A fixed rate mortgage is a loan with a fixed monthly payment that remains the same throughout the life of the loan. With most fixed rate mortgages (FRMs) the debt is fully amortized at the end of the life of the loan. These loans are available for ten, fifteen, twenty, thirty and forty year periods. The traditional fixed rate mortgage has been for thirty years.
The fifteen and thirty year FRMs are the most popular. The forty year fixed rate mortgage is relatively new on the scene and has not, as of the moment, become a popular choice although Fannie Mae is experimenting with them in conjunction with 21 credit unions across the country.
For many years, lending institutions have made fixed rate mortgages available only to individuals with quality credit ratings. While they have loosened somewhat on that requirement, it still applies in many situations. Often, people with credit scores under 700 can only qualify for an adjustable rate mortgage. It has also been traditional that a 20% down payment was required in order to qualify for a fixed rate mortgage. That is still true to some extent, although many people circumvent the issue by borrowing with a second loan (a “piggyback” loan) to assemble the down payment.
There are a number of hybrid loans coming forth these days as lending institutions scramble to develop products that can still make it possible for people to break into the housing market. The difficulties with subprime mortgages has not slowed the lending institutions; it has only made their marketing and product development departments work harder.
One of the advantages of a fixed rage mortgage is the fact that there can be no surprises in the monthly mortgage payment – it stays the same for thirty years or however long the borrower stays in the house. One of the more radical departures from the strictures of the traditional fixed rate mortgage is the fixed rate, “interest only” mortgage. This loan has an initial rate for monthly payments that are only for the interest on the loan.
At the end of the initial period – one year or three years, perhaps – the payment jumps to a full interest and principal payment. If the initial period was three years on a thirty year note, then there are twenty seven years left to pay off 100% of the principal. That mortgage payment is going to take a substantial jump.
All fixed rate mortgages have the same monthly payment, but the mix of principal and interest changes constantly. At the beginning of the loan’s life, the payments are almost entirely interest. As time passes, more of the monthly payment becomes principal. That is a characteristic true of virtually every fixed rate mortgage in this country.…
I’ve decided to pay off my student loans slowly. Sure, I can pay more and knock it out within a few years. BUT I need to build my nest egg and emergency fund man! Here are my reasons for paying off student loans slowly:
1. The interest is super low. I am not going to find a loan with lower interest rate. Mathematically, it makes more sense to pay off the student loan monthly minimum and put any extra money toward a higher yielding account such as an IRA. For the conservative, the money market also generates higher interest than a student loan.
2. You can write it off your taxes. This might not matter for me since the standard deduction is usually more than enough. For a majority of people, you can deduct student loan interest from your taxes. The maximum you can deduct is $2,500. There are also certain salary restrictions. Visit the IRS (hooray!) for more details.
3. Building wealth is more fun. How fun would it be to look at your student loan balance and bank account at $0. Boring! I would rather see a student loan of $50,000 and a bank account with $50,000. In my eyes, the $50,000 in a bank account feels a lot better. Plus, you have a nice little emergency fund that you wouldn’t have if you paid off your debt immediately.…
Energy Star has a little chart that shows how replacing the standard equipment in the house can save you money in the long run. It shows you the extra cost, the annual savings, and for the impatient, the payback period.
The 6 upgrades are:
1. Get a programmable thermostat.
2. Replace your incandescent bulbs with compact florescent light bulbs.
3. Upgrade to a more energy efficient furnace.
4. Replace your laundry machines with the low water/low power machines.
5. Get windows that keep the heat (or cold) in your house.
6. Get an energy efficient central air conditioning unit.
You should definitely start with the top 2 (Getting a programmable thermostat and replacing your light bulbs). It will only cost 70 bucks and your extra cost will be paid back within 7 months. The savings for upgrading your furnace are pretty good. It saves you $400 a year.
A surprise was the windows. I was under the impression that closing up leaks in the house was the best way to save tons of money on your energy bills. The cost to savings ratio of new windows isn’t worth it to me. I’d rather put wax paper over my windows. And the bonus of using wax paper? Your neighbors won’t be able to see you.
Upgrading your central air conditioner unit to save $35 is also not worth it unless you plan to live in the house for a very long time. Here’s the chart from Energy Star.
Before paying any bills or buying a delicious burger, PAY YOURSELF FIRST. Take a part of what you earn and bury it in your backyard (or put it in the bank or somewhere where you can’t see it).
Even if it’s just a little, you will AUTOMATICALLY adapt to living without it. We’re human. We’ll Survive without it.
And the cool thing is that eventually over time, you’ll have a nice pile of money to sit on.
I have part of my paycheck go into various 401(k), IRA, index funds, and money market accounts. I DON’T NEED TO DO ANYTHING TO PAY MYSELF FIRST since the money is taken out on the same day I get paid via electronic transfer.
You know what happened? My lifestyle adapted without that money. And I’m still alive.…