Paying a loan in half the time does NOT mean making double payments. In fact, many homeowners are surprised at how little they need to pay on a shorter length loan.
For decades, the 30-year mortgage was the standard when it came to financing a home purchase. But, in recent years, the 15-year, fixed-rate mortgage has become popular for a couple of reasons.
One advantage of the 15-year fixed is that a shorter term can mean lower rates. Today’s interest rates are historically low at around 3.9% to 4.5%, so they aren’t the make-or-break issue they were, say, in the 1980s when the interest rate could easily top 12%. But interest rates count.
Another advantage isn’t as easy to see. On a 30-year $100,000 loan financed at 3.9%, the payment would be a very affordable $473. On a 15-year loan, the payment rises to $736, still likely affordable.
So, why not just take the lower payment for 30 years? Because nestled within that lower payment, is a big stack of money. On that $100,000 loan over 30 years, you pay nearly $70,000 in interest. That’s real money. On the 15-year note, you pay less than half of that: about $32,000.
The question for the buyer is whether to shop around for a lower-priced property overall (in order to make the 15-year numbers work), or buy something more expensive with features that make the 30-year mortgage more attractive.
Author: Victor Varma
Millennial buyers want the “goods” delivered!
Millennials are buying homes, and it’s probably fair to say, they would like that deal delivered.
Those people born between 1980 and 1999, made up the largest share of home buyers last year (37 percent), according to data from the National Association of Realtors. Of those, 86 percent of younger millennials and 52 percent of older millennials were first-time homebuyers.
Millennials want different things from previous generations. While previous generations might have wanted to get away from the city, millennials are just as likely to want to be in it. So, if the city has spread out toward your once-suburban home, don’t be afraid to emphasize the location. Millennials want short commutes. They don’t like lines. They want everything delivered and that includes all the services of the city from groceries to fine dining or even fast food. They want lots of choices in restaurants and bars, and nearby entertainment.
According to the National Retail Federation, millennials are in a hurry. Millennial buyers don’t house shop casually. They are internet savvy and accustomed to doing research online. More than 80 percent of millennials look for a home on a mobile device.
Millennials are less likely to care about square footage than other generations. They prefer home features: Garages that double as recreation rooms, designer laundry rooms, and walk-in pantries that hold food, wine, and appliances.
Refunds confuse taxpayers, survey finds
Nearly half (46%) of taxpayers don’t know a refund comes for overpaying taxes to the federal government.
That is one finding of a survey of taxpayers by Credit Karma.
About 70% of Americans typically expect to receive a refund check each year, and many are unsure about the origins of the money.
While 46% knew their tax refund money comes from their paychecks, an equal percentage thought the money was given to them by the government.
Forty percent knew that getting a tax refund means they overpaid income taxes.
About 11 percent knew it meant they were essentially giving the government an interest-free loan.
More than half of respondents (51 percent) did not know they could determine whether they get a refund each year by adjusting their withholding amounts.
More than half said they would rather get a tax refund than consistently have more money in their paychecks throughout the year.
Only 34% said they would prefer to have proper withholding.
According to data from the IRS, the average refund amount as of February 7 was $1,952–up 0.2 % (or $3)–when compared with 2019. The number of refunds issued was down 4.8%, as the tax agency paid 4.6% less cash.
Coronavirus and investments: Don’t worry, be happy
So the stock market tanked in historic drops in February on news of the coronavirus Covid-19. It also recovered in an historic one-day recovery.
Dizzy yet?
Investment experts at Market Watch say ignore the headlines.
The market will go up and down during the virus crisis, but no experts think it will stay down.
Long-term investors need not worry
Those with a 401(K) or IRA are probably still doing well compared to the same time last year or even the year before. If you have some time before retirement, take a deep breath. You made a lot of money in the last three years, and you are probably still ahead.
Don’t let bad news make you sell good stocks
Headline risk. That’s what stock advisers call short-term bad news that panics some investors into selling.
Don’t panic.
Apple, for example, was selling for around $146 in 2018 but soared to more than $330 before the virus crisis. During the crisis, it dipped to around $220. But, even though in the short run, sales will be slower and the supply chains crazy, it’s still Apple. Still a great company to own.
Opportunities arise
Plus, in the meantime, as stock prices sink, buying opportunities rise. Buy the bargain. A short-term crisis offers lots of buying opportunities.
One caution from Market Watch: Don’t try to guess when the market will be lowest. No one can. Buy when the bargain seems good.
It might be time to look at your portfolio and consider rebalancing your ratio of stocks to bonds, according to Market Watch.
FIRE movement promotes extreme savings, early retirement
A relatively new financial movement aims at financial independence and early retirement, sometimes extremely early retirement.
And that’s the name of the movement: Financial Independence; Retire Early.
Adherents say people can retire in their 40s or even 30s if they practice extreme saving and investing.
The key idea is to enlarge the gap between necessary expenses and income. The money in the gap is what you invest.
As a practical matter that means closely tracking expenses, eliminating anything that isn’t necessary. Make sure your living arrangements are as inexpensive as possible. Eliminate all debt. Cut expenses to the extreme. Then, enlarge the gap by side jobs or part-time jobs to create a big monthly investment number.
FIRE people try to make sure they max out 401K and retirement programs, while saving extra on the side. They intend to retire before they can withdraw funds at age 59 and a half. They also have to make enough money to buy private health insurance.
FIRE retirees actually don’t think of retirement as a way to stop work. They think of it as a way to work the way they want, without worrying about money.
Semi-anonymous blogger Roman, founder of TenFactorialRocks.com, says this can even be done with children. While the USDA says it costs $11,000 to $12,000 per year to raise a child, Roman says it costs more like $4,200 to $7,000 a year, depending on day care costs. Roman writes, “Kids want your time and attention more than expensive gifts, lavish vacations, overpriced tutors and royal treatment summer camps.”
On the other hand, Lisa Harrison of the Mad Money Monster blog, rejected the FIRE movement in favor of simple living. When trying FIRE, she and her husband cut out every single extra expense, from coffee dates to dinners, and they found that, after two years, their savings were up but their happiness was down. They decided to simply live in a frugal manner, saving money regularly, keeping expenses down, but going on dates and buying pizza. “A feeling of relief washed over me,” she writes.
Mortgage rules for condo buyers
No, for the buyer, the same rules that apply to any mortgage apply to a condo buyer. Keep in mind that in calculating your debt-to-income ratio for the loan, lenders will count your condominium fees as part of your total monthly expenses.
A condo mortgage is different because the building itself has to qualify for the loan.
Generally, lenders won’t make a loan on a condominium that is in poor financial shape or poorly maintained. It has to be a properly run residential building.
The lender looks at the condo association records to make sure it is sufficiently insured, isn’t being sued, and residents are paying their dues (no more than a 15% delinquency).
Lenders also want to make sure the building is residential, with at least 50% owner-occupancy. They don’t want to see stores or hotel rooms. They don’t want to see condo units sold as time shares.
Finally, at least 90% of the units have to be occupied.
If the condominium project is established and known to meet guidelines, and you are a credit worthy borrower, you will probably have little difficulty getting a conventional loan.
You might want to do a little extra research, however. Remember that when you buy a condo, you are buying into the Homeowners Association and you are sacrificing some privacy for convenience. It’s a good idea to take a look at the minutes from the HOA meetings to see the sorts of issues being discussed.
When the building qualifies and you find the property suitable, financing a condo should be much the same as a conventional home.
Statistics about Americans
- 58% of Americans have less than $1,000 in savings: GOBankingRates
- 40% of Americans would struggle to come up with $400 for an unexpected bill: MetLife
- American debt in 2018/2019 averaged $136,365, and totaled $13.95 trillion: NerdWallet
- Americans have an average of $6,849 in credit card debt: NerdWallet
- The Median (half above, half below) household income for Americans in 2018 was $63,179: US Census
- 12.8 million children lived in poverty in 2017, which was 17.5%. That was a decrease from 2016 when 18% lived in poverty: US Census
- 45% of Americans believe in the existence of ghosts and demons: YouGov
- 40% of Americans don’t wash their hands after going to the bathroom at home.
- Super Mario Brothers is the most popular and the most famous video game: YouGov
- The most popular sandwich in America is grilled cheese (79% say it is their favorite) followed by grilled chicken tied with turkey (75%). Roast beef comes in next at 71%.
For Baby Boomers, it is time to make a profit, save headaches
Baby Boomers (aged 54 to 74) are holding on to their beloved homes, but selling and downsizing now could not only save a lot of headaches, it could also make a tidy profit.
Interest rates are low with the national average rate hovering around 3.6% to 3.9%. Buyers are plentiful. In most areas, there are more buyers than houses for sale. That means a great house for sale could snag a great price.
One option for downsizing is condo living, which can bring a host of benefits to retired Boomers. Condo retirement communities offer a community where people interact and make new friends. Some have parties and even social events for people from the same area. And, you can admire the landscaping without having to mow and trim.
A condo in the city brings the excitement of shopping and entertainment within walking distance. Or, an Uber is just a click away. No more commutes.
Selling that big home and buying a smaller home can add to your nest egg and, if you want, bring you closer to the kids. It’s also a good way to bring the pets along. Along the way, downsizers save big on smaller utility and maintenance bills.
One other consideration: It is always easier to finance a home before retirement. If you have the will and the way, make your move while the market is perfect.
New investment rule: Take your money later
As of Jan. 1, those with a 401(k) or IRA can start withdrawing the required minimum at age 72.
Previously, account holders were required to take the minimum distribution at age 70.5.
The new rules, arising from President Trump’s Secure Act, update the old rules, which were based on life expectancies in the early 1960s.
There may be some tax implications for some account holders, depending on their tax brackets in the year they withdraw. Check with a financial advisor to be sure.
The Secure Act also eliminates the maximum age for traditional IRA contributions, which was previously capped at 70.5 years old. The bill summary by the House Ways and Means Committee explains, “As Americans live longer, an increasing number continue employment beyond traditional retirement age.”
Americans who turned 70.5 years old during 2019 will still need to withdraw their required minimum distributions. Failure to do so results in a 50 percent penalty.
People who are expected to turn 70.5 years old in 2020 will not be required to withdraw RMDs until they are 72.
What is a lease-to-own, and is it a good idea?
A lease-to-own, also commonly referred to as a rent-to-own or a lease option, is an arrangement between a buyer and a seller in which the seller leases a property for a set period of time, at which point the buyer typically has the option to purchase the property outright (sometimes a contract legally obligates the buyer to purchase).
Nearly everything in this type of contract is negotiable. Often, the seller agrees to set aside a portion of the monthly payments toward a down payment or equity in the home.
It’s also important to note that this is commonly used as a short-term agreement — a few months to a few years — and that, at the end of the lease period, the buyer needs to obtain a traditional loan.
So why would either side consider a rent-to-own scenario?
A buyer may need time to put away money for a down payment and/or to build up their credit. Perhaps they’re self-employed, for example, and need a few years’ worth of tax returns to demonstrate income stability to a traditional bank. Or they have less than stellar credit and simply need time to repair it.
A seller might like the idea of locking in a purchase price and collecting monthly payments along the way. Say the two sides agree to a three-year term with a purchase price of $170,000. If the buyer pays $1,000 a month, the seller collects $36,000 and still sells for $170,000 at the end — which, even after expenses, can net the seller a nice profit.
A lawyer who’s well-versed in real estate law is usually the best person to review, if not draw up, the contract. And buyers should keep an eye on building their reserves and credit so they can qualify for a mortgage that will allow them to take ownership at the end of the term.
