Debt Consolidation Loans

A debt consolidation loan is a loan designed to roll expensive, short term (credit card) debt into a longer term loan with lower interest rates. Usually this is done with a second mortgage or home equity loan, although some home buyers will roll short term debt into a new mortgage, either at the time of purchase or when refinancing the home with a new mortgage. Debt consolidation is one of those ideas that looks great on paper, but comes with several potential hidden pitfalls.

A debt consolidation loan, when viewed from a distance, seems counter-intuitive. It’s going further into debt in order to retire debt. It makes sense if the debt being retired is the result of unexpected expenditures, such as medical costs or unexpected unemployment. If the debt consolidation loan is consolidating credit card debt that was accrued as the result of unrestrained spending, then a debt consolidation loan must be accompanied by a change in spending habits. Otherwise, the credit cards that are paid off with the loan are going to remain an alluring option, and soon there will be another set of big credit card charges to pay off in addition to the debt consolidation loan.

It is particularly important to decelerate on credit spending after taking out a debt consolidation loan that is secured by your home. If the household debt once again becomes unmanageable and one of the delinquent debts is the consolidation loan, it is possible to lose your house. There are a number of other reasons to look closely at using a home equity loan for debt consolidation.

A home equity loan, or second mortgage, can eliminate the option of refinancing the home when interest rates become particularly attractive. You will have to seek the permission of the lender on a second mortgage in order to refinance the primary loan. Some lenders will allow this, some will charge a fee for it, and some won’t allow it at all.

Your debt consolidation loan may also render you immobile, if your home value takes a dip and becomes worth less than what you owe on it. If you wish to move, you would have to make up the difference between what you can sell the home for and what you owe on it. Many lenders in Las Vegas will not allow second mortgages to cause your home indebtedness to exceed 80% of the home’s value. Others, however, are willing to lend up to 125% of the home’s value. That sort of debt consolidation loan is a good idea only if everything else remains positive – the home grows in value, you keep your job, and your short term debt does not start building again.…

20-year Fixed Mortgage

A 20/80 mortgage (also known as an 80/20 mortgage) is a scheme wherein the borrower takes out two mortgages on the home – one principal mortgage in the amount of 80% of the sale price, and another that will allow him/her to come up with 20% of the sale price as a down payment. This second loan (the 20 in the mortgage name) can in fact be ten or fifteen percent of the home’s price, if the borrower has some cash in the bank to throw into the down payment pool. If this smaller loan, also called a piggyback loan, is the full 20% down payment then the home is being 100% financed.

The 20/80 accomplishes a couple of things. If your credit rating is acceptable, the twenty percent down payment may qualify you for a fixed rate loan or may get you a better interest rate. It will also void the requirement that all lenders have for mortgage insurance, if the down payment is less than 20%. While it is called personal mortgage insurance (PMI), it actually insures the lender against the possibility of a loan default. PMI can add $100 or more to your monthly mortgage payment and is required until such time as the borrower holds a 20% equity in the home. That could be a long while if the borrower were to use some other type of loan to get 100% financing.

The smaller of the 20/80 mortgage loans will have a shorter lifespan than the principal mortgage, and a higher interest rate. The interest on both loans, however, is tax deductible. The additional tax deduction combined with the elimination of PMI causes many people to make the argument that the two mortgage scenario is in fact cheaper than a loan that requires PMI, even though the borrower is making dual mortgage payments.

The true answer to the question of a piggyback loan versus PMI depends on the borrower’s tax bracket, on the length of time he/she will be in the home and on such things as the rate of home appreciation. Since PMI terminates when the homeowner’s debt is down to 80% of the home’s value, a high appreciation rate will shorten the required insurance period. If the two loans come from separate lenders, the borrower may be facing two sets of closing costs – a substantial added expense.

The 20/80 mortgage has been the choice for many a new homeowner over the last five years. Financing of this type means that it will take a while to build up equity while the housing market remains flat. If you choose to enter into 100% or near 100% financing of this type, it’s important to consider the length of time you will bear the burden of two mortgage payments and balance that against the tax breaks you have accrued with the two deductions.…

Adjustable Rate Mortgage Loans

The adjustable rate mortgage loan is a loan for the rest of us. It is the only type of loan available for “subprime” borrowers – that is, any of us that don’t meet the credit score mark – and for people who need to finance more than eighty percent of the house. The adjustable rate mortgage can also be a good financial decision for people whose careers are growing and who may be facing a mobile future.

An adjustable rate mortgage (ARM) maintains a low initial payment for an initial period – usually three, five or seven years. These loans are known as 3/1; 5/1; and 7/1 ARMs. The monthly payment then adjusts upward as the interest rate rises, and is adjusted annually based on a money market index. A loan of this type can be a good bet for someone who is planning to move in five years – the low payments in a 5/1 will coincide nicely with a planned sale of the home. People who want to buy the most expensive house within reach can extend that reach with an ARM.

How Large a Mortgage Loan Can I Afford?

From a mortgage lenders perspective, there are a few financial guidelines that usually come into play. Your monthly housing costs should probably not exceed 32% of your gross monthly household income. Housing costs include mortgage payments, inspixaurance, taxes and utilities.

Secondly, your entire monthly debt load should not be any more than 40% of your gross monthly income. This includes housing costs, and other debts such as car payments, personal loans, and credit card payments. This is the reason for reducing credit card debt as much as possible before calling on the lending institution. While these formulas are no longer hard and fast, a calculation of some sort regarding total indebtedness will come into play. The less you owe, the more you can borrow – and at better terms.

From your perspective, other factors are going to include the cost of assembling the down payment and the eventual impact of an ARM when the monthly payment adjusts. It is important to consider the eventuality of an adjusted ARM payment, even if you intend to refinance or you plan to move and avoid the higher payment level. Sometimes those plans don’t work out.

Most ARMs have interest caps, but the payments can climb steadily nonetheless. The more exotic ARMs such as option ARMs and balloon payment loans carry risks of their own as well. To some degree, affordability is a combination not only of how much you can afford to pay in the first month of the loan, but the amount of risk that you’re willing to take on as well. That risk can be betting on a good refinancing rate in five or seven years, or on a seller’s market when it’s time to move, or on a growing household income.

Solving the Mortgage Loan Puzzle

There are no dumb questions when you are mortgage shopping. Too many people sign on to mortgages they don’t understand. Either they are dazzled by the new dream house or they don’t retain all the financial minutiae that is thrown at them, or the mortgage isn’t properly explained by the broker. So maybe mortgages are like medicine – a second opinion makes sense. That’s why we supply consulting services on this site, and why multiple mortgage options and home mortgage lenders work in partnership with us. It’s the biggest investment most of us ever make – so keep asking until you’re sure it’s the right deal and it’s one that you fully understand.…

7 Ways To Eat Cheap In The City

Eating out is very expensive. I’m not big on eating out but when you’re in the city, you can’t avoid it.

Moderation is the key to saving money when eating out. Don’t eat out often. If you do find yourself in a situation where you have to eat out, here are some tips for saving some money.

1. Lay off the gourmet coffee.
After wasting hundreds of dollars to Starbucks, I learned to like regular coffee.

2. Grab snacks from a convenience store instead of a restaurant.
Stop by the local 7-11 and grab a hot dog. They’re delicious, fast, and it saves you a lot of money.

3. Check out eateries farther from the city’s center.
Get a little workout and walk away from the city to find cheaper food.

4. Split entrees with another person.
It keeps your wallet fatter and your waistline thinner.

5. Bring coupons.
There are websites that allow you to print out coupons to restaurants. You can also clip them from various local publications and newspapers.

6. Get food to-go instead of dining in.
You can save money by not having to pay for tips. Plus you can save more money by going to a convenience store for your drink.

7. Bring food from home.
Yeah I know this doesn’t save you money when you eat out. Consider this a preventative step. When I go into the city, I like to graze on peanuts and protein bars brought from home. This saves me the most money of all of the tips listed.

Using these tips, I’ve spend about $15-$30 dollars a month eating out. Tip #2 and #7 especially keeps more money in your wallet.…

Why You Should Never Tell Your Salary to Your Friends

My mama always told me never to talk to anyone about my salary. It comes down to a few assumptions.

One assumption is that a lot of people equate their salary to the value of life. Example: If Andy makes more money than me, it means he’s more valuable to the company than I am.

Another assumption is that people equate salary to expected work effort. Example: If Andy makes twice as much as me, it means that he should be doing double the work that I do.

Here lies the problem: If my perception of Andy’s efforts doesn’t match my assumptions, there’s going to be issues. For example, if Andy makes 2x more than me and I don’t *perceive* that he produces 2x more than me, then I’m going to become resentful.

Here’s why you should never tell your friends how much money you make.

They’ll get envious. If you make more than your friends, they’ll becomes jealous and eventually, resentful.

They’ll feel superior. This goes back to one of the assumptions. If they make more than you, they’ll figure that your worth less than they are. Then you might have to deal with a superiority complex.

They’ll pity you. This goes with the “superiority” reason. If your friends think you make too little, they’ll treat you like a charity case. This can be good or bad depending on your character.

They’ll use your salary as leverage. This one becomes a problem when your friend works at the same company. If they know your salary, they can drop the salary bomb when asking for a raise: “I’m underpaid. I heard Henry makes $5,000 more than me.”

You’ll need extra justification for frugal spending habits. You’ll have to give another reason in addition to “I don’t really have the money.” If your friends know your salary, they’ll start saying things like “C’mon. I know you got the money.”…