Jun 26

You knew that, of course. If you’ve searched for personal loans at sites such as http://www.cbonline.co.uk/personal/loans  you’ll discover competitive rates, but if you own a home in the US and have a mortgage, hopefully you’ve looked at the rates as they dropped and acted by refinancing to a lower rate. But, as I expected, the low rates were not going to last forever and we’ve recently seen the move back up.


This chart only goes back a year. If we went back 5 years, we’d see rates at 6%. Go back to the 80’s and the 30 year fixed rate was 18%. But I digress. The 30 year rate recently hugged 3.4% for a time, and has now risen nearly a full percent from that low.

mortratesHave I mentioned my love of spreadsheets? You know how there are rules of thumb that suggest you can afford X times you income on your house purchase? Those rules are tied to the interest rate, because as rates change, the payment you can afford gets lower as rates rise. I wanted to look at this with numbers that are reasonable to my readers, so I started with a $60K per year income. This is a bit over median income, and offered just as an example. A well qualified mortgage will permit you to use 28% of your monthly income for the mortgage, property tax and insurance, so I use 23% for the mortgage payment only, that’s $1150 per month. Strictly from an affordability perspective, you can see that at 3.5%, an earner just over median family income would be able to pay for a $256K mortgage. Since this is an 80% loan to value, the home price is $320K, twice the median home price. It was actually a great time to be a buyer. Now that rates are nearly a percent higher, we are close to 4.5%, with that same payment of $1150 only supporting a mortgage of $227, nearly $30K less just a few months ago. This chart gives you a good look at how the borrow power of that payment drops as rates rise. The real question is whether this will put downward pressure on home prices as well. I suspect housing wont drop to meet the new value supported by the payment, but there is a risk that home prices drop a bit from their current levels. This also prompts the question whether rates in the UK will rise and is now the time to check out the rates at http://www.cbonline.co.uk/personal/loans/personal/loans before they head up.

written by Joe \\ tags: , ,

Jun 16

Len Penzo had an excellent post he first published two years ago, 9 Important Money Tips Every Dad Should Teach His Kids. A great way to start the Father’s Day festivities. Nice work Len. Letterman would be proud of you.

Ninja explained why, “I might take out a $30,000 401k loan just to piss some of you off.” Not me. Time would tell if this was a good move or not. You see, he can borrow at 1.75% which is a bit of a savings from the 4% mortgage, but far less than the long term 10% market return (or 12% if you are a fan of the David.)

At Money Crashers, 7 Legitimate Reasons to Delay Saving for Retirement, an interesting spin on why not saving isn’t always irresponsible. In fact, sometimes it’s the wise this to do.

Will Social Security be gone before I retire? Now, that’s the question. And the answer is part of a full discussion at Five Cent Nickel. A good read that may help put your mind at ease.

And last, Finally, PROOF That Costco Prices Are Cheapest. I’ve written now and then about Costco, but now, my friend at The Wealthy Turtle offers data, hard proof that Costco is a winner.

Happy Father’s Day!

written by Joe \\ tags: , ,

Apr 15

Today, a Guest Post from Dona Collins –

You may not believe this, but not all debts are bad. If you never take on any debt, then how can you build hope to build a positive credit history? If you want to find a place to live or a buy a car, it helps tremendously if you have already established good credit. Debt, when managed properly, can help you get the things you need in life. For that reason, and many more, personal loans are a type of debt that can be beneficial as long as you spend the money wisely.

Finance Home Improvements


Investing in your home is rarely a bad idea. If you have a project in mind that will add value to your home, a personal loan can be a great way to finance it without tapping into your equity. Some websites like prosper.com or creditloan.com offer loan rates under 7%, if you qualify, so you can afford to borrow the money for your project without racking up high-interest credit card debt. The right home improvements can provide a great return on your investment.

Improve Your Credit

When the credit bureaus calculate your credit scores, they look for a mixture of revolving credit lines like credit cards and installment loans. Taking out a small personal loan and paying it off on time will help boost your scores. You have to establish a payment history though; you cannot just borrow the money and then pay it right back. Make monthly payments for at least six months to a year before you fully repay the loan.

Create an Emergency Fund

In some cases, it actually does make sense to borrow money just to have it for a rainy day. It is good to have a sizeable lump sum of cash you can access when you need to. Instead of waiting until an emergency expense smacks you in the face and you are desperate, considering getting a personal loan that you can pay back over time to establish your savings. You can get a better deal if you take time to shop around beforehand, rather than wait until you are pressed for time.

Pay Less Interest

Personal loans are unsecured, so they do come with a higher interest rate than a secured loan, but the rates are still lower than most credit cards. If you have high credit card balances, taking out a personal loan to pay them off will save you money. You may even want to consider getting a specific debt consolidation loan or lower interest personal loan. This does require that you have to stop using your credit cards if you want to keep your debts low.

Start a Side Hustle

While the term might remind you of playing pool, a side hustle is simply another term for starting a part-time business from home. Many people take their favorite hobbies and turn them into a side business that helps bring in some extra income. After you receive the loan funds, take the additional income from your new business and use it to pay off the loan faster so that you can enjoy 100% of your profits.

Buy a Used Car

Usually car loans are a better way to buy a vehicle. However, lenders tend to be more reluctant to loan money for used cars than they are for new cars. Additionally, if you already have an existing car loan then you might not be able to qualify for a second one. Whether you are purchasing a vehicle for yourself, or helping someone else buy one, a personal loan is an alternative worth contemplating if you cannot qualify for a good car loan.

Medical Expenses

Putting off medical procedures because you cannot afford them is never a good idea. There are many expenses that traditional health insurance does not cover like dental problems that can create major health complications if you do not get treatment. It does not matter if you apply for a loan online or go to a traditional bank like Wells Fargo, it is better to borrow the money you need than put your health at risk.

Start an Investment

If want to try buying stocks or start a Roth IRA for your retirement, a personal loan can be a good way to jump-start your plans. In order to get the best value for your loan dollars, you should pay your loan off before you start investing. Otherwise, the interest you will pay on the loan will offset your gains. If you are planning to use the money to start a retirement fund, keep in mind that you will not be able to access those funds early without paying penalties.

Purchase a Computer

These days, for many people, a computer is not a frivolous purchase. An increasing number of companies are increasing telecommuting opportunities for their employees. You also may be one of the many people who brings work home with you too. Investing in a faster computer will make your life easier and help you be more productive. A personal loan when you do not have the cash is a much less expensive way to buy a computer than in-store financing.

Buffer Your Checking Account

Unfortunately, many people cut their checking accounts too close and end up paying fees for not maintaining the minimum balance requirement, or even worse, get hit with overdraft fees. As long as you can work the loan payment into your budget, a personal loan can be a great way to add some extra money to your account so you avoid bank fees. However, this only works as long as you leave the money in the account.

It a good idea to avoid getting a personal loan for thing you do not really need like vacations or unnecessary purchases. That being said, there are times where getting a personal loan is a wise decision. Before you borrow money, consider your motivations and make certain that you will be able to repay your loan on time. If you can make your payments without fail, a personal loan can be a quick, efficient solution to some of your problems.

About the Author: Dona Collins is a personal finance specialist who loves to help others find creative ways to manage their finances, eliminate debt, and live healthy financial lives.

written by Joe \\ tags: , ,

Feb 01

I’ve been hearing more confusion lately regarding how and when it makes sense to refinance your mortgage, and thought we’d discuss it a bit today. First, the obligatory graph –


You can see that as recently as 2009, rates were still above 5% and in the 7’s earlier in the decade. This is well above today’s 30 year rate of 3.4% or 15 year rate of 2.7%. Still, there are people who are under the misconception that a refinance on a 30 year mortgage makes no sense if you are half way through it. Nonsense. (Because on a family friendly site, I’m not supposed to say Bull****) It might be silly to refinance when there’s only a year left to go, but you should do the math and see what makes sense for you.

The way a mortgage is paid off, with a 5% rate, a 30 year mortgage will have about half its balance after 20 years. So, with $100,000 left on that $200,000 mortgage, you find a 15 year rate of 3%, higher than I mention above, but with no closing costs. You see that you were paying $1073 per month, and the new payment will be $690. What to do? Here’s the key point – go back and calculate the payment should you choose to use the new rate but pay it off in the 10 years that remain. You see $965. By refinancing and making payments to stay with the remaining term, you still save nearly $110 per month. Each and every month for 10 years. Not bad for a few hours effort to gather up the paperwork.

Should you take the new payment offered? If you have a car loan or other high interest debt, the extra $380 might help you save quite a bit in interest. Are you depositing enough to your 401(k) to get the full match your company offers? You might deposit that $385, pre-tax and have it doubled on deposit. When 10 years pass, the extra money in the 401(k) will far exceed the remaining mortgage balance. The important factor to consider when comparing loans is how the payments compare when using the same term that remains on the old mortgage. It’s easy to drop your payment by extending the loan to 30 years every time you refinance, but that’s a losing game, at some point you want to put the loan behind you. Tonight I answered a question Are there downsides in refinancing with 5 and 1/2 yrs left? I agreed with the fellow asking the question, it’s a good deal, he’ll save nearly $4000 over the remaining 5 years of his mortgage by refinancing.

written by Joe \\ tags: , ,

Apr 11

This week, the roundup is a day late, but not a bit short of excellent writing as I am offering the best reading from my fellow Money Mavens this week. One more week until our tax return is due, heading to the 2010 finish line.

At Wealth Pilgrim, Neal Frankle posted Need To Borrow Money? 5 Tips to Keep You Safe. Some excellent advice from my friend Neal, but the line I’ll remember most? “Relax.” I’d say that more mistakes are made in haste than after stopping and thinking on the subject for a time. Rush into any deal you don’t understand and you are far more likely to regret it. “Act in Haste, Repent at Leisure” as the saying goes.

Craig Ford asked What Role Does Education Play in the Eradication of Poverty? Before you dismiss the question as self-evident, consider that Craig is a missionary in Papa New Guinea, where the per capita GDP was just $1358 as of 2010. I’d say this gives Craig a unique vantage point, and an interesting article.

At Monevator, we discover why The UK consumer is on the brink. Pretty resilient till now, the signs are starting to appear. The recent VAT increase certainly didn’t help the cause.

Len Penzo thinks there’s 12 Good Reasons Why You Should (and Should Not) Pay Off Your Mortgage Early. The deck is a bit stacked, 8 reasons to not pay early, but truth is, I agree with Len’s reasoning. If you are not getting your company’s match on your 401(k), you are turning down a far higher return than paying your mortgage will save you. Check out Len’s post for the other reasons to not pay along with 4 good reasons to pay early. Me? I’m paying at just the rate needed to end the mortgage the month our daughter goes off to college. In the end, we will have had a loan against the house for 21 years.

Tom at Canadian Finance Blog hosted Jim Yih’s 10 Things To Know About Tax Planning.Jim lists 10 tax related articles from his Retire Happy blog. Great for when you just can’t get enough tax reading.

And to wrap up this week, at the Military Wallet, Ryan shared his thoughts on How to Know When the Time is Right to Get a Master’s Degree. Ryan offers some great guidance on this topic. I waited 3 years after I graduated and went for my masters part time, 2 classes per semester for 3 years. I was still single, and have to say, I don’t have any regrets, for me that timing was perfect.

Have a great week.

written by Joe \\ tags: , , ,