, will offer an interest rate that varies with the Central Bank rate. This means that in a variable-rate mortgage, both you and the bank are gambling on the interest rate over the course of the loan - the bank wants it to go up, and you want it to go down.
There are other forms of mortgages that we'll talk about in future, and there are plenty more details that you should know about. For now we'll leave you with some simple mortgage calculators that can help you show how much a loan will cost based on the loan's principal (the total sale amount less what you can put down), its interest rate, and its amortization period.
- Check out Century 21's amortization calculator for a basic look at how interest and principle would be paid over the course of a mortgage. You can also see their mortgage calculator to include things like insurance and tax rates.
- Most banks, such as TD, Wells Fargo, and Bank of America, have mortgage calculators, but you may need a little more than we've presented here to use all the tools they offer.
100 Percent Free Credit Report
Posted by Andrew Benton
There is more evidence supporting the fact that you can get an actual 100 percent free credit report online. Congress passed the Fair and Accurate Credit Transactions Act (FACTA) on December 4, 2003, which established freeannualcreditreport.com as the single legally mandated free service providing consumer credit reports. See this MoneyAdvisor article about free credit reports for more details.
Is that free credit report really free?
Posted by Andrew Benton
If you've ever tried to get a free copy of your credit report from freecreditreport.com (deliberately not linked here) you know it's not exactly easy to keep it free. They try to bill you for a monthly credit protection service that you almost surely don't need. Well it turns out that by law there is actually an official free credit report service called annualcreditreport.com. This is where I will go if I need a copy of my credit report in the future.
But is there a hidden cost to checking your own credit score? Does checking your own score make your score go down? According to Experian the answer is no. So head over to annualcreditreport.com and get your (actually) free credit report now.
Links referenced above: