Thursday, February 14, 2013

Refinancing/A Reflection

Debt. We all hate it. We live with it, and those of us who are lucky, manage to dig our way out of it.

I recently thought about this subject again in response to a question on lowering interest rates. The lowering of interest rates has been a Godsend to those seeking to lower their housing payments.  We bought our little house in Alameda,CA in 2000. At the time we did, we had the first mortgage at 9% and a second at 12% to avoid having to buy mortgage insurance, all on a 30 year term. We were paying close to $3000 a month (without adding in property taxes) on the house.

Now, we are at 3.67% and will finish paying off the house in 12.5 more years, paying out $1688 a month on the regular payment, and an extra $400 toward principal every month. That's the plan.

What strikes me about this, is what we were willing to pay initially to be able to buy a home in the Bay Area. Housing costs in the Bay Area are steep.  We worked a variety of jobs and took on all sorts of odd jobs. We all carried our lunch to work everyday. We lived within a budget (we still do). We often worked 12 hours a day, most days.

And I don't think we were or are alone. I think this is typical. The American dream of owning your own home is strongly ingrained in us. In all of us.

That is why the housing crisis in the U.S. was, and continues to be, such a crisis. It strikes at the heart of what we think we can aspire to--a piece of land we can stand on and call our own.

Refinancing helps. But although rates are low, it is extremely difficult to refinance now. We patiently (and sometimes not so patiently) went through a very long period of time of providing information on the tiniest details of our financial life. And the process seemed to drag on forever.  I am hopeful, that this move will help us pay the house off faster. Every month, I see the effect that the additional payments make on the overall debt, and it is encouraging.

I am concerned though, that many people will fail to refinance. This may be the last time in our lifetimes, that we will see rates this low.  The Home Affordable Refinance Program (HARP), a federal program to help people refinance who are in trouble with their mortgages, ends in December 2013.

And with the housing market starting to come back, it is unlikely that rates will remain low much longer.  And with rising housing costs, present homeowners may find that their equity in their homes has risen substantially enough to help qualify for a refinance, even if they were denied in the past.

Housing remains one of the most important investment decisions that most people make in their lifetimes. The questions of what to buy, when, for how much, and when to refinance all enter into the equation.

When looking at the question of whether to refinance, work with a broker that you know and trust. Use common sense. Ask questions, and make sure you get answers to the questions asked before you commit to anything.

Tuesday, July 5, 2011

The widening gap between the rich and the poor

The June statistics are out and the gap between the rich and poor is the U.S. has reached levels not seen since 1928 just before the great depression.  I recently wrote an article about the gap itself for Helium and linked it through Redgage. I will leave both references below if you are interested.  If you go though Helium, you only click once. If you go through Redgage, you click through twice (and I get paid for both views).   

A writing friend commented to me that she didn't know what the answer was. Her comment started me thinking about long term solutions and short term solutions. I don't know what the answer is either and I know that there are plenty of Washington economists much well equipped to answer than I. But we have to find ways to survive.

In the article, I point out that part of the problem this increasing disparity creates is the inability for the middle class to remain the consumer class that has always driven out economy.  And I think that remains true.  The top 1% doesn't consume enough to drive the economy. After all, there are only so many houses and yachts that one needs.

So, short term survival for the rest of us 99% depends in some measure upon opting out of "consummerism."  It may not be life off the grid, but it is a matter of mindset really.  Creating wealth may be a far cry for some of us, but a realistic plan for getting out of debt is a neccessity if we are carrying debt.  Find a plan that works for you and stick to it.  (More on various tools and methods to come!)

And about this article, if you are not angry yet, please think about getting angry. At least one of the source that I looked at discussed looser lending practices as a means to quell the anger that the middle class and poor feel periodically about this huge gap.


Tuesday, March 15, 2011

Student Loans

So, many of you out there have student loans. How many of you struggle to pay your loans. In this economy, it can be very difficult to meet our financial obligations: rent/mortgage, food, medical costs, clothing, bills.  For many of us, and I include myself in that number, bills come after the essentials of living and before luxuries such as entertainment.

If you have lost your job, or are making less money than you anticipated, you can look at the possiility of an Income Based Repaymet Plan.  In essence, the amount of your monthly income is capped depending upon the amount of your income.

Income Based Repayment Plans (“IBR”) are part of a legislative enactment called the College Cost Reduction and Access Act of 2007.  IBRs became available for use in July 1, 2009. This plan may be a helpful tool for borrowers who have incurred substantial student loans but who work in lower paying jobs such as the arts or the public interest sector.

One of the big disadvantages of the income based repayment plans is that you must supply sensitive financial information, such as your tax return, annually to your lender. Your lender then calculates your monthly payment under the plan according to federal guidelines. At the end of 25 years, any amount remaining on the loan is "forgiven" by the lender. However, under current legislation, any amount forgiven at the end of the 25 year period remains taxable as income in the year it is forgiven.

Of course, it is always better to pay off your student loans as quickly as possible. However, if it is not possible, take a look at Income Based Repayment. It may help you balance your life and end telephone calls from your lender.

For further information: