bank

Is Paying Off Your Mortgage Early Costing You Money?

David Ning — Fri, 04 Nov 2011 10:24:16 +0000

A frequent question that pops into people's minds is whether they are throwing money away by paying off their mortgage instead of investing that sum. In reality, that's the last thing you should think about. Here's why:

The 1.5% Difference

Sure, the return of the stock market is higher than the interests one pays on mortgages, but is your money really earning the return of the market?

Instead of just focusing on what your money could do if you invest that sum in the S&P 500 index, you should really be thinking about the returns of all your assets as a whole because that's the true yield you are getting. This includes the equity in your home, all your savings accounts that are barely earning any interests, the bonds you own, and finally, the stocks that you have in your portfolios. (See also: 5 Creative Ways to Invest During a Weak Market)

But even if you forget about all that and just think of your investment portfolio, the results could surprise you. Say you get a 6% return, with taxes factored in, it would really be more like a 5% gain assuming you will have some long and short term gains as well as taxes on dividends.

On the other hand, your 4.5% 30-year fixed rate mortgage is more like a 3.5% loan with taxes. Hurray you say, because you are still making 1.5% more when you invest the money.

But hold on a second. A 1.5% difference on even $10,000, an amount you could likely come up with to either invest or pay off your mortgage, is just $150 a year. A whole year! I can save that much more just by cooking at home three more times, or by buying less coffee outside.

Think of These Factors Instead

Now, $150 every year for 30 years is very good money, but as we all know, a 6% return isn't a guarantee for everybody. Add the stress that people put onto themselves when they are leveraging, and $150 seems like a ridiculously small amount to be paying for the additional stress.

Instead of the additional money you are getting, think of the other advantages of not paying off your mortgage:

Liquidity — Your investments are more liquid than money tied up in home equity. Depending on how stable your income is, not paying off your mortgage could actually be the more conservative choice.

Asset Allocation — Are your real estate assets at a level that you would like? Remember to factor in just the equity that you've built, as any mortgages or loans that you owe is debt that needs to be repaid. Once you have the answer to this question, then you can easily figure out whether you should pay off your mortgages.

Freedom — This is a very personal question. My wife feels very strongly that we should pay off our mortgages early because she feels much more secure when she is debt free, even if she has the same amount of money in the stock market. I lean towards that side as well, though not nearly as extreme.

For us, being debt free will probably lead us to live a healthier, happier life. But it might not be the same for you, as some people will feel more secure when they have a large balance in their portfolio.

So really, there is no right answer. Do what make sense for your situation and what feels comfortable to you and don't worry too much about wasting money either way.

This article is from David Ning of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Should you skip a mortgage payment to get a bank's attention?

Xin Lu — Fri, 24 Apr 2009 17:28:28 +0000

The Obama administration announced a foreclosure prevention and mortgage reduction program about two months ago, and as of April less than 1000 loans have been refinanced under the program. One of the reasons that this program is getting a slow start may be that banks are hesistant to work with struggling homeowners who are still making their payments. A recent Los Angeles Times article profiled a family who tried to negotiate with their servicer to no avail, and once they missed a payment the servicer opened negotiations. So if you were a struggling home owner should you skip a mortgage payment just to get a bank attention?

Logically, it makes sense that a bank probably would not try to lower your financial burden if you are still making payments. If you are still paying on time it means that you are able to afford the payments in the eyes of the bank or servicer. At this point you can ask for a refinance, but if you have significantly negative equity in your home then a refinance may be difficult to achieve.

Usually banks have a loss mitigation department, and they do not automatically spring into action until you are missing payments. It is possible to contact the loss mitigation department directly before you miss a payment and explain your situation. Generally you have to prove that you have a reasonable financial hardship and the loss mitigation department should present you with an array of options including short sale or modification. A foreclosure is very expensive for any lender so the loss mitigation department will try to help you keep your home and keep you as a paying customer.

If you are on the verge of missing a mortgage payment, you should definitely consider your long term plans for staying in the house you are in. If there is no possible way for you to pay for the home even after a modification then the most financially beneficial thing to do may just be to walk away from the home after living in it as long as you can. This is not a decision to be taken lightly since a foreclosure will stay on your credit history for seven years, but at least you can live in your home for free for a few months and save up as much money as you can.

If you assess that a mortgage modification to a lower payment could help you keep the home and the bank is simply not listening, then skipping a mortgage payment might be the best way to get its attention. Missing one payment will also ding your credit a bit, but it is not nearly as bad as a foreclosure. Once your bank starts talking to you you would need to keep continuous contact with them to find out what the best payment modification option is for you.

Finally, if you are having trouble affording your mortgage, then you should contact your servicer as soon as possible. Most servicers are quite busy these days so you have to be persistent in reaching them. There is some free help on contacting your lender at Hope Now. The worst thing to do is to drain your savings and 401k accounts to forcibly pay for your mortgage. If you have to miss a payment it is probably best to do it sooner rather than later so you get the proper attention.

If you are struggling with your mortgage, is your bank being cooperative right now? Do you feel like you have to miss a payment?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Do You Live In One Of America’s Most Foreclosure-Ridden Towns?

Paul Michael — Thu, 23 Apr 2009 20:40:28 +0000

I’ve seen several houses in my area go into foreclosure over the last 12 months. The economy and over-inflated housing prices, coupled with predatory lenders and some very bad decision-making, have turned something that was once quite rare into a full-blown epidemic. But some places are having it worse than others; much worse. Do you live in one of those unfortunate towns? You're about to find out.

Forbes.com has been working with a company called RealtyTrac (based in Irvine, California) to determine which towns in America have been in the hardest by the foreclosure crisis. This, from Forbes.com:

“RealtyTrac…provided us data for homes that are currently in foreclosure or are bank-owned. To determine the country's hardest hit areas, we measured every region under 100,000; these include areas classified as cities, towns, boroughs, Census-designated places and townships. We elected to call these "towns," as they reflect a smaller regions than a metropolitan statistical area--geographic entities defined by the U.S. Office of Management and Budget for use by federal agencies in collecting, tabulating and publishing federal statistics. These are typically larger groups of regions with a city core.

Unlike a large city, which might have massive foreclosure problems in one area, but is sizable enough that other parts of town are immune, these towns are far less resilient.
The results shocked even me, someone with more than a streak of pessimism coursing through my veins.”

Not surprisingly, towns in California were prevalent in the list, although the top spot for foreclosures actually goes to a small town in Arizona. If you live in one of these 20 towns on the list, that means both good and bad news. Obviously, if you’re a homeowner in one of the following areas, this is pretty crappy for you. Foreclosures directly impact the price of your own home, and even if you’re not planning to sell yet, it makes it very hard to even get a refinance or loan modification.

However, if you’re in the market for a deal and live near (or in) one of these towns, then you could find yourself some real bargains. Properties in foreclosure can be picked up at a steal. It’s a shame you’ll be making good on someone else’s misfortune, but this economy is one huge double-edged sword.

Here’s the top 20 list in reverse order:

20. Tracy, Calif.
People per foreclosure: 110
Population: 81,000
Properties in foreclosure: 610
Properties fully bank-owned: 133

19. Hesperia, Calif.
People per foreclosure: 102
Population: 80,000
Properties in foreclosure: 710
Properties fully bank-owned: 85

18. Los Banos, Calif.
People per foreclosure: 92
Population: 35,000
Properties in foreclosure: 293
Properties fully bank-owned: 87

17. Lake Elsinore, Calif.
People per foreclosure: 88
Population: 49,000
Properties in foreclosure: 476
Properties fully bank-owned: 90

16. Fernley, Nev.
People per foreclosure: 87
Population: 12,500
Properties in foreclosure: 101
Properties fully bank-owned: 45

15. San Jacinto, Calif.
People per foreclosure: 85
Population: 34,000
Properties in foreclosure: 328
Properties fully bank-owned: 80

14. Lathrop, Calif.
People per foreclosure: 82
Population: 17,500
Properties in foreclosure: 167
Properties fully bank-owned: 45

13. Adelanto, Calif.
People per foreclosure: 80
Population: 27,500
Properties in foreclosure: 285
Properties fully bank-owned: 58

12. Patterson, Calif.
People per foreclosure: 80
Population: 18,000
Properties in foreclosure: 176
Properties fully bank-owned: 49

11. Maricopa, Ariz.
People per foreclosure: 76
Population: 37,000
Properties in foreclosure: 315
Properties fully bank-owned: 180

10. Heber, Calif.
People per foreclosure: 74
Population: 4,000
Properties in foreclosure: 45
Properties fully bank-owned: 10

9. Perris, Calif.
People per foreclosure: 70
Population: 53,000
Properties in foreclosure: 657
Properties fully bank-owned: 108

8. Buckeye, Ariz.
People per foreclosure: 61
Population: 29,000
Properties in foreclosure: 314
Properties fully bank-owned: 168

7. Olivehurst, Calif.
People per foreclosure: 61
Population: 11,000
Properties in foreclosure: 128
Properties fully bank-owned: 53

6. Fairburn, Ga.
People per foreclosure: 57
Population: 8,500
Properties in foreclosure: 75
Properties fully bank-owned: 75

5. Parrish, Fla.
People per foreclosure: 54
Population: 6,900
Properties in foreclosure: 126
Properties fully bank-owned: 2

4. Lehigh Acres, Fla.
People per foreclosure: 50
Population: 67,000
Properties in foreclosure: 1099
Properties fully bank-owned: 251

3. Litchfield Park, Calif.
People per foreclosure: 44
Population: 5,500
Properties in foreclosure: 82
Properties fully bank-owned: 43

2. Tolleson, Ariz.
People per foreclosure: 27
Population: 6,800
Properties in foreclosure: 188
Properties fully bank-owned: 61

and now, the NUMBER ONE town in America for foreclosures...

1. Queen Creek, Ariz.
People per foreclosure: 25
Population: 20,500
Properties in foreclosure: 533
Properties fully bank-owned: 302

If you do happen to live in Queen Creek, Arizona, please write and tell us how this is affecting you.

Source: Forbes.com

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

FREE 2GB iPod Shuffle from Compass Bank

Paul Michael — Thu, 05 Jun 2008 22:02:10 +0000

Key Bank clearly did very well from their iPod promotion, because Compass Bank is now running almost the exact same deal. With Compass though it's a very cool 2GB iPod Shuffle, and it's free to new customers.

There are a few stipulations (aren't there always?) but they're reasonable. Here's the lowdown on the deal:

Update: MOST IMPORTANT (thanks Bloggrrl):

You must register BEFORE opening a Compass Build-to-Order Free Checking Account online. To ensure timely delivery of email to your inbox, please add getgift@compassbank.com to your trusted email senders list.)

It's for NEW Compass Bank customers only
You need to open the Compass Build-To-Order FREE Checking
You must not have received any promo gifts from Compass in the last 12 months
You have to be over 18 (19 in Alabama)
You need to make a $25 deposit (which you can always get back later)
You have to apply for your Shuffle within 30 days of opening the account
You pay for shipping ($9.95)
Only for residents of Alabama, Arizona, Colorado, Florida, New Mexico and Texas.
Offer available online only through 06/30/2008. So, hurry!

You can read the full details of the deal here , but trust me when I say I did it a few years ago with Key Bank and it was well worth it. I got the Nano for a $50 deposit and it's been terrific. Brand new, not a refurb, quickly shipped to me and the checking account is great. And as I have a Compass Bank free checking account, too, I can also tell you I'm very happy with that one.

May the music be with you.

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Bank of Gasoline

Jessica Harp — Mon, 18 Jun 2007 18:33:52 +0000

Fuel prices may be going down, but for some motorists fuel prices never went up. Over 8,000 motorists in the St. Cloud, MN area are paying an average of $.50 to $1.50 less per gallon than the current market price for their gas. How did they lock-in these low rates? They went to the Bank of Gasoline.

Since the mid-1980s, First Fuel Bank customers in the St. Cloud, MN area have been able prepay for their gasoline and lock in the price of their gas – no matter what gasoline prices do in the future. Customers can purchase as much gas as they like, whenever the price seems right. When gasoline prices rise above the price of their prepaid gas, First Fuel Banks customers can tap their gasoline accounts to fill-up their tanks. Conversely, when prices dip under the price of their prepaid gas, customers are free to purchase gas at another fueling station.

Although First Fuel Banks is only located in the St. Cloud, MN area, there are rumors of expansion to 11 other northeastern states.

Another company joining the prepaid gas bandwagon is the Fuel Bank. The Fuel Bank, based in Ft. Meyers, FL, is still laying the groundwork for a nation-wide prepaid gasoline network, but once established it promises customers the ability to pick-up their prepaid gas at any station in the nationwide network.

Although being able to lock in low gasoline prices sounds great, there are a few drawbacks.

The primary drawback to prepaying for your gasoline is that payment for these fixed prices is by credit card. If you don’t have the money to pay off the purchase in full when the bill comes, then the interest on the credit card will make the gas much more expensive due to interest charges. Depending on the price of your prepaid gas, you may not realize any actual savings.

Secondary drawbacks include the unavailability of stations at which to redeem your gasoline and the opportunity cost of prepaying for your gas. Depending on the price you lock-in versus the market price of gas, you might be better off letting your money sit in a high-yield savings account.

Nevertheless, if you live in an area near one of the Banks of Gasoline and have the savings to prepay for your gasoline, you’ll be laughing all the way to the bank...

This article is from Jessica Harp of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Magic Marker Money Safe

Paul Michael — Sun, 15 Apr 2007 01:34:10 +0000

I've never tried a money-belt. I've nevr had enough cash to put in one to be honest. But when I lived in London I was mugged three times, and this little beauty would have saved me a stack of cash.

It's a great idea. The video shows you everything you need to do, and trust me, it's not a lot. All you need is...

1 magic marker or dry erase pen
1 flat-tipped screwdriver
1 pair of needlenose pliers
1 stack of cash
About 90 seconds of your time

That's it! When you're done, you'll have a great place to hide your dough and I doubt anyone would be petty enough to steal your marker pen. It still works like a marker pen too. This tip was brought to you by Paul Michael Security Corp. (alas, I don't know the author of the original clip, he has chosen to remain anonymous...like all true fighters of crime).

Hide your money - Keep it Safe! - Click Here for more great videos and pictures!

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: