How Much Life Insurance Do You Need?

Happy Friday. It looks like most of the brutal heat and humidity has subsided somewhat across the country, so that means more of you are likely able to actually enjoy the outdoors this weekend. I know around here at least it’s been a huge improvement. Instead of being 95 degrees and incredibly humid it’s now in the 80s and not nearly as humid. It’s really nice to just be able to open the windows again and let some fresh air in!

In case you missed it, a few weeks ago I released my free Invest Like a Pro eBook. There’s still time to get your hands on a copy, so go check it out! And don’t forget that you can follow me on Twitter and Facebook where you can get additional updates, ask me questions, or otherwise just chit-chat. I love being able to interact with readers so be sure to add me to your social networks.

Finally, I’ll leave you with a picture of my daughter getting a head-start on her financial education. I was trying to stick to just learning how to count, but she keeps reaching for the heavy reading! And I don’t know if I ever officially mentioned it here or not, but we are expecting a son in just under two months now, so I’ll have my hands full this fall. Good thing I now work from home!

Daddy, will you read the article about Europe’s debt woes to me?

What Is Better from a Tax Perspective: A Roth IRA or a 401k? – By now most people know the general differences between pre- and post-tax retirement accounts, but which one is really better from a tax standpoint? It isn’t as simple as just saying the Roth IRA is better because it’s tax-free. Here is a more detailed look.

5 Good Reasons Buying a House Requires Planning – Planning is key if you don’t want to get burned when buying a house. Just ask me. We’ve bought two houses in just six years and the first one was rushed. Because of that we ended up in a house that didn’t meet our needs, didn’t hold its value, and we were left paying the consequences. So, here’s how to plan for your next home purchase.

A Primer on Bonds – II (Investing in Bonds) – For whatever reason, bonds just don’t get much attention. They obviously aren’t as exciting as stocks, but they are valuable components of any successful portfolio so it pays to understand what they are, how they work, and what role they should play in your portfolio.

Save Money on Razor Blades – Any guy who shaves regularly knows how expensive buying new razor blades can be. I actually stopped shaving completely and grew a full beard earlier this year but I found out it was just as much, if not more work than shaving regularly. You had to shampoo it, groom it, trim it, and took even more time than a quick shave. There’s just no escaping it, but at least you can save a few bucks on blades now.

A Frugal Daughter’s Guide to Back to School Shopping – It’s that time of year again, and the kids are soon back to school. That means parents everywhere will be spending a good deal of money on new clothes, school supplies, and much more. Here’s a frugal back to school shopping guide to ease the pain.

A Closer Look at a Lending Club Default – I’ve been a big fan of Lending Club and over the past few years now I haven’t had a single loan default and my rate of return is a little over 12 percent. It’s hard to beat that. But anyway, here is a closer look at Lending Club’s default rates.

Get Out of Business Liquidation Sales: Not A True Bargain – It seems like a business that’s liquidating all their assets when they go out of business will mean you can get all sorts of great stuff for pennies on the dollar, right? Not so fast. A lot of these sales aren’t much of a bargain after all.

What to Invest When You Are Young – Investment needs change as we age, and most of us today have a pretty good idea of what we need to be investing in. But what about the young people? Those just setting out, making money for the first time, and with decades of investing ahead of them? Here’s a good start.

How to Recover From a Lost Wallet – If you’ve ever lost your wallet you know how helpless you can feel. We keep so many important in our wallets, not to mention money, that when it’s lost or stolen we don’t even know where to start. Here’s your lost wallet recovery plan to get you back on track as soon as possible.

The Top Ten Cities for Young Professionals – Some cities are better than others. That’s just the way it is. But different cities are better for different things. For young professionals it’s all about finding a great job, great people, and an active social scene. Here are some of the best cities in the country for upcoming young professionals.

HSA Contribution Limits: Health Savings Account Rules – I’ve written about HSAs a few times, but never really dug deep into the contribution limits or other rules surrounding them. Here’s a good starting point that covers all the important details.

Are Debt Consolidation Companies Your Friend? – Consolidating debt sounds like a good idea, right? After all, you can turn many payments into one, get a better rate, and pay off your debt even faster. But is it really that easy? Here’s some information you may want to check out before calling up that debt consolidation company.

Are You Aware of the Most Common Credit Threats? – We all know failing to make a credit card payment is bad news for our credit score, but what are the other common credit mistakes? Here’s a list of things you absolutely must avoid if you want to maintain a good credit score.

Can you believe what mortgage rates are these days? As of this post Bankrate shows a 30-year fixed at around 4.6% and a 15-year down to almost 4%. That’s pretty amazing when you think about what rates were just five years ago. Back then you were probably looking at rates closer to 7%. So, all this mortgage rate talk in the news has a lot of people thinking about refinancing their mortgage. I just wrote about that yesterday and made an argument that even though rates may be much lower today than your current rate it still might not be beneficial to refinance.

I know firsthand. We are stuck with two mortgages right now and it doesn’t make much sense to refinance either one. On our old house that we’re trying to sell we’re paying 6.75%. That sucks, and while a lower rate would certainly trim some money from the monthly payment, the few thousand we’d be paying up-front to do the refinance and/or the points we’d initially be paying would be a waste if the house does sell inside of a couple years before we break even. So, it’s a bit of a gamble. If it takes a long time for the house to sell, we may still come out ahead. If the house sells in the coming months we could lose out on some money.

Then we have our current house which was purchased less than a year ago. Rates were pretty good last year and we got this one for 5.25%. Even though it’s good, I’d love to be paying 70 fewer basis points to be sure. Even if we were able to get one of the lowest rates the savings would only be about $50-60/month, which stretches out the break even point pretty far. But there’s a good chance the numbers wouldn’t work out to show enough equity for a traditional refinance anyway given the wonderful Michigan real estate market.

So, I get to sit on the sidelines while people are taking advantage of these record low rates. What about you? Are these low rates getting you to think about refinancing, or have you already?

 Loading ...

Record Low Mortgage Rates Make Refinancing Attractive

Mortgage rates continue to fall to almost unheard of levels. We’re talking about 30-year fixed rate mortgages hovering under 5%, and 15-year rates at just 4%. These rates are sharply lower than just a few years ago. But just how much can you save with a lower mortgage rate? Surprisingly, the savings can be quite substantial.

Let’s look at a $200,000 30-year fixed-rate mortgage. At 7% your monthly payment would be about $1,330 a month, less any PMI, escrow, etc. Now, take the same loan at 4.5% and the monthly payment drops to around $1,013. That’s more than $300 less each month. I don’t know about you, but I wouldn’t mind having an extra $300 in my pocket each month. And when you look at the total savings over the life of the loan, the 4.5% rate will save you over $95,000 in interest. It’s no wonder people are looking to buy a house or trying to refinance right now, but is it worth it?

Tighter Lending Limiting Loans

Even though rates are low, it’s more difficult to get a loan or to refinance today. Banks have changed their lending standards and it takes very good credit to get the best rates. A few years ago almost anyone could get a decent rate. If you bought a home with good, but not great credit a few years ago, you may actually find that the rate you can get today is not much better than your current rate. In some cases, you may be unable to get a loan or refinance at all.

There are also new fees being introduced to help lenders deal with risk. New risk-based pricing from Freddie Mac and Fannie Mae adds fees to mortgages based on a borrower’s credit score. In order to avoid the extra fees, borrowers need to have a FICO score of 740 or higher. While a score in the 700s is historically pretty good, you can now find yourself on the hook for added fees even with a 700-something score.

You Need Equity

Bad news for those of you in the more depressed housing markets. In order to refinance you usually need to have some equity in your home. A traditional refinance will allow you to refinance up to 80% of the home’s value. Well, if your $300,000 home you bought a few years ago is only worth $250,000 now and you still owe the bank $225,000 you very well may be out of luck. One exception is the Making Home Affordable plan, which can allow some refinancing on certain loans for certain people to be done without equity, but not everyone will qualify.

Thinking About Points

A lot of people think about paying mortgage points as a bad thing, but that isn’t always the case. The trend has been for lenders to require higher points for rates these days than a few years ago as they are looking for more money up front. Since points are essentially prepaid interest, this puts more money in the bank’s pocket early on. In some cases, paying points can result in a better deal, while some situations may end up costing the borrower money. Generally, the longer you plan on staying in the home, the more attractive it would be to pay points.

Julian Hebron, vice president and mortgage consultant at RPM Mortgage in San Francisco says  that paying points gets borrowers a bigger discount these days:

Historically, one point in fee gets borrower a rate that’s about 0.25% to 0.375% lower. Now one point gets the rate about 0.625% to 0.875% lower.

Recently, you could get a $417,000, 30-year fixed-rate mortgage at a rate of 5.625%, paying zero points. By paying one point (or $4,170) on the same loan, the rate went down to 4.875%, saving the borrower $261 per month in interest cost.

At this monthly savings rate, it takes 16 months to pay back the $4,170 and everything from that point forward is a benefit to you. Traditional breakeven periods are usually double this length of time.

Other Fees and Costs

Aside from paying points and possibly paying a higher rate because of your credit score, you still have all the other costs to contend with. It costs money to prepare a loan, and the underwriting and origination costs can easily be a few hundred dollars. You’ll also need an appraisal, which can again cost a few hundred dollars.

When you factor in all the costs associated with closing on a new mortgage or even a refinance, you can often expect to pay at least 3% of the loan amount in fees. This is especially important when you’re thinking about a refinance as the costs may outweigh the benefit of a lower rate in some cases. When you consider a $200,000 laon may end up costing $5,000  in total to refinance, what’s the breakeven point? If you’re saving $200/month by refinancing, it may take you nearly three years to make it worthwhile financially.

This is an important consideration if you’re unsure just how long you’re going to stay in the home. If the future is uncertain and you may be looking to move in a few years you could end up spending more to refinance than what you actually save. Also, remember that if you’re refinancing for the same loan term you’re resetting the clock. If you had ten years into your existing mortgage and then refinance into another 30-year loan you now have another 30 years before the loan is paid off instead of just 20.

A Lot of Things to Consider

As you can see, just because we keep hearing about how low the mortgage rates are these days, it isn’t always as easy as going to your bank and getting a new loan. With banks limiting these rates to those with the highest credit, regular people with average credit may not be able to find a loan or refinance for anything near what’s being discussed in the news.

In addition, if your future is uncertain and you may need to move in the next few years, the added points  and/or fees required to get the low rate or the fees associated with a refinance may actually cost you more money if you ended up not staying in the house as long as you expected.

So, if you’re considering the purchase of a new home or refinancing your existing mortgage, it’s certainly worth checking around to see what kind of rates you qualify for. But you want to make sure you’re actually going to save money and you’re not just jumping into a decision because the rates are at historically low levels. There are deals to be had out there, but it may be harder to qualify for them, and there may be other strings attached that make the lower rate not as attractive as it seems. Check to see what the latest refinance and mortgage rates are in your area.

It’s the middle of summer and most of the country is is still enjoying weather that is anything but what we’ll see in December, but that doesn’t mean you shouldn’t be thinking about Christmas. I know, you probably hate it just as much as I do when the stores seem to push their holiday merchandise out earlier and earlier each year, but that’s the beauty of thinking about Christmas in July–you may be able to avoid a lot of that holiday stress completely.

When it comes to the holiday season there are usually two things most people lack: time and money. We often wait too long to get around to shopping and that means rushing around in the weeks leading up to Christmas and stressing out or buying items that we didn’t really want. If the lack of time isn’t bad enough, most people find they didn’t budget enough (if at all) for the holidays, and that leads to spending money you may not have, putting the purchases on credit cards, or skimping on giving presents altogether. It doesn’t have to be that bad and if you start today, you can easily put aside $500 to ease the holiday budget or pick up a few items early on before it’s too late.

Start Today and Save $500 or More by Christmas

Don’t think there’s any money left in your budget to save for the holidays right now? Think again. You basically have 22 weeks left until Christmas, so that means it takes less than $25 a week to save up $500. You don’t have $25 a week to spare you say? Don’t be silly. Think about the things you buy or do each week that can come out of your budget to make this money magically appear. Just cut out one regular coffee you buy on the way to work and save $2.50. Take your lunch into the office just one day a week and save upwards of $10. Cook a family dinner at home instead of heading out just one night and you could save the entire $25 or more right there! If you do go out to eat just order a water instead of soda or adult beverage. Water is free and it will save you a couple of dollars each time.

See, it’s not that hard. You don’t have to cut your cable subscription, turn in your iPhone, or resort to using the internet at the library to come up with the money. Save two dollars here, five or ten dollars there, and before you know it you’ve come up with the cash without even missing it.

Now that you’ve found the extra $25 each week you need to actually save it. If you already have a savings account it’s easy enough to just deposit it there, but an even better idea is to create a separate savings account just for your holiday budget. This keeps it a bit out of sight and out of mind so you’re less tempted to tap into it for other things. So, the best bet is probably an online savings account such as FNBO Direct or Sallie Mae savings. These accounts integrate seamlessly with your existing bank accounts for easy fund transfers and they carry some of the best interest rates out there. Sure, you won’t make a ton of interest on a few hundred dollars, but something is still better than nothing.

So, what are you waiting for? $500 may not entirely cover your holiday budget, but it will put a nice dent in it for sure. But the best part is that once you have this account and recurring payment scheduled you can start saving for next Christmas as soon as this one is over without changing a thing. When you save $25 a week for a full year you’ll end up with over $1,300! Maybe you skip Christmas at that point and treat yourself to a well-deserved vacation. It’s up to you.

Getting Some Gifts Out of the Way Early

Why wait until after Thanksgiving to seriously start thinking about buying presents? There are a lot of people in your life that you’ll be buying for that you know really well and can find something they will like at any time of the year. If your wife has been hinting at some new jewelry for the past few months you can start looking around for deals now rather than wait. By starting early you’ll have more time and won’t be rushed into a decision and it’s the slow season for things like jewelry so you will likely get far more for your money. When it comes to the kids you might not know what the must-have toy will be yet, but that’s fine. Kids love almost any toy so you can pick up a toy here or there in the coming months and tuck them in the back of the closet.

But here’s the best part. Every gift you pick up early is one less gift you have to pick up come November and December. That means less travel in the slush and snow for your colder climate folks, less time fighting traffic and finding parking, and less time fighting the crowds and dealing with the inevitable nasty surprise of a must-have gift being out of stock. Instead, you’ll be sitting by the fireplace with your egg nog while everyone else is pulling their hair out at the mall a few days before Christmas.