Home Loan Focus

Archive for the ‘financing’ Category

Here are some Reminder or Refresher Tips that we can all benefit from to help continue to manage our credit card debt effectively.  As a general rule of thumb these need to be executed with the overall strategy of paying down and off all credit card debt as rapidly as possible.

1. When Setting up the card, choose a convenient due date that fits your cash flow cycle or incoming paychecks.
2. Schedule a new due date if your cash flow cycle or paycheck cycle changes
3. If you mail your payment, send it at least 5-7 days before the due date. 
4. If using a bill pay service do not rely on the services’ scheduling software to get your payment there a day before hand.  Again make payments several days before the due date to allow for problems or delays from your bill paying support system.
5. If your payment gets close to the due date or if it goes past the due date, call the company and pay over the phone if they allow you to do that.  Be sure to ask them to forgive the late payment and dismiss late fees when you pay over the phone.  Use your ability to pay over the phone as leverage to get these items corrected "Will you remove late fees and keep my interest rate at the same level if I can pay you over the phone right now?"
6. Review Your Statements regularly to insure that you do not go over your credit limit and to insure that your credit has not been hijacked to buy energy pills or take a vacation around the world.
7. Work to stay at least 5% under your credit limit at all times and for maximum credit try and stay below 90 – 50% of your credit line.  Zero percent of course is the absolute best.
8. If your balance takes your percentages over these levels, consider calling to ask for a rate increase, but do this only while considering the other ramifications on your credit, such as the number of credit inquiries that you have had in the last 90 – 180 days.

US News and World Report offers up a good list to help reduce your borrowing cost that we have paraphrased below.

1) Borrow as little as possible.

2) Check your future salary to see what you can afford in the future.

3) Shop around for the lowest rates.

4) Fill out the FAFSA to qualify for low-cost federal student loans.

5) Don’t charge tuition or other school expenses to your credit card.

6) Consider nonprofits offering access to loans such as MOHELA and NHHEAF have offered lower-cost loans. Graduate Leverage, a cooperative, is also offering competitive terms.

7) See if you can qualify for one of the many loan repayment or loan forgiveness programs, so your employer—not you—pays off your student debts. 

How to Reduce Your Borrowing Costs – US News and World Report

In addition to these tips, its also very wise to do some paid work while you are in school.  It generates income to help keep your debt and borrowing down while building up your experience.  Many companies are having a very difficult time finding students to work for paid coops these days.  The work may not always be glamorous (that’s why its called work) but it can save you a fortune in interest and give you some great work and life experience rather than wasting money on funny t-shirts and concerts.

Three banks pulled out of the Student Loan industry this week citing higher risks and more difficulty in making profits from dropping interest rates.  M&T, HSBC and TCF Financial group, which represented about half a percent of the 2006 100 billion dollar plus student loan market are packing it in.

M&T spokesman Phil Hosmer said two factors drove the Buffalo-based bank’s decision: difficulty in reselling the loans on the securities market, and reduction from $28 billion to $4 billion in the federal subsidy for the loans. Interest rates, set by the federal government, also are set to fall from 6.8 percent to 3.4 percent in 2011.

“It makes it more difficult to make a profit and reduce your risk,” Hosmer said.

3 banks give up on student loans — Page 1 — Times Union – Albany NY

The inability to securitize student loans definitely spells a problem for potential borrowers and students as well as people looking to refinance their existing student loans.  Mix into this the problems with the mortgage industry and if people start defaulting on mortgages, their student loans may not be far behind.  Many people will definitely watching this market for signs of another crisis the early exit of some banks may just be a mattress topper hiding a problems underneath.

Gold hit $1009 an ounce this week.  Right now the dollar is dropping in value around the world and the dollar value of gold is going up.  If you are trying to buy a house right now, inflation could begin to be an issue on two levels. 

The first level is that a house is a real physical thing.  It is ‘real’ estate or ‘real’ property.  Money, cash is just an item with a perceived value.  When you try to buy real stuff with something of diminishing perceived value, you have to spend more and more of the money to actually buy something.

That takes a toll on banks as well.  Interest rates are set according to a banks need to make a profit on loans, to cover risk on loans and to fight inflation.  If inflation increases (as the value of the dollar decreases) then banks will have no choice but to increase mortgage interest rates.  Otherwise when you repay a loan to a bank, you are essentially paying them less in real money than what you borrowed because the money they gave you at the origination was worth something and that same amount of money when repaid is worth less.

There is however something that you might have that may be worth more in cash now than when you originally bought it.  That something is gold.  If you bought a gold ring a few years ago when gold was selling for $380 an ounce, that ring could be worth three times as much now.  If you bought it a couple years ago when gold was worth about $600 an ounce it could be worth twice as much very soon.

If you are looking to buy a home, (something real and useful) you might be able to come up with the down payment by selling some gold, possibly jewelry or other items.  Similarly, you could use your jewelry to pay off your existing debt, or buy anything that is something real whether you are upgrading your home with a small business phone system or something else that you might be able to use earn more money, to earn a living or to survive a recession while inflation attacks your cash.

Bloomberg.com: Canada

Let’s get real about our home investments for a second.  There are several trends that you need to not only know but appreciate as you make your home purchasing decisions this years:

1. The Real Estate Market has been inflated
2. Mortgage Lenders have engaged in fraud that increased the real estate market inflation
3. Builders have also served to inflate the market
4. Both the mortgage market and real estate market are in correction now

Here’s what these trends mean for you.  The prices have been high, even too high and that put money in the pockets of builders and mortgage bankers and brokers.  That money came from people just like you.  Now, if you want to give your money away for nothing, then you are wasting your time reading this column.  Feel free to click away now.

The correction is taking place today and on the home shopping front the best place to find homes that have had their prices corrected the most is in the foreclosure market.  These homes have corrected significantly and some may even be value buys.  Why would you pay say 40% more for the same house through normal channels when you can possibly save $80,000 on a home that is in foreclosure.

Here are just a few examples in one of those counties that used to be one of the most inflated markets in the country, southern California.

You can find recent san diego foreclosure listings to review or la jolla foreclosure listings to review. and information from any realtor, but in doing so you essentially have to set up a relationship with that realtor.  That’s fine, but in the world of the internet, if you can do the research before connecting to a realtor so much the better.

Foreclosure listings work differently than normal real estate listings and the rules are different across the country.  Typically, you do not get the same time period to review a home or even have it inspected.  These properties are typically sold ‘as is’.  That means you could end up with a lemon.  You should approach these homes a potential money pits or homes that are only partially constructed.  You may even need to take out a construction loan and fix the place up before you can get real financing.  The point is, do not expect to go in and make a bunch of demands on the seller (the bank).  You are buying the house at what should be bottom basement prices.  This purchase should be all about the price.  If the price isn’t a sweet heart of a deal, then go somewhere else.  DO NOT fall in love with a foreclosure home when you are buying it.

If you can not approach a foreclosure property with this type of discipline, then you will be better off paying the 40% premium and looking for normal real estate listings in San Diego to buy.

We previously tried adding some credit and finance calculation tools a couple weeks back.  The tools were sponsored by credit companies, and they did not deliver what we were looking for.  You’ve probably seen teaser calculation tools in the past.  They ask you for some information to calculate a new payment or what if scenario on your finances and before you know it, you have no answer and they are sending your personal information off like a loan application.  Well, we think that is bogus. 

If you want to check out our sponsors, more power to you, but we want you to do that with your eyes wide open and preferably when you have all the facts in front of you and all your ducks in a row.  When you negotiate a new mortgage or even a refinance, you need to have everything in your finances straight and tight if you are going to actually get the highest rate possible.

With  that in mind we have established several tools to help you with this without having to send any information at all to a sponsor.  If you have ideas about additional tools that we should add, please let us know and we will try and develop it.  The bottom line is that we want you prepared to get the best deal no matter if you are financing a jumbo mortgage in San Francisco, looking into the real estate Branson market for a possible relocation, or refinancing credit cards into a home equity loan (not a good time to do that in general.)

For many people their home is their largest investment.  Second to that investment many people often times have life insurance.  These days most people that have life insurance have it in the form of Term insurance.  This means they pay a monthly, quarterly or yearly rate for life insurance.  If they pass away, a sum will be paid to their heirs.  However, there is no cash value to this policy.  If they stop paying the coverage stops and they are out all the money they paid in over the years.

There are several other forms of life insurance such as whole life insurance that essentially builds up a cash value to the policy.  These policies can be borrowed against.  As many Americans are facing foreclosure, some people are turning to life insurance like IRAs and 401ks as a source of money to pay their mortgage.  This can serve to protect their largest investment (their home) in the short run, but if there is no end in sight then it could be a bad move.  Depending on your state, your life insurance, even your retirement could be protected under bankruptcy laws (consider OJ protected his retirement from his former in-laws through Florida’s protective bankruptcy legislation).  However, if you borrow on your life insurance to pay your mortgage payments and still go bankrupt then you could end up with out a house and without life insurance too!

The same thing goes for IRA’s or 401ks.  It can also apply to people considering the possibility of tapping their savings or life insurance to come up with a down payment.  This is just as risky, but these people are presumably not so close to bankruptcy and buying into a market at current levels could make a good return on their money . . . IF the market has bottomed out!

Wall Street finally figured out what most Americans already know.  Inflation is back.  The Consumer Price Index rose in January and that hints at inflation being on the rise.

Its small wonder that inflation is hear as milk hits $4 a gallon, gas hits $3.10 and oil keeps hovering over $100 dollars a barrel.  What is amazing is that the Fed has managed to keep its basket of goods that is used to calculate the CPI shielded from reality for so long!

This explains quite a few things, one of which is why home interest rates are still fairly high and even more so why all other loan rates are high.  When inflation is present banks tack it on to their interest rates to cover  . . . . the cost of inflation.

The Fed can lower rates all day long, but there is only so far down they can go, while inflation can keep going up, especially if the country keeps spending money on a war that we can no longer financially afford.  Things have to change and they have to change for the better quick or they are going to get ugly for the long haul.  If you can lock in a low interest rate loan, now is definitely the time to do it.  If inflation hits the banks, you will not see a rate drop.

In the meantime, get out and gets some exercise, take a yoga class or something, if its too cold out, hit the elliptical machine (keep your knees safe) and burn off some of that stress.  All of us are going to need to keep our disposition in check while we simultaneously keep our noses to the grindstone.

In the meantime, if you can not sell your house, start thinking about how you can rent it out.  If double digit rates hit the country in the next few years, not too many people will be able to afford to buy and rental demand will increase.  This could be an investment or it could be a necessity of financial survival depending on your situation.

The Federal Reserve has moved interest rates down 1.25 percent or 125 basis points within 2 moves of .75 and .50.  Many people now feel that the Federal Reserve is likely to move yet another .50 percent the next time they convene maybe even sooner if some bad news comes our way first.

Planning to Refinance – Target July

Now for rate cuts to work their way through the banking and mortgage system, it usually takes about 6 months.  The banks have the technology to make decisions and actions faster.  They often times choose not to do so and only move under competitive pressure from their rivals.  In the mean time they will benefit themselves from arbitrage (getting their own better interest rate deal via the Fed and NOT passing that on to consumers).  Essentially for a few months, as long as they can hold out, they will pocket all the profits from the rate cut. 

Banks will not move their own interest rates down until their greedier volume hunting rivals start trying to take some of their business away with lower rates and offerings.  So the race to the bottom probably won’t kick off for another month or two and then it historically takes about 6 months to work its way through the system.  So if you are in a hurry to refinance, but you can hold out safely until summer, you could end up getting a better rate.

You will need to compare the potential savings then versus the savings that you forego in refinancing now. If you are financially strapped you should also consider whether or not you can keep paying your bills as is.  If waiting 5 months might put you in the danger zone, then consider refinancing now and maybe again in a year.  This might enable you to stair step your way down to the lowest rate possible.

In a future article we are going to talk about the importance of performing a Phase I Environmental assessment on certain types of properties before you buy.

This morning you might hear about President Bush’s Tax Cut stimulus plan.  He is releasing a newly revised stimulus plan today that would provide $800 for individuals and $1600 for married couples.  Bush hopes that this tax cut will achieve the same results that tax cuts in 2001 achieved as they helped to stave off a recession.  Back then the checks rolled in August and people spent the checks right away, buying lots of goods to help boost the economy either out of recession or in a way that cut it off before it really began.

I for one can and will use the money, but the reason why I will use the money is the same reason why this tax cut will not help the US avoid a recession.  I am going to take that full check and drop it on one of my credit cards.  That is the area where I have a need for an expense reduction both in monthly interest charges as well as in monthly payment requirements.  I am not going to go buy a new Wii or TV or clothes or any other stuff.  The reason is that I just bought a bunch of stuff for our household last month.  It was called Christmas and many Americans are going to do the same exact thing.

January is typically the month where people buckle down to pay off their holiday debt, bills, travel expenses etc.  This is not a spending month, this is a paying off debt month.

In the long term this tax cut is actually no tax cut at all.  Its more like a 1 year wash 2nd year tax increase.  That is because the tax cuts Bush wanted to make permanent are being completely abandoned to push this deal through.  So the money that we might benefit from today, basically comes out of our own pockets next year.  The year after that we pay more as well.

Now as  a general rule of thumb, when it comes to the government I’ll take a bird in the hand any day as its rare when the government actually delivers two in the bush, even when its Bush that is the one delivering.

How to Use Bush’s New Tax Credit to Save Your House from Foreclosure

Now I am going to put this money on credit card debt.  If you are working to save your own home from foreclosure, you should consider a different option.

A couple years ago if you had been given $1600, the smart money would have been to put that money into a directbuy home improvement, boosting up your kitchen, adding a bathroom or anything that might return you a home sales price of another $10k.  This year we are looking at falling home prices and possible foreclosures.  If you have a closing that is in trouble and the buyer is asking for some extra stuff, you might use the money to save the deal.  Unfortunately, that’s not likely for most people.

Odds are that if you are trying to save your home, you are better off using this money to make another payment and negotiate a refinance deal under one of the new FHA plans that is designed to help people on the cusp of trouble that have not yet defaulted.  If that isn’t an option, you might use the money to pay closing costs on an old fashioned (non-government backed) refinance. 

If you are not in trouble, you might invest the money in the stock market.  At about 12,000 the stock market is looking like a value play.  If stocks are not your thing, you might use the money to make an extra principle payment on your home or home equity loan.  This could save you money over the life of your mortgage.

Use the money to Get Green

If you wanted to remain true to the spirit of the tax cut, you might even use say $300 to go invest some money in LED light bulbs.  Upgrade the bulbs in your house with these energy saving bulbs and you will decrease your electric bill for the long term.  You can still use the remaining money to pay down debt, or just park that money in a rainy day fund.  Heck you could even bury some of that money in the back yard!