Archive for December, 2010

Does Paying Points on a Mortgage Make Sense?

Friday, December 31st, 2010

You’ve found your dream home and are now ready to start shopping for a mortgage. Several lenders have talked about points. You’ve heard that paying points is the only way to get a low interest rate. But is increasing your initial costs worth getting a lower rate?

For most people, paying points doesn’t make sense. Points, also called discount points or origination fees, are each worth one percent of the loan amount. They are paid to the lender at closing.

Paying points basically allows the borrower to buy down the interest rate.

Points became popular in the early 1980s when mortgage rates were in excess of 15%. Most people could not afford the monthly payments that come with such high interest rates. Lenders began offering discounted rates at a certain fee. Sellers often paid the points in order to sell their properties. This gave buyers affordable mortgages and owners were able to sell their homes.

Times are different now. Interest rates are reasonable. There isn’t a large need to pay a lot of money up front in order to get a lower rate.

Let’s look at the numbers. You have contracted to purchase a home for $240,000. You have the 20% down, which leaves you with a mortgage of $192,000.

You find a 30-year fixed rate mortgage at 6.5% with two points. For closing, you will need to pay $3,840 ($192,000 x 2%) for the points.

The lender can also offer you a rate of 7% with no points.

What do you choose? The lower rate or the lower closing?

At 6.5% you will have a monthly principal and interest payment of $1,207. At 7% your payment increases to $1,270 each month. That’s a difference of $63 per month. If you are looking for a monthly payment reduction, it’s not really a significant one.

It will take you 61 months ($3,840 divided by $63) to recoup your points payment in the form of a lower payment. This is your payback period. But if you had the $3,840 still, it could be earning interest in the bank. If it gets 3% interest in the bank, it would earn about $10 per month. If you pay points, this is interest lost, so subtract $10 from your $63 per month savings. Now divide $53 into $3,840, and your payback period increases to 72 months — six years.

So you have to live in your home for at least six years in order to take advantage of the savings that paying points gives you. Most people don’t keep a mortgage for six years. Unless you are absolutely sure you will live in the home for the time period necessary to recoup your points, you should probably invest your money instead of putting towards points.

If you are looking at paying points in order to reduce your monthly housing payment, you may want to look at a less expensive property. Sixty dollars worth of savings isn’t a lot if you have a tight budget. Chances are that if you have a tight budget to start with, finding extra money for closing would be difficult. And don’t forget, taking out a side loan to get the money to pay points with is defeating the purpose.

Disposable Income Figures Show Gap Narrowing

Sunday, December 26th, 2010

The research from KBD has also revealed the full extent of the north-south financial divide.

Taking the UK as a whole, the typical household has some 40,000 of disposable wealth, but this figure oscillates wildly depending on where you look and indeed where you live.

An average London family will possess 81,732 in readily-accessible cash, while the Midlands sees this figure reduced to 31,939 and Scots find themselves cut somewhat adrift with a typical 29,724 waiting to be spent.

The gap, however, is closing the Scottish figure was in fact a 35 per cent increase on that of 12 months ago while north-westerners and the Welsh, with 32 per cent and 31 per cent rises respectively, also saw notable and much-welcomed rises.

London may top the charts, but its disposable income figure has only escalated by two per cent, while usually-affluent south-westerners only saw a seven per cent appreciation.

Matt Boot, chief analyst at KDB, commented on some of the factors behind these fresh figures.

He said: “Early signs in 2006 show an upturn in housing values along with continued stock market growth, and this has swelled the amount that households can really lay their hands on.

“Although absolute disposable wealth levels per household still show a marked north-south divide, the gap is closing, and the smart money for growth is in the Midlands and above.”

This is heartening news for many Brits but also indicative of how volatile and changeable such figures can be, with many variables lying behind them. In turn, this shows how carefully-laid spending and saving plans can change due to a variety of factors, be they economic or personal.

Therefore the role of a payday loan (http://www.mypaydayloan.co.uk/fact_fiction.html ) becomes clear. If at some point you find that you do not have quite as much available cash as you had budgeted for perhaps if some inconvenient extra expenses have come your way or if a special occasion has arisen which urgently needs catering for then some short-term cash might be invaluable to offset any problems this may cause.

A sum of between 80 and 1,000 can help you foot the bill for that one-off event or occasion, or can buy you time to readjust to changing circumstances. The short term loan is repayable at a convenient time your next payday and harbours no extra charges (http://www.mypaydayloan.co.uk/charges.html ) or caveats save for the explicitly-stated repayment rate of 25 for every 100 borrowed.

My Payday Loan is a leading provider of this service and a reputable one customers are assured that the additions to their disposable income that they require will typically be in their bank accounts within 24 hours.

Building Long-term Energy Savings Into Your Home

Saturday, December 18th, 2010

While new homes are 100 percent more energy efficient today than those built three decades ago, most people are not familiar with how to actually design energy savings into the infrastructure of their home.

Here are a few ways to save energy in your home:

* Windows and doors: Today’s architecture takes advantage of increased window space and elaborate entry systems. This style enhancement certainly adds to the appeal of a home, but it increases the importance of having energy-efficient windows and doors.

On average, a household spends nearly 50 percent of its annual energy costs in heating and cooling. You can reduce this expense by up to 15 percent by using energy-efficient windows and doors, which help decrease the transfer of heat. Start by looking for products that have the Energy Star label. This label identifies products that meet the strict energy-efficiency guidelines set by the U.S. Environmental Protection Agency and the U.S. Department of Energy.

* Construction materials: Wood or vinyl (for windows) and steel (for doors) offer high energy efficiency. For windows, dual-pane insulating glass units and low-emissivity glass also increase the products’ energy efficiency. For steel doors, look for a polystyrene core, which helps the door retain its energy-saving properties longer than steel doors with a polyurethane core.

Rest assured, however, that you will not have to forgo style and beauty when seeking energy efficiency. Many manufacturers, such as Jeld-Wen Windows and Doors, offer a variety of Energy Star-qualified products that are attractive, durable and provide superior performance. In fact, upgrading windows and doors is a great way to build energy savings into your current home.

* Insulating your home: In addition to diminishing heat transfer through windows and doors, you can ensure even temperatures in the home by selecting proper insulation. Well-insulated homes can save up to 30 percent on heating and cooling costs. Pay attention to the R-values used to rate the energy efficiency of insulation – a higher R-value indicates a better ability to resist heat flow, meaning that it is more energy efficient.

* Heating and cooling engines: Installing oversized heating or cooling equipment is a common practice to provide customers with immediate results. However, oversized equipment is not necessary if your home is designed to conserve energy; it will only add to the growth of your energy bill.

Visit a local home improvement center to learn more about heating and cooling options.

Discover The Value Of Canny Mortgage Research

Thursday, December 16th, 2010

You hear people griping about the cost of consumer products these days. The socialist-student-worker-miser believes capitalism is inherently wicked. Someone is out to screw him. The truth is ‘yes’, someone is out to screw you, and will, but only if you let them. They’re not obliged to get you the best deal, and you’re not obliged to take the first deal they offer. Don’t let your greed for a mortgage override your good sense. If a deal seems too good to be true, it probably is.

Start with banks and well known credit unions. When you begin to research, it’s best to start with your current bank, or with large credit unions. These have solid reputations. You may not get the best rate with a large bank, but the security can be worth it.

If you’re in the UK, see if the company is a member of the Finance Industry Standards Association (FISA) and registered under the Data Protection Act (DPA).

A mortgage is an agreement between a borrower and a lender. Determine first what type you’re looking for: fixed rate, variable rate, capped, buy-to-let, bad credit, self-certification, and proceed from there. This will cut down your research time.

There’s no need to apply all over the shop. Try for one from a high street bank, a high street building society, a credit union, an independent loan company and an internet-based one. The trick is to weed out the high interest rates and fees at one end, and the cubicle farm operations at the other. The latter won’t give two straws if you get into financial difficulties. If your application to a good ‘un gets rejected, shrug it off and move onto the next best option.

Ensure that you think about your budget. No matter how cheap your deal may be, pay it off as quickly as you can to avoid interest piling up.

However, it’s important not to overstretch yourself. Save a portion of your regular monthly income as cover for emergencies and unexpected bills.

In order to give you their best mortgage quote, the intermediary you apply to will need at least your:

- Name;
- Address (with post code);
- Time at that address;
- Amount you want to borrow;
- Employment (how long in your current job);
- If you have a bank account (and how long you’ve had it).

You may have to get used to the idea of getting cold calls from other lenders for weeks or months afterwards. Try to halt this by telling the initial broker “Please do not sell or pass my personal data on to other companies. Thank you.”

Independent mortgage information is hard to come by. Everyone is looking to make a few quid, especially when it comes to financial products. It’s a big business; lots of money to be made from needy people.

Many sites which seem to be independent are tied in with established lenders. They can’t give unbiased information. If it’s a financial product, chances are most sites that come up in a search engines’ first and second pages are tied to one of the larger large lending companies.

Building Confidence in Your Retirement Future

Monday, December 13th, 2010

In the next 10 years, the first wave of America’s 76 million baby boomers will be retiring. Since today’s retirees are generally healthier and more active than their parents, they are looking forward to living longer and spending more time playing with grandchildren, pursuing hobbies or even trying new careers.

Investors enter retirement with more confidence if they have a thoughtful retirement strategy. Planning ahead helps those nearing retirement prepare for when company paychecks stop coming and the goal of accumulating assets gives way to generating income from those assets for retirement expenses.

While planning for and managing income in retirement may not sound like fun, it is the most effective way to be confident in your future. Consider the following.

* Calculate how long retirement will last. Since retirement doesn’t have a preset time limit, this first step can be particularly challenging. Many of our customers are surprised to learn that they are likely to live in retirement just as long as they worked. A 65-year-old couple retiring today, for example, should plan to have enough money to last at least 20 or 30 more years, according to a 2003 Fidelity study. When determining how long your money will need to last, realistically estimate the expenses that are likely in your own retirement and consider that you may live longer than you think – possibly into your 90s.

* Preserve and grow assets. Fear of a down market can cause some retirees to be too cautious, so they sell virtually all of their stock holdings. While they should protect their assets, retirees should recognize that they may also benefit from growth that can come from investing in the markets. In fact, long-term success may lie in a portfolio that includes an appropriate mix of stocks, bonds and cash. The key is to find an asset mix that is age-appropriate and generates enough income to help offset withdrawal requirements and the effects of inflation over time.

* Simplify to stay on track. Pre-retirees expect to manage an average of nine sources of income, including Social Security, multiple 401(k)s, annuities and personal savings, according to a 2004 Fidelity study. These assets are often held in multiple accounts at different financial institutions, making it difficult to develop and maintain a comprehensive investing strategy. For example, mutual funds from different firms may hold similar investments, potentially increasing risk to your portfolio through greater exposure to volatile markets or sectors.

To prevent this from happening, anyone five to seven years from retirement may want to consider consolidating various 401(k)s and other retirement accounts in one place, or finding a tool that easily provides a look at your entire financial picture in a single view.

Creating a thoughtful retirement strategy involves sharp focus and detailed calculations, and can force couples approaching retirement to face difficult considerations for the first time. Luckily, there are many resources available to help investors prepare their retirement strategy. Planning for the future is the key, however, and helps build financial confidence so that you can enjoy the retirement you have worked so hard to achieve.

Cynthia Egan is executive vice president, Fidelity Investments.

Difference Between Private Lenders And Banking Institutions

Friday, December 10th, 2010

If you have decided to take or loan or mortgage then the facilities available are immense. There are wide variety of banking institutions, banks and brokers who are available to provide loan. It is only when an individual shops and finds the various lenders available and the schemes that they offer that he will be able to get the right loan at a good rate.

In case of a banking institution, the borrower is in contact with one person who is an employer of an organization and gives the various loan facilities offered by his institution. He is only an employee who gives the various facilities available by his employer. He helps borrower on the various facilities and choose what might be the best suitable for him. Once his personal credit information is approved, the employee processes the forms and helps the borrower and gets him credit.

The private lender is helpful when the individuals personal credit rating is bad and when the various banks and financial institutions refuse to give him any credit. The private lender asks for a security and charges high price. A mortgage broker on the other hand is only a middleman and gets credit to the individual from various sources that would be able to finance the individuals need. The rate involved might be high but a broker is the best solution for anyone with bad credit and who is unable to access any institution or banks for his credits. The broker or lender can sometimes give best deal to an individual when more business is promised. The individual can negotiate with a broker and get good credit facilities than when he goes online or approaches a bank.

One disadvantage with a private lender or broker is that the credit facilities are some time got from other places or outside the boundary of the individual and in this case the credit terms and conditions may not match that of the borrower and may not be to his satisfaction. Whereas a bank is a local institution and the employee can help get loans, which suits the need of the individual of the locality, and the credit facilities are tailor made to suit the individuals need.

Whatever is the difference between the bank and private lenders the borrower must shop around and know his limitations and the various facilities available from either of the sources and then approach that source which is most convenient to him.

Building An Emergency Fund – A Vital Part of Financial

Thursday, December 9th, 2010

Building An Emergency Fund – A Vital Part of Financial Planning

None of us have the ability to foresee the future or predict the hurdles which lie ahead of us. This makes building an emergency fund a financial priority. Building an emergency fund is healthy for your financial well being, since youre rarely given advance notice of a setback or an accident which will keep you out of work for an extended period. It is also a safety net that can save you from bankruptcy or severe financial hardships in the event of an unexpected change in your income or expenses.

Housing a small rainy day fund should be a vital part of an individuals financial goals. This is of high importance if you dont already have readily available funds in your account for covering any unanticipated expenses. They provide financial security because they give you funds to fall back on if you become ill, or if you or your spouse loses your job, you incur large medical bills, or have an unexpected large bill such as a major car or home repair. You do not want to end up in a situation where you have to buy daily necessities on credit and end up payments on groceries you bought two years back on credit, with a further 10-18% interest on it.

Saving your money in an small account for emergencies is definitely a better alternative to taking a loan or cashing in your long-term investments. If you take a loan, there is the additional burden of paying interest. Encashment of your investments before maturity means not only will you lose out the interest, but also some part of the original investment. This will also set you back significantly in your overall financial plan.

Success at building an emergency fund depends on consistency of saving money on a regular basis, and resisting the urge to dip into this rainy day fund for non-emergencies. This money should be kept separate from the general savings account. Otherwise you will be tempted to dip into these monies even if you simply run over your budget at a certain point. A substantial part of this emergency fund account should be invested in low risk funds. This ensures that your investment does not lose its value in case you need the money. Also, it should be extremely liquid, to give you access to the cash easily and quickly if you need it.

The size of the special savings account will depend on your personal situation. People often keep three to six months salary in the reserve. But you will have to decide on an appropriate amount based factors such as your dependants and fixed monthly expenses.

If you are single with no obligations, and have a reliable support system of friends or relatives during a financial crisis, you might not need a substantial amount stashed in this fund. This is opposed to someone who needs to pay nursing costs for his aging parents and supporting a young family. The more people you support, the more likely you are to have unexpected or unplanned costs.

While making a decision about an emergency fund, you should also take into account the degree of difficulty you’d have in finding a new job if you lost the present one. In case of a two-income household, the contribution of both parties should be weighed while calculating how much you should keep aside.

You may not be able to gather your emergency fund money together at once. Treat it as a financial goal and add to the kitty over time. If you get a tax refund, put it in your special rainy day account. Maybe a part of the bonus at work!

Planning For My Retirement

Monday, December 6th, 2010

I am eligible to retire from my current job on April 4, 2010. And that is the day that life without work begins.

My retirement will be different than most in that my monthly take home will increase over the years. This is due to a government pension, military retirement and social security.

When I hit 57 years and 4 months, I will be able to call it quits. I will have 5 years working with the US government and will be eligible for a small pension. It will not be enough to live on, but I also have a Thrift Savings Plan (TSP) which is very similar to a 401(k). Unlike the 401(k), I can withdraw my TSP when I retire as long as I am at least 55 years old. I will use this to supplement the small pension.

I also have a 401(k) that I invested in while I was a government contractor for 5 years. I can start making withdrawals at 59 and must have it depleted by 70 .

Once I hit the ripe old age of 60, I become eligible for my US Army Reserves retirement. This will triple my monthly income and make living a lot better. Then, at 62, I can add in my Social Security. I can also defer this until 66 or 70. I will have to crunch the numbers to see which one is most beneficial and find the break even points.

I also plan on selling my house when I initially retire and will use this money to purchase my retirement home in Thailand. Yes, I will leave Hawaii and move to Khon Kaen, Thailand. The cost of living is way less than Hawaii and I will be able to live out my golden years easily.

Add into this mix, I live online and make some money marketing on the Internet. I make money from ads and banners, affiliate hotel rooms, credit cards and a few more. This will provide beer money for me and keep me occupied.

For most retirees, their money starts to dwindle as they get older. For me, at least for the first five years, it increases. Plus, I still have some “gravy money” in my 401(k) and some other investments.

All of this didnt happen overnight. And it didnt happen because I saved for 40 years. Granted, the military retirement is based on 30 years service, but all the rest is over the past 7 years. Contributing to a 401(k) and now to my TSP makes it easy to see that I will be taken care or, and that I wont be a burden on my family.

I look forward to that day when I can walk away from my desk and never have to return. Starting work at age 12 with my paper route and being able to retire at age 57 is a long time but not as long as those who have to wait until 65.

Right now I put in the absolute IRS maximum allowed into my retirement fund and add as much as I can to my mortgage payment in hopes of paying it off early.

It may be hard to save when you are young and plan for retirement, but, trust me, it is well worth it. You want to have everything all set up once your work days are over.