Be careful when you sign documents allowing you to receive a 12 months "same as cash" loan. Although it could take some time to explain, let me keep this very simple by just saying "same as cash" only equals "same as cash" as long as you pay your loan off in the "same as cash" period.
For example if you sign a 12 month "same as cash" loan make sure it's paid off in 12 months. The reason is simple yet severe. If you don't pay off the loan in the 12 month period, in some cases, the interest not paid during the 12 months will be applied to your loan after the 12 month grace period is over. For example, and to keep the numbers simple, if you were to borrow $2000 at 25% with a 12 months "same as cash" loan and you failed to pay the entire amount of $2000 within the 12 months the 25% would be added to your loan.
Here's a hypothetical situation, but a real one.
John, applies for a $2000 same as cash loan at 25%. John now has one year to pay off the $2000 at no interest so john pays $100 per month for those 12 months. At the end of 12 months, John owes $800. Now at 13 months, or one month after the 12 month grace period has ended there is still a balance owing on the John's loan meaning the loan was not paid in full. This means the "same as cash" terms were not met, so the 25% of the $2000 will now be added to the balance and John will now owes $1300 on his account.
If you have signed a "same as cash" agreement, you may want to check to make sure you are not going to have all the back interest added upon failure to pay off the balance in time. Your other option is to pay off your balance by the end of the grace period.
Wednesday, April 16, 2008
Saturday, April 12, 2008
Using a HELOC to pay off a mortgage.
There are many companies out there right now promoting the use of a second mortgage, or a Home Equity Line of Credit (HELOC) as a tool to payoff your mortgage faster. However, the secret to paying off your mortgage faster has little to do with the HELOC, and a lot to do with paying more each month toward your principle.
I could go into great detail about this, but to save time, I'll simply tell you the facts. The fact is, using a HELOC as a tool to pay off your mortgage only works to save you time and interest if you have extra income each month to pay toward your mortgage principle.
If you were to borrow say $5000 from from a second mortgage at 8% to save 6% by paying that $5000 to your first mortgage, that would only cost you more money in the long run. It's never a good idea to borrow at a higher interest rate to pay off a lower one. The problem is, that's what some mortgage acceleration companies are telling you to do. Why?
Well, if I borrow $5000 from a second mortgage, or HELCO at 8% a year and then use that money to pay $5000 toward a 6% a year loan, but then pay back that $5000 in just a few months, then I would save money. This is only, if I pay it back quickly enough that I pay less interest.
Again though, this savings doesn't have as much to do with the HELOC, as it does with the extra money I used to pay off the $5000 quickly. The extra income you could use to pay back the $5000 quickly, is called discretionary income, or income left over after all your other bills.
This discretionary income is the real mortgage accelerator, not the HELOC. In order to make this as simple as possible, I'll just put it this way, if you have an extra say $200 a month you wanted to use to pay your house off more quickly, and your mortgage balance was $150,000, paying that extra $200 per month on your mortgage would save you 11 years and about $71,000 in interest.
The best part is, I didn't even need a HELOC. If I had used a HELOC, borrowed the money from it to pay on the first mortgage, and then paid it back quickly using the extra $200 each month, I would only save about 9 more months. The point is, you don't need a HELOC, or any software to save yourself thousands of dollars on your mortgage. Just apply some additional money each month to your mortgage, and you can save thousands of dollars and many years.
For more information check out this link: http://www.kiplinger.com/magazine/archives/2008/05/prepay_mortgage.html
I could go into great detail about this, but to save time, I'll simply tell you the facts. The fact is, using a HELOC as a tool to pay off your mortgage only works to save you time and interest if you have extra income each month to pay toward your mortgage principle.
If you were to borrow say $5000 from from a second mortgage at 8% to save 6% by paying that $5000 to your first mortgage, that would only cost you more money in the long run. It's never a good idea to borrow at a higher interest rate to pay off a lower one. The problem is, that's what some mortgage acceleration companies are telling you to do. Why?
Well, if I borrow $5000 from a second mortgage, or HELCO at 8% a year and then use that money to pay $5000 toward a 6% a year loan, but then pay back that $5000 in just a few months, then I would save money. This is only, if I pay it back quickly enough that I pay less interest.
Again though, this savings doesn't have as much to do with the HELOC, as it does with the extra money I used to pay off the $5000 quickly. The extra income you could use to pay back the $5000 quickly, is called discretionary income, or income left over after all your other bills.
This discretionary income is the real mortgage accelerator, not the HELOC. In order to make this as simple as possible, I'll just put it this way, if you have an extra say $200 a month you wanted to use to pay your house off more quickly, and your mortgage balance was $150,000, paying that extra $200 per month on your mortgage would save you 11 years and about $71,000 in interest.
The best part is, I didn't even need a HELOC. If I had used a HELOC, borrowed the money from it to pay on the first mortgage, and then paid it back quickly using the extra $200 each month, I would only save about 9 more months. The point is, you don't need a HELOC, or any software to save yourself thousands of dollars on your mortgage. Just apply some additional money each month to your mortgage, and you can save thousands of dollars and many years.
For more information check out this link: http://www.kiplinger.com/magazine/archives/2008/05/prepay_mortgage.html
Tuesday, January 15, 2008
5 Credit Score Myths
More Financial Tips
The calculations used by Fair Isaac & Co. (FICO) are designed to turn your "credit worthiness” into a number. Credit scores range from 300 to 850. If you are considered credit worthy, your credit score will be high. If you are considered high risk, your credit score will be low.
Generally speaking, a credit score of 650 - 720 is good, a credit score above 720 is excellent, and any score below 620 is considered high risk.
According to Experian's National Score Index, the national average credit score is 693.
Below are five common myths regarding credit scores.
Myth 1: Higher income helps my credit. (False)
There are some who believe the higher your income, the higher your credit score. However, your income is not used to calculate your credit score. Banks and other lenders will look at your debt to income ratio to decide whether or not they want to lend you money, but high income does not equal a good credit score.
Myth 2: Closing old accounts will help your credit. (False)
As Craig Watts, an executive at Fair Isaac & Co. states, "Closing accounts can never help your score, and often it can hurt."
If you have old accounts you don't use, canceling those accounts will not improve your credit score. In fact the older accounts give you a longer credit history. Longer, more substantiated credit histories will usually give you a stronger credit score than shorter credit histories. This of course depends on whether you have a good repayment history or a poor repayment history. Shorter good payment histories will be better than longer poor payment histories.
If you really feel you need to close accounts, you would be better to close newer accounts.
3: Having open accounts with lots of available credit will hurt your credit score. (False)
According to Maxine Sweet, Vice President of Public Education for Experian: “The total of the balances you carry is the most important. High balances as compared to the available limits is a strong sign of credit risk. Having unused cards can actually help in this situation.”
Keep in mind, even though open and available credit will not hurt your credit score, high credit availability may be viewed negatively by lenders. Their concern will be your ability to accumulate debt quickly, making it more difficult for you to make your payments on time.
Myth 4:
Having your credit checked many times while shopping for a car or while contemplating another major purchase will hurt your credit score. (False)
Credit scoring companies realize that intelligent shoppers will apply to various lending institutions to find the best loan possible. Since this is the case, multiple credit checks in a short period of time, usually 14 days, will not negatively affect your credit score.
Myth 5:
If you choose to pay cash for everything until you are ready to purchase a home, you won’t have a credit history, and no one will approve you for a home loan. (False)
Fair Isaac and other credit reporting bureaus like PayRentBuildCredit, have created new methods to calculate credit worthiness for cash paying customers. These companies will offer credit scores based on payments to utility companies, bank deposit histories, renter payment histories, purchase payment plans and others.
Another example is ChexSystems. ChexSystems is a reporting company that uses collected banking data to calculate credit worthiness.
These credit reporting agencies can be used by mortgage lenders to check your credit worthiness.
The calculations used by Fair Isaac & Co. (FICO) are designed to turn your "credit worthiness” into a number. Credit scores range from 300 to 850. If you are considered credit worthy, your credit score will be high. If you are considered high risk, your credit score will be low.
Generally speaking, a credit score of 650 - 720 is good, a credit score above 720 is excellent, and any score below 620 is considered high risk.
According to Experian's National Score Index, the national average credit score is 693.
Below are five common myths regarding credit scores.
Myth 1: Higher income helps my credit. (False)
There are some who believe the higher your income, the higher your credit score. However, your income is not used to calculate your credit score. Banks and other lenders will look at your debt to income ratio to decide whether or not they want to lend you money, but high income does not equal a good credit score.
Myth 2: Closing old accounts will help your credit. (False)
As Craig Watts, an executive at Fair Isaac & Co. states, "Closing accounts can never help your score, and often it can hurt."
If you have old accounts you don't use, canceling those accounts will not improve your credit score. In fact the older accounts give you a longer credit history. Longer, more substantiated credit histories will usually give you a stronger credit score than shorter credit histories. This of course depends on whether you have a good repayment history or a poor repayment history. Shorter good payment histories will be better than longer poor payment histories.
If you really feel you need to close accounts, you would be better to close newer accounts.
3: Having open accounts with lots of available credit will hurt your credit score. (False)
According to Maxine Sweet, Vice President of Public Education for Experian: “The total of the balances you carry is the most important. High balances as compared to the available limits is a strong sign of credit risk. Having unused cards can actually help in this situation.”
Keep in mind, even though open and available credit will not hurt your credit score, high credit availability may be viewed negatively by lenders. Their concern will be your ability to accumulate debt quickly, making it more difficult for you to make your payments on time.
Myth 4:
Having your credit checked many times while shopping for a car or while contemplating another major purchase will hurt your credit score. (False)
Credit scoring companies realize that intelligent shoppers will apply to various lending institutions to find the best loan possible. Since this is the case, multiple credit checks in a short period of time, usually 14 days, will not negatively affect your credit score.
Myth 5:
If you choose to pay cash for everything until you are ready to purchase a home, you won’t have a credit history, and no one will approve you for a home loan. (False)
Fair Isaac and other credit reporting bureaus like PayRentBuildCredit, have created new methods to calculate credit worthiness for cash paying customers. These companies will offer credit scores based on payments to utility companies, bank deposit histories, renter payment histories, purchase payment plans and others.
Another example is ChexSystems. ChexSystems is a reporting company that uses collected banking data to calculate credit worthiness.
These credit reporting agencies can be used by mortgage lenders to check your credit worthiness.
Friday, January 11, 2008
Financial Intelligence
Finance Tips
What is financial intelligence. Banks have it, many consumers don't. When you drive to any city in the country, you will find many times that the largest nicest buildings there are the banks. Why? Because the banks understand a huge financial principle and that is this: Those who understand interest earn it, those who don't pay it.
Albert Einstein said: Compounding interest is the greatest mathematical discovery of all time.
As an example. Investing $1000 per month for 30 years at 10% equals 2.3 million dollars. So what does investing $2000 per month for 20 years equal? The answer: 1.5million. You may think $2000 a month for 20 years would be more than $1000 a month for 30, but you would be wrong.
The power of compounding interest is what gives early investors a head start on investors who begin investing more later.
Conversely, the interest you pay on your credit cards and on your mortgage gives banks the edge in building wealth and takes the edge away from the borrower.
The more you understand finances, the more financially intelligent you become. The more financial intelligent you become, the greater the opportunities you will have for building wealth.
What is financial intelligence. Banks have it, many consumers don't. When you drive to any city in the country, you will find many times that the largest nicest buildings there are the banks. Why? Because the banks understand a huge financial principle and that is this: Those who understand interest earn it, those who don't pay it.
Albert Einstein said: Compounding interest is the greatest mathematical discovery of all time.
As an example. Investing $1000 per month for 30 years at 10% equals 2.3 million dollars. So what does investing $2000 per month for 20 years equal? The answer: 1.5million. You may think $2000 a month for 20 years would be more than $1000 a month for 30, but you would be wrong.
The power of compounding interest is what gives early investors a head start on investors who begin investing more later.
Conversely, the interest you pay on your credit cards and on your mortgage gives banks the edge in building wealth and takes the edge away from the borrower.
The more you understand finances, the more financially intelligent you become. The more financial intelligent you become, the greater the opportunities you will have for building wealth.
Subscribe to:
Comments (Atom)