Monday, December 19, 2005

Fifteen year morgage vs. a 30 year morgage

Fifteen year morgage vs. a 30 year morgage

Well it only took me buying my 3rd home to convince myself that I needed to bite the bullet and get a 15 year morgage vs. a 30 year morgage. We have been here for 5 years now and I am really glad that we did it. I actually enjoy getting my statement each month because 2/3rd of the the payment is actually going to principle.



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One of the most important lessons that I learned later in my house buying history is the power of the 15 year morgage. Whether it is your first house or last house try to buy the house that you can afford with a 15 year morgage. You will be so much happier after 5 or 10 years and you decide to sell. Your principle on the loan will be so much greater. Here a few examples.

A $100,000 loan on a 30 year term at 6.25% interest.

Monthly payment: $632
Principal portion of payment: Under $95 each month for the first year
Interest portion of payment: Under $536 each month for the first year














Ok now lets take the same loan on a 15 year term.

Monthly payment: $871
Principal portion of payment: Under $350 each month for the first year
Interest portion of payment: Under $521 each month for the first year

Of course the 15 year loan will cost you $239 more per month. However, your really should consider it savings because each month you will be contributing $350 to your principle. So after the first year you will have paid off $3500 on your house vs. $1200 on the 30 year loan. If you can't afford the 15 year loan either buy a less expensive house or put more money down. The chart below shows you how after just 8 years half of your payment will be going toward principle.
















I found a great morgage calculator that allows you too compare 15 and 30 year morgages all on one chart. Click here to compare

Another excellent source for morgage rates check our Bankrate.com

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Note: Morgage intentionally misspelled to assist in your search. Morgage is properly spelled mortgage.

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Sunday, December 18, 2005

Special Saving Account Christmas Club Savings

Special Saving Account, Christmas Club Savings

Do you struggle with paying for Christmas? Do you have an annual property tax bill that sneaks up on you every year and you don't know where the money is going to come from. One of the best tools that I have found to handle these types of annual expenses is a special savings account or Christmas club savings account.

Most banks or credit unions will set these up for you and it allows you to specify an amount of dollars each month that will be taken out of your savings account and put into the special savings account. Most of the time you can get to the money either through and online transfer or by going to the bank and transfering the funds. There are no penalties for early withdraws and it is a great way to budget your money.

It is a great feeling when you have put away $200 per month for Christmas and the bills start rolling in and you simply transfer the money from the special savings or Christmas Club to the checking account to write the check to pay off the credit card.

What are some of the expenses you could start a special savings account for:

  1. Christmas is probably one of the most popular special savings accounts. Even $50 per month will give you $600 to help pay the bills next Christmas. Goto the bank now and setup the account to start in January.
  2. Property taxes: If you do not have an escrow account than you need to pay your own house property taxes and insurance bill. I always hate getting these bills and they always seem unexpected. However, they always come at the same time every year. Do the math, divide the annual property tax by 12 and set aside in the special savings the amount per month you need. You really don't need more that one special savings account but you do need to account for all the different bills that you are saving for.
  3. Vacations: Another big expense that people usually just put on the credit card is the vacation. Why not save for it automatically instead of paying it off over time at 18% interest rate.

I realize this sounds like an easy concept if you have the money and a tough concept if you don't however, try it on one expense at a time. After you have paid of that expense with one years of savings you will be looking for other items to add to the special savings account. You really don't even need a years worth of savings. Even 6 months helps, start an account now for that summer vacation, when you can increase the amount to help save for Christmas.

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Sunday, November 27, 2005

US Goverment I bonds

Are you tired of low interest rates at the bank? Are you looking to make more than .6% on your money market account. How about earning 10 times that amount with virtually no risk? Sound too good to be true? Well look no further than the US government I bonds.

I bonds are sold at face value unlike Series EE bonds that are sold at 50% face value. I bonds can be purchased at your local bank and are sold in the following increments $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000, and earn interest for as long as 30 years.

I bond earnings are added every month and interest is compounded semiannually. They are state and local income tax exempt, and Federal income tax on I bond earnings can be deferred until the bonds are cashed or they stop earning interest after 30 years. Investors cashing I bonds before five years are subject to a 3-month earnings penalty.

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Did you know that you can even setup an account with the U.S. Treasury to purchase Series I U.S. savings bonds, just goto Treasury Direct. Through this process you can have the Treasury hold the bonds in electronic form in your Treasury Direct account. If you want to hold the bonds in physical form and can't find a bank in your area that sells them, I suggest that you contact the Federal Reserve bank that services savings bonds for your area of the country and ask about buying the bonds. This Bureau of the Public Debt's Web page will provide you with that contact information.

What if you lose your bonds, oh my! Bonds that are lost, stolen, mutilated or destroyed can be replaced free of charge as long as we (the Bureau of the Public Debt) can establish that the bonds haven't been cashed. To assure that the bonds can be traced, owners should keep records of bond serial numbers, issue dates, registration and Social Security or taxpayer identification numbers in a safe place separate from the bonds. (The Savings Bond Wizard is a great way to do this!) Just complete the Form PDF 1048 to get your bonds replaced. On this form, provide the approximate issue date along with the complete names, addresses, Social Security number that appeared on the bond and the bond serial number. If you don't know the serial number or denomination, just write "unknown" in the space provided.

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Certificates of deposit

Do you have money sitting in around in a bank account or money market fund. It isn't earning very much is it? Are you concerned about putting your money in a CD because of potential penalties for early withdraw? I had the same fear as well until I found out that the interest penalty for early withdraw is only 90 days interest.

For example: I was earning .6% interest in my money market and I decided to put some of the money into a 5 year CD. The CD was paying 4% per year. So even if I kept the money in for only a year I would have earn 3% on the money, 4% interest with a 1% penalty for the early withdraw.

So after finding this out I realized that there really wasn't any penalty for me to put most of the non checking account money in a CD for savings for the future vs. the money market.

Long term disability insurance


Does your company offer long term disability insurance? At most companies it is an optional insurance that you have to pay for. I believe mine is around $40 per month. I have actually had one company where is was free, but those I few an far between.

Why should you sign up for long term disability (LTD) insurance? Long term disability insurance is something that most young people don't want to sign up for. They figure I will never be disabled and won't need it. Long term disability programs vary, some pay 50% to 66% of your salary for life up to a certain benefit amount and life time amount. For the price of a cheap family dinner per month or roughly a cup of coffee per day it is worth the price to sign up for LTD at your company.

Can you purchase long term disability outside of a company? The answer is yes, however in most case it will be very expense for you to purchase this type of insurance on your own directly from an insurance company.

Rainy day funds - saving for the unexpected

It is always important to plan for the future we never know what will happen, loss of job, unexpected home repairs, car replacement etc. An important strategy for life is to start a rainy day fund. I know it is difficult to do when you have to pay for everything in your life and it seems like you never have enough money to meet the monthly obligations. However, whether you set aside $25 per month, $200 or $2000 per month a rainy day fund is important. After your fund gets to a certain size you may want to move it into a long term certificate of deposit.

How to save a rainy day fund
I don't know if you are a disciplined person or not. I always have good intentions to set aside something for the future but it doesn't happen. So I have found the best way to do this is through automatic checking account withdraws. Most banks and credit unions will setup an account for you that can be withdrawn from your account each month. This money is usually available to you through and online transfer or through and ATM or going to the teller at the bank.

If you are successful and the rainy day fund ends up growing to a good size you will sleep a lot better at night knowing that the money is there incase you need it.

Paying off your credit cards getting out of debt


Paying off your credit cards, getting out of debt!
Everyone says they want to get out of debt.  How would you like to be debt free?  Most people want to end the dependancy on credit cards and payoff their credit cards. Going bankrupt is not an easy thing to do and it is even harder to do now days since the law changed last October.  Another problem is even if you do go bankrupt your creditors sell the bad debt to a collection agency for penny's on the dollar and they still come after you and hound you for the money.

I purchased John Cummuta's Transforming Debt Into Wealth program on CD. I believe it was a $36 program, I ended up selling on it eBay after I was done listening to it. It was well worth the money and the time to listen too. Her are some of the strategies in his book:
  1. First of all cut up all your credit cards except the one with the lowest interest rate. Do not charge anything that you cannot payoff that month.  
  2. The second step is to payoff the highest interest rate cards first.  This makes obvious sense but most people don't do this.
  3. Pay the minimum amount on all cards except the one with the highest rate.
  4. Pay as much as you possibly can on the card with the highest interest rate.
  5. When this card is paid off switch to the next highest card.
  6. If you continue to payoff cards the extra $20 or $50 per month from each paid off card needs to be rolled into the next card.  This will create a snowball effect that will help you pay of your debts even faster.
  7. Continue to apply this strategy until all the credit cards are paid off.  Don't get discouraged it could take you years to accomplish this.
  8. Remember: You need to stop incurring additional charges are your credit cards.  If you want to go out to a nice dinner, don't put is on the credit card.  If you are going to go on vacation make sure you can pay for it prior to going on the vacation.
  9. After you have paid off the credit cards start the same process on the car payments, boats, toys, etc.
  10. Apply the same strategy to your house.

    Remember: your life style may appear to most people that you are making the big bucks and living the high life. However, one definition of wealth is a math question, how many months can you and your family last on your current savings. If your annual expenses are $40,000 and you have $20K in the bank you can last 6 months. However, a lot of people are not even in this situation.

    The best way for you to change this ratio is for you to lower the monthly expenses by paying off the high interest credit cards and stop buying things on time. When you get to a stable point in your finances you should be able to setup your credit cards to pay them off automatically by withdraw from your checking account.