4 Reasons To Use Your Benefits Before Year-End

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The holiday season has arrived and your calendar is filling up with obligations.

Although your time is already limited, it might be worthwhile to add a few medical and dental appointments to your schedule.

Yes, you'll be extra busy, but you might save a significant amount of money by taking care of these appointments now, instead of waiting until next year.

Find out why in my Investopedia article, 4 Reasons To Use Your Benefits Before Year-End.

Deflating the biggest myth about starter homes

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Many people are eager to "stop throwing away money on rent" and want to buy a home as soon as possible, even if they can only afford a home that they expect to outgrow in a few years. They hope that they'll later make enough money on the sale of this "starter home" to have a down payment for their next home.

But buying and selling a home incurs thousands of dollars in transaction costs. People also tend to overlook that home ownership comes with expenses that renting doesn’t, such as insurance, taxes and property maintenance. These expenses can run you thousands of dollars a year.

By renting instead of jumping into home ownership prematurely, you might accumulate more savings and be in a better position to buy that long-term family home.

Buying a home could also affect your income and career prospects. Owning a home decreases job flexibility, so upwardly mobile young professionals might be better off renting so they can easily move for a better opportunity. Also, anyone whose job is at risk and who might gain better job prospects by relocating could be in a better financial position by renting and keeping their options open. Those unemployment checks don't make much of a dent in the monthly mortgage payment.

So many variables affect how much you’ll spend on home ownership that it's impossible to state that buying a starter home categorically does or does not make financial sense. But it's often presented as being a good idea no matter what.

Some variables are determined by choices you make, but others depend on market forces that you have no control over and a future you can’t predict. If your timing is right, a starter home can be a winning proposition. But if your timing is wrong, you could end up underwater and unable to move. You could also find yourself paying thousands of dollars to get out of your starter home and into a home that's large enough to start a family.

Find out more about why buying a starter home doesn't make sense for everyone in my Interest.com article,
Deflating the biggest myth about starter homes.

Save money by refinancing into a shorter-term mortgage

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If you want to refinance your existing 30-year, fixed-rate mortgage, your first thought is probably to refinance into another 30-year home loan. But with interest rates so low, you should also take a look at refinancing into a 15-year, fixed-rate mortgage. Here are the major differences between the two options.

When you refinance into a 30-year mortgage, you’re basically starting over. If you aren’t that far into your mortgage, you’ve mostly been paying interest. True, you are starting over with a somewhat smaller principal balance (as long as you aren’t doing a cash-out refinance), but you’re back to having 30 years of mortgage payments ahead of you. Despite this drawback, you could save in the long run if your new interest rate is significantly lower than your old one, especially if you keep your mortgage for a long time.

But there might be a better option. Learn more about it in my Mortgage-Calc.com article, Save money by refinancing into a shorter-term mortgage.

A settlement statement helps you compare estimated, final costs

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Before you close on a mortgage, you’ll need to make sure the final costs of the loan are in line with the estimates you were given when you applied.

That’s where the settlement statement comes in.

A settlement statement, also called a HUD-1, is a 3-page form that shows your actual closing costs when you sign your loan papers and finalize your mortgage. This line-by-line itemization of costs allows you to see exactly where your money is going when you close on a mortgage. It’s used both for home purchases and refinances.

Learn how you can use this form to make sure you're not getting cheated at the closing table in my Mortgage-Calc.com article, A settlement statement helps you compare estimated, final costs.

Why you might have to buy flood insurance

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Is your property located in a flood zone?

According to the Federal Emergency Management Agency, the answer is yes. FEMA says all properties are in flood zones — it’s just a matter of whether that zone is considered low, medium or high risk.

There are two types of high-risk areas: special flood hazard areas and coastal high hazard areas.

FEMA says homes in special flood hazard areas have a 26% chance of experiencing a flood over the course of a 30-year mortgage. Coastal high hazard areas are subject to damage not just from floods but also from waves.

If you live in an area known for flooding, you might already be considering flood insurance. But if you have a mortgage, you might not have a choice. Your lender might require you to purchase this coverage. Learn why in my Mortgage-Calc.com article, Why you might have to buy flood insurance.

A Broker's Open House Can Help You Sell Your Home

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If you're selling your home, you might want to consider holding a lesser-known type of open house called a broker's open house or broker's preview.

This event gives the selling agent an opportunity to market your home to other agents who might see that your home matches the requirements of a buyer.

Find out how a broker's open house differs from a traditional open house, whether a broker's open house can help you sell your home faster, and more in my Investopedia article, A Broker's Open House Can Help You Sell Your Home.

What it means when your mortgage is sold

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When you borrow money to take out a mortgage, you owe principal and interest to some entity that owns your mortgage.

These entities include investors such as banks, hedge funds, pension funds, governments, Fannie Mae and Freddie Mac.

Just like investing in stocks and bonds, owning mortgages gives investors the opportunity to earn money.

Sometimes investors decide to sell their investments, and that includes your mortgage. Does this selling activity have any affect on you? Learn what it means when your mortgage is sold in my Mortgage-Calc.com article.

The Income Property: Your Late-in-Life Retirement Plan

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Suppose you're in your fifties or sixties and know you don't have nearly enough money to retire. One possibility for generating the income you'll need is an investment property.

The real estate market can present bargains that will help you earn a high return on investment compared to your other options.

But owning a property is not always the passive, easy investment it's made out to be. You need to understand both sides of what you're getting into before you start shopping.

Find out how much you can expect to invest and earn, how to choose a location for your rental property, and problems that might derail your plans if you aren't careful in my Investopedia article, The Income Property: Your Late-in-Life Retirement Plan.

Which Companies Provide the Best Customer Service?

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I've had a few great customer service experiences lately that are worth mentioning.

-Discover. I noticed that I hadn't received my bonus cash back for any online purchases I'd made through Shop Discover for all of 2012. I assumed there was a problem with my browser, but couldn't figure out what it might be.

I emailed Discover to ask about the missing cash back. I gave them a list of all my purchases since January on which I thought I should have earned a Shop Discover bonus. Within just a few hours, a representative replied saying that I would receive credit for each of these purchases. She provided a detailed list of how much credit I would get for each one.

That email plus a few minutes of research meant $42.28 in cash back that I otherwise would have missed out on. I can redeem $40 of that for $50 in gift cards. I was impressed that I didn't get any pushback from Discover and the response was so fast and through.

(In case you didn't already know, Shop Discover lets you earn extra cash back on online purchases made through the Discover website using your Discover card. The bonus cash back is usually in the 5% to 10% range. I used Shop Discover to earn extra cash back on pet food, clothing, tax software and home improvement purchases.

-eBates. I had the same problem with eBates that I did with Shop Discover, which was why I suspected a browser issue and not a provider issue. But eBates did have tracking tickets for my purchases, which made me think my browser setup was probably correct. So why wasn't I earning any cash back? Again, a quick email and a quick response put the missing money in my eBates account. All I had to do was provide the details of my order.

-Gap. I recently bought a workout top from Gap.com and when it arrived, it didn't fit. I called up customer service to exchange it for a different top. The call only took a few minutes, and I had the new shirt in two days, with free shipping, even though I don't live near their distribution center. I received similarly fast shipping the last time I placed an exchange. I'm sure it costs them extra to provide this service, but it makes me feel like they care about my business. It also relieves the disappointment of getting something you were looking forward to and having it not be quite what you expected.

A credit card that helps pay down student debt?

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Sallie Mae, the giant student lender, says you can use the rewards you accumulate from its cash-back credit card to pay down eligiblestudent loans.

But if I were a student -- or a recent graduate -- I'd hesitate to sign up for this card, despite its sign-up bonus and benefits.

Find out why in my Interest.com article, A credit card that helps pay down student debt?

What is title insurance? Why do you need it?

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Title insurance is a policy that protects your mortgage lender from potential claims against your property.

The property serves as collateral for the mortgage, so a lender does not want to give someone money to purchase real estate, then have a third party dispute the borrower’s right to that property.

For this reason, lenders always require that you pay for a title insurance policy when you take out a mortgage. The process of issuing title insurance looks for any existing problems with the title through a process known as a title search.

Get the essential information you need in my Mortgage-Calc.com article, What is title insurance? Why do you need it?

You’re not likely to collect on Allstate’s auto insurance satisfaction guarantee

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Have you ever thought your insurance company was great--until you had to file a claim?

Maybe you've seen Allstate's advertising for its Claim Satisfaction Guarantee, a promotion that addresses consumer dissatisfaction with the auto insurance claims process. The company says it will give you a 6-month credit on your premium if you’re unsatisfied with your claims experience. (However, presumably for legal reasons, Allstate says the payment of the credit doesn’t mean that it agrees with the reasons for your dissatisfaction.)

A six-month credit is worth a lot of money. According to InsWeb.com, the median six-month insurance premium in 2011 ranged from a low of $436 in Idaho to a high of $1,1111 in Louisiana.

And the only reason you might get a lesser credit is if you haven’t actually paid Allstate a full six-month premium because your policy was canceled during the period when your covered accident took place.

In that case, your credit would be no more than the prorated premium you actually paid on that vehicle.
In other words, if you take out a policy in September, get in to an accident in October and cancel your policy in November, you won’t be able to make money off of Allstate by getting a check for a six month premium when you only paid a two month premium.

That sounds fair, especially since Allstate would probably already have lost money on you from paying your claim.

In most states, the offer ends for policy periods beginning June 1, 2013 or later. So if you become an Allstate customer this year in part because of the Claim Satisfaction Guarantee but have an accident in July 2013, you’ll be out of luck if you’re not satisfied with your claim experience.

Allstate might be using this promotion to improve its image and its ranking with consumers. Two recent J.D. Power and Associates studies show that Allstate is just average among auto insurers.

USAA, which only writes policies for military personnel and their families, consistently received the highest scores of around 900. The lowest score any insurer earned in any region was 705. Allstate's scores ranged from 759 to 806.

Besides improving its general image, if the Claim Satisfaction Guarantee gets you to stay on as an Allstate policyholder despite a bad experience, it could be money well spent for the company.

If you remain a customer, Allstate gets to keep collecting your premiums. The company also saves money by not having to replace your business with that of a new customer, and acquiring new customers is expensive.

To get the full scoop on Allstate's Claim Satisfaction Guarantee, read my Interest.com article, "You're not likely to collect on Allstate's auto insurance satisfaction guarantee."

Fidelity offers an alternative to traditional checking accounts

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Fidelity's Cash Management Account offers a no-cost alternative to expensive big-bank checking accounts.

It has no monthly fee, no minimum balance requirement and no pesky “gotchas” like requiring a monthly direct deposit.

Checks are free, and there are no fees to use your debit card or pay your bills online.

Here are three more things I like about the account besides it's zero-cost features.

1. Fidelity’s cash management feature helps you maintain just the right amount of money in your checking account so that you’re neither in danger of not covering your bills nor letting excess cash sit idle when it could be earning more in an investment account.

2. If you invest with Fidelity, having your brokerage account and your checking account all in one place gives you added convenience. Personally, I've had nothing but excellent experiences with Fidelity and have no qualms about recommending them.

3. The account will automatically help you avoid overdraft fees and bounced payments.

The only thing this account could do better is to offer a higher interest rate.

Get the full details on Fidelity's Cash Management Account in my Interest.com article, Fidelity offers an alternative to traditional checking accounts.

Why you shouldn't buy a home on leased land

Did you know you could buy property without owning the land it sits on?

You're familiar with mobile homes, right? They're the most well-known example of a home you can own while paying a monthly fee to rent the ground it sits on.

But you can do the same thing with an actual house, or even a condo. You’ll find different types of leased land properties in different parts of the country. Some leased land communities are retirement or vacation home communities.

How can you identify these properties, which are often disguised in real estate listings?

-The property might have a regular street address but also have a lot number.
-The home might be priced far below similar homes in the area, or be far nicer but priced like an average home.
-The price might be a dream come true given the location, like waterfront property for the price of an inland property.
-The listing might describe the home as being in a planned development or master planned community (though traditional homes can also fit this description). 

Sometimes, it may simply appear that the property is governed by a homeowners association (HOA) because the listing might mention the association features you’ll have access to, like a community pool and playground. However, the HOA fees will be sky-high, double or triple the standard HOA rate for your area. That's because part of the HOA fee will go toward community amenities; the rest will cover your land lease fee.

I don't think these arrangements really work out in favor of homeowners, as I discuss in my Mortgage-Calc.com article, Why you shouldn't buy a home on leased land.

There are also lifestyle issues to consider. Land lease communities, like other HOA properties, can have restrictive rules such as how long guests may stay with you or what types and sizes of pets you can own.

Indeed, leased land properties often belong to HOAs. That means you not only need to understand the details of the leased land arrangement, but you should also understand what you’re getting into when you buy a home in an HOA. Learn how they work in my articles, 9 Things You Need to Know About Homeowners Associations and What Living in a Homeowners Association Means.

Ways to Make Necessary Travel Affordable When Money Is Tight

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Sometimes you're forced into going on "vacation" whether you want to or not. You might be a member of the bridal party for an out-of-town wedding or have a family reunion or milestone birthday party to attend in a distant city.

I think Suze Orman has it right when she says “people first, money second,” but that doesn’t mean you have to put yourself in a bad position financially to be there for the people you care about. There are things you can do to minimize the cost of your trip no matter where you’re going. Here are a few suggestions on how to cut back.

Airfare: Do you have frequent flyer miles you can use? If not, if you’re close to an award ticket, consider buying a few miles to top off your account. It may not be the best deal in the long run, but if you have to travel now and you don’t have money now, it’s better to spend $150 to buy miles and use a frequent flyer ticket than to spend $350 to buy the ticket outright.

If you have a few months until your trip, try signing up for a credit card that awards a generous number of frequent flyer miles for new signups to get enough miles for your trip. Keep in mind that the miles will take a while to post to your account, and frequent flyer seats get snatched up fast, so if your travel dates and times aren’t flexible, you may have a hard time actually using those miles. I know we have at least one out-of-town wedding coming up in about a year, so I've been using this technique to rack up enough miles on a variety of airlines so at least one of us can fly for free.

Also look at flying on Southwest, because if the fare drops after you buy your ticket, you can get a refund for the difference. You can do this on other airlines, too, but their ticket change fees usually eat up the savings from the lower fare.

Other options include trying your luck with Priceline and adjusting your trip so you’re traveling on unpopular days and/or at unpopular times. On a recent trip, we flew home from New York on the fourth of July because it was the least expensive option. We didn't get to attend any barbecues or go to any fireworks shows, but seeing a few fireworks from the plane and saving a couple hundred dollars was worth the trade off.

Transportation: Renting a car can be expensive especially if you reserve it at the last minute. If you’re traveling specifically to attend an event, you might be able to catch a ride with someone else (and offer to pay for gas or help offset their rental costs)--that's what we did when we attended a wedding in Puerto Rico.

And while navigating public transportation in an unfamiliar city is never fun, it might be worth figuring out if it means the difference between an affordable trip and an unaffordable one. You might also be able to use a flat-rate car service instead of taking a cab--that saved us money on airport transportation in New York. Instead of paying for every minute we were stuck in traffic, we were able to relax knowing that we had already locked in a flat fee, and our driver had an incentive to get us to the airport as quickly as possible so he could get his next fare.

I've also had good luck securing inexpensive rental cars through Priceline. Renting cars from the airport can be less expensive than renting from a neighborhood location, but sometimes there are airport taxes that make it cheaper to rent a car near where you're sleeping. I've also borrowed friends' cars while visiting them instead of renting a car.

Accommodations: Obviously, the easiest way to save money on travel is to stay with someone you know at your destination and room for free instead of shelling out $100+ per night. If you’re traveling to attend a special event, perhaps there’s someone else going who also wants to cut costs that you can share a hotel room with. I've also known people to go camping (even when attending weddings), though I'm not a camper myself.

Food: One of the major expenses of traveling is eating out for every meal. If you’re staying in a hotel, you can try to find an extended stay one that has a kitchen, which means you can buy some groceries and prepare your own, inexpensive meals. You might think this type of hotel room would be more expensive, but it often isn’t.

If an extended stay hotel isn't an option, a hotel room with a fridge and microwave can still save you money. As a last resort, you can eat picnic-style: get a cooler and some ice and plan to eat sandwiches for the length of your trip. You’ll save a bundle. If you’re staying with friends or family, they probably won't mind lending you some fridge space and letting you use their kitchen.

Souvenirs, gifts, and travel supplies: It probably goes without saying, but if money is tight, you should skip these items altogether. Whatever suitcase, clothes, shoes, etc. you already own will have to be sufficient. Save your limited funds for the expenses you can’t avoid. If you already own a digital camera and a computer, you’ll be able to create plenty of trip mementos for free. If you absolutely must get new clothes (such as for a wedding), find a way to fit them into your usual monthly budget and buy items that you’ll be able to wear again to work or for other special occasions. Stores like TJ Maxx really do have designer brands at surprisingly affordable prices.

If you find yourself faced with a trip you can’t say no to this year, change how you usually do things to make your trip affordable. You may be able to scrounge up the money for it by looking at ways you can cut your monthly expenses (which will pay off not just in terms of making one trip affordable, but giving you more breathing room every month).

Summer’s mortgage rates fall to new lows — again

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Mid-July’s mortgage rates are some of the lowest we’ve seen all year. With the average home loan selling for about 3.75%, you’ll be getting a great deal if you apply today.

To get the best interest rate, you need to know how and when to lock your rate. You also need to know how to not get taken advantage of by an unscrupulous lender.

“Many lenders do not require an upfront fee to lock. If they do, it must be applied as a credit, usually towards the discount points or another fee on the HUD-1 settlement statement that the borrower approves at closing,” says Ray Eickhoff, regional vice president of Fairway Independent Mortgage in Mill Creek, Wash.

For more expert tips from mortgage industry insiders about how to get the best rate lock and for more news about today's low mortgage rates, read my latest mortgage story for Interest.com, Summer’s mortgage rates fall to new lows — again.

And for more information on mortgages and homebuying, check out the Homebuying 101 section of my website, where you'll find links to all of my articles on how to buy a home.

Understanding your mortgage’s acceleration clause

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Most people breeze through the mortgage note as one of the many documents they sign at closing and never give it another thought.

But when you take out a mortgage, you need to understand that paying off the balance over time is a privilege, not a right.

To maintain that privilege, you must continually comply with the terms of your mortgage. If you don't, your lender can call your loan and require you to immediately repay it in full.

Make sure you understand the fine print of your mortgage note so you aren’t caught off guard. Read my Mortgage-Calc.com article, Understanding your mortgage's acceleration clause, for details.

What is property tax abatement?

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Property tax abatement is a temporary reduction in the amount of tax a property owner must pay. Often, tax abatement means that you only pay tax on the value of the property’s unimproved land; the value of the structure is not taxed. Other times, both the value of the land and the value of the structure are taxed, but at below-market rates.

For example, in places where property tax abatement programs are used to encourage the
redevelopment of run-down homes, local government will only charge tax on the property’s considerably lower pre-renovation value.

Property taxes are an ongoing, significant annual expense for homeowners, even after the
mortgage is paid off. Property tax rates vary by locality, but typically cost about 1% to 3% of the
home’s value each year. This means that if your home is worth $250,000 and your local property tax rate is 2%, your annual property tax bill would be $5,000.

Property tax abatement can save a homeowner tens of thousands of dollars over the program’s lifespan. It provides more breathing room in the monthly budget and can give a meaningful boost to long-term net worth.

Tax abatement can also put home ownership within reach for someone who otherwise couldn’t afford a home. In fact, some abatement programs are targeted directly at this group of buyers and limit eligible properties to those at the middle and lower end of the price scale for a particular community.

Being able to sell your home with a property tax abatement attached can improve the home’s resale value and limit its time on the market. However, the opposite could be true once the abatement expires.

Learn more about local programs for reducing your property taxes in my Mortgage-Calc.com article, What is property tax abatement?

Clueless shopper bares all in checkout line

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You need to be careful when you're applying for a store credit card--careful with your personal information and careful that you're not signing up for a card with lousy terms.

First of all, you shouldn't apply in store. The most secure way to apply for a store card, or any other debit or credit card, is in the privacy of your home, through a secure Internet connection or phone call.

If you don’t want to miss out on a discount on a large purchase, postpone your purchase—don’t compromise your financial security like this woman I saw at Target.

Second, you need to know what you're signing up for.

Even if the terms and conditions are made available to you at the store, you’re not likely to feel comfortable taking the time to read them, or be able to concentrate fully, when you’re standing in a checkout line with a cashier and other customers waiting for you.

Third, you need to figure out if the store credit card's discount is worth the trouble.

5% back on all your Target purchases sounds like a lot--but even if you spend $1,000 a year at Target, that’s only a $50 savings. Is $50 enough to make it worth having another bill to deal with 12 times a year?

Another chore associated with store credit cards is constantly checking to make sure you don’t exceed what will probably be a very low credit limit. I've had store credit cards with limits as low as $500, and I have very good credit.

If you're really interested in a store credit card, go home and apply after you've read the fine print and thought through the pros and cons.

Don't be the clueless shopper who bares all in the checkout line.

"Free" credit score from Citi isn’t free, but it is nearly worthless

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If you're a Citi credit card holder, you might have recently received notice of a promotion to get a "free" credit score.

The advertisement says the score is “based on data from Experian,” but doesn't clarify whether you're actually getting your Experian credit score or merely an estimate of your Experian score.

Some credit monitoring products provide estimated credit scores that personal finance experts refer to as "Fake-O" scores because they pretend to be the score lenders use to make credit decisions. The real score is called a FICO score, named after the company that created the scoring formula, the Fair Isaac Corporation.

Fake-O scores aren't helpful because creditors can base their lending decisions on your score from any one of the three big credit scoring companies--Experian, Equifax or TransUnion--or they can use a different service entirely. 

Each credit scoring company puts its scores together using a slightly different formula, so your credit score can differ by dozens of points from one agency to the next, easily making the difference between your being offered the best interest rates or even meeting a loan or credit qualification cutoff. 

Your credit score could even differ by hundreds of points across credit bureaus if one of your files contains a mistake. 

Get the facts about Citi's "free" credit score offer in my Interest.com article, "Free" credit score from Citi isn’t free, but it is nearly worthless.

American Express travel rewards bonus is truly bogus

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Say you decide to book a plane ticket through American Express’s special travel booking website so you can earn double Membership Rewards points. 

You’ll pay a hidden fee of $6.99 per domestic ticket.

But unless you’ve shopped at other travel websites and compared prices for identical flights against American Express’s prices, you’re unlikely to ever know that you’d paid this fee.

 It’s rolled into your ticket price without being itemized; you won’t find out about it unless you read the fine print before you buy your ticket.

To get to the fine print, you'll have to click on the link to “Taxes + Airline/American Express Imposed Fees” under step 2, “Review the price,” after you’ve selected your flights.

You’ll get a pop-up window with a document titled “Information About Taxes, Governmental Fees, Tax Recovery Charges and Service Fees.” 

The third item under “Air Transactions” says “Online Air Transaction Service Fee.A non-refundable fee of US$6.99 per domestic ticket and up to US$10.99 per international ticket is charged for each ticket purchased online for an airline that pays us a standard fee or commission.”

American Express doesn't just charge fees on air travel bookings, either.

Learn more about American Express's hidden travel booking fees and some better ways to earn rewards when booking travel online in my Interest.com article, American Express travel rewards bonus is truly bogus.

Hot July mortgage rates show no signs of cooling

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We started 2012 with record-low mortgage rates, and home financing has only gotten cheaper.

 But just how far have interest rates fallen during the first six months of the year?

Find out in my Interest.com article,  Hot July mortgage rates show no signs of cooling.

 You'll also learn how much you could save by taking out a 15 year mortgage instead of a 30 year mortgage--an option that might be within reach with rates so low.

These shorter-term mortgages are less expensive because lenders and mortgage investors consider them less risky.
The lower rate means that when you cut your loan term in half, your monthly payment won’t double.

Mike Davidson, a senior executive in the New York City area, says he’s held both 30- and 15-year mortgages.
“Earlier in my life, I always took out the 30, since it had a smaller monthly payment and I was just getting started. I didn't focus on total costs, just the monthly nut and how it compared to my salary,” he says.
“However, the last few times I've refinanced I have preferred the 15-year option,” he says, because the total overall cost is much lower.
“Here's the real deal sealer. With a 15-year mortgage I will be in a position to have this mortgage paid off just about the time my two children are entering college,” he says.
Christopher Davis, director of communications and retirement services for HFM Wealth Management in Hartford, Conn., provides the following example:For someone borrowing $300,000 for 30 years at a fixed rate of 3.375%, the estimated monthly principal and interest payment would be $1326. For a 15-year fixed rate mortgage, the interest rate would drop to about 2.75%, making the monthly payment $2035. 
Assuming the borrower could afford $2035 per month, he or she could choose the 30-year option but make additional monthly principal payments of $700 and pay off the mortgage in about 16 years.
“In exchange for the possibility of one more year of debt service, the borrower gains the flexibility of being able to reduce their payment, to as low as $1326 in this example, if they become cash-strapped during any period,” Davis says.

Your lender might not let you buy a home you want

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When you buy a home, it’s your money. You get to decide whether a property is in good enough condition to purchase. 

At least, that’s what people usually think.

If you’re buying the property with a mortgage, your lender will have a say in what you buy because it has to protect its collateral interest.

No one goes into a home purchase thinking they will ever lose the property. And while lenders know that they’ll have to foreclose on a certain percentage of borrowers, they’re not actually anticipating foreclosing on any particular loan. If they could foresee that risk from the start, they wouldn’t make the loan.

But since lenders do have to foreclose on a small percentage of homes, if you want to buy a home that’s in any condition less than turn-key, you could run into stumbling blocks.

Learn about the standards lenders impose on properties they finance in my Mortgage-Calc.com article, Your lender might not let you buy a home you want.

FHA refinancing now could be out of reach for some

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When you take out an FHA mortgage, you have to pay a lot of mortgage insurance.

Today’s mortgage insurance premiums (MIPs) are as high as 1.25% depending on what percentage of your home’s purchase price you’re borrowing (called “loan to value” or LTV, in mortgage industry-speak). They used to be just 0.55%.

Today's MIP rates are tiered and get as low as 0.35% if you have a 15-year mortgage and a loan-to-value below 90%. But FHA borrowers tend to put down as little as possible and want the smallest monthly payment possible, which often means 3.5% down (or 96.5% LTV) on a 30-year mortgage.

Today's higher MIPs mean many borrowers won’t save much, if anything, by refinancing.

Plus, refinancing means closing costs, which typically amount to thousands of dollars.

Even if you wanted to refinance your FHA loan under these less-than-ideal circumstances, FHA refinancing guidelines stipulate that there must be a “net tangible benefit” to borrowers from refinancing. The new principal, interest and monthly mortgage insurance payment must be at least 5% lower than the borrower’s current payment.  

“Benefit to borrower rules were put in place to make sure there was a savings or other benefit to someone refinancing,”  and not just a benefit to the lender facilitating the transaction, says mortgage broker Todd Huettner of Denver-based Huettner Capital.

If your loan closed on May 31, 2009, the cutoff date for a discounted FHA refinancing program, your refinancing math will probably look dramatically better than if your loan closed on  June 1, 2009. The UFMIP cost changes from a couple hundred dollars to several thousand.

And the real cost of UFMIPs is often higher because borrowers typically roll the premium into their mortgage and pay interest on it for the life of the loan. 

The difference in monthly MIPs also amounts to thousands over the life of the loan.

The loan cutoff date to refinance under the more favorable terms seems arbitrary. The Department of Housing and Urban Development, which sets FHA guidelines, has attempted to justify its decision by stating that borrowers who took out loans prior to June 1, 2009, typically have interest rates of at least 5% and stand to gain the most by refinancing.

Matt Kovach, a product development manager in Houston, Texas, for Envoy Mortgage, says the FHA lowered both the up-front and annual premiums to spur these homeowners to refinance and ultimately reduce the risk of future defaults on these loans.

Since FHA loans are government guaranteed, taxpayers like you and I must cover the losses when a homeowner defaults on his FHA loan.

Huettner points out that any time a borrower is able to lower her interest rate by refinancing, the odds that he or she will default get lower.

The FHA’s streamline program doesn’t allow cash-out refinancing, nor does it allow borrowers to roll closing costs into the mortgage. In other words, the amount borrowed can’t increase. There’s really no way to increase that borrower’s default risk by allowing a refinance.

But why should special terms only be available to the borrowers who stand to benefit the most? It seems like it would make sense to offer the more generous streamline refinance pricing to all FHA borrowers, not just a limited pool.

Get more details in my Interest.com article, Why it's harder to refinance a newer FHA loan.

How to Get the Best Price on Contact Lenses --- and Why I Chose Not to

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It's been a while since I bought new contact lenses, so I wanted to shop around thoroughly to make sure I got the best price.

I used eBates as my starting point. It gave me nine options for companies to buy contacts from. I narrowed these options down to four based purely on the price of a single box of contact lenses. The cheapest sites for my brand were Lens.com, ContactsAmerica.com, 1800GetLens.com, and JustLenses.com.

To find out the price with shipping, I had to begin a registration process for each site. Suspiciously, each of these four sites has an identical registration page. But the real clue that they are probably all the same company is the identical pricing for shipping of $7.95 and for "handling and insurance" of $6.36.

This hidden handling cost seems sketchy to me. It makes it more difficult to comparison shop across different contact lens websites and it's basically a charge for nothing. The $7.95 shipping charge is also inflated--it doesn't cost that much to ship two boxes of contact lenses, which weigh very little.

After all this comparison shopping, I decided to with 1800Contacts.com, which I've used before. The per-box price isn't the cheapest--it was $9 more per box, in fact--but shipping is free and there is no bogus handling charge. Also, I got 10% back through Shop Discover. If I didn't have a Discover Card, I could have gotten 5% back through eBates.

I paid $114 to place my order with 1800Contacts.com, and I'll get $1.14 in Discover Cash Back. I would have spent $112 at one of the other sites and gotten 5% cash back through eBates, or 56 cents. I actually spent slightly more by using 1800Contacts.com than I could have by using Lens.com, ContactsAmerica.com, 1800GetLens.com, or JustLenses.com, but would rather give my business to a reputable company that offers straightforward pricing. I also thought that if I needed to return my lenses for any reason, I could get a full refund (minus return shipping) since I hadn't paid $15 in bogus charges up front. 

Summer’s best mortgage rates keep getting better

Photo: Amy Fontinelle

I’m not sick of writing it yet. I hope you’re not sick of reading it.

Mortgage rates are the lowest we’ve ever seen -- again. The average rate in late June fell to 3.89%, according to our national survey of lenders, a record low.

These low rates mean you could be in a significantly better position to buy or refinance this summer compared to this time last year, when the average mortgage sold for 4.66%.

Read my latest Interest.com mortgage story, Summer’s best mortgage rates keep getting better, to find out what mortgage industry experts Amy Tierce, Xavier Epps and Shawn Gilfedder say about how you should compare rates offered by different lenders.

Even when average rates are this low, you still need to shop around if you want to get the best deal. It's worth your trouble--you might be paying this interest rate for as long as 30 years, after all.

Take a pass on latest ploy to get you to switch checking accounts

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A new promotion from SunTrust Bank and Delta SkyMiles offers a miles debit card with sign-up bonus of 30,000 miles.

But you'll have to open a qualifying checking account and establish a recurring direct deposit.

This offer gets you thinking about all the wrong things.

We’ve seen debit cards with rewards before, though many of them have been going extinct since last year. Here's what the biggest banks are currently offering:

-Chase doesn’t appear to offer any debit card rewards program right now.

-Bank of America’s only offering is an Alaska Airlines debit card with a small account opening bonus and mediocre rewards of 1 mile per $2 spent.

-Wells Fargo is ending its debit card rewards program as of August 1.

-Citibank offers ThankYou Rewards with its checking accounts. The program awards points for activities like ongoing direct deposits and automatic bill payments and maintaining an automatic savings plan.

We’ve also seen checking accounts offer cash bonuses before, usually for opening an account with a certain amount of money, establishing direct deposit of your paycheck and jumping through a few other hoops.

But now we’ve found a bonus that’s being marketed specifically with a debit card.

Get the full details in my Interest.com article, Take a pass on latest ploy to get you to switch checking accounts.

And before signing up for any rewards debit card, take these three steps:

1. Find out what fees are associated with the underlying checking account. How much will the fees affect you? How significantly will they eat into your new account bonus?

2. Consider the security risks. Think about whether you want to use your debit card as heavily as these deals require since the more you use your card, the greater your exposure to debit card fraud, which leaves you more vulnerable than credit card fraud.

3. Make sure you'll be able to meet all the requirements to actually earn the bonus. For example, in the deal covered in my article, you must receive your first direct deposit by a certain date; your direct deposit must come from an employer or outside agency; you must open your account with at least $100; and you must make your first debit card purchase by a certain date.

If the requirements will be too much of a pain for you to meet, there are plenty of other account opening bonuses to choose from.

Mortgage closing guarantees are practically worthless

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With late closings so common in real estate, a number of mortgage lenders are offering an on-time closing guarantee that promises borrowers cash if the loan closes late.

But these guarantees are full of loopholes that leave lenders plenty of wiggle room to get out of paying up on the pledge. Learn why mortgage closing guarantees are practically worthless in my latest Interest.com article.

What is a short sale and how does it differ from a foreclosure?

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If you’re shopping for a home, you’ll probably come across at least one property that’s listed as a short sale.

Many buyers are unfamiliar with this term and don’t know how a short sale works.

To understand the process, you have to understand the situation that the seller and the seller’s lender are in.

A short sale occurs when a lender allows a delinquent borrower to sell her home for less than she owes on the mortgage because the home is now worth less than what she originally paid.

Get the rest of the details in my Mortgage-Calc.com article, What is a short sale and how does it differ from a foreclosure?

Factors that influence a home’s appraisal value

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When you buy a home, your lender will order an appraisal to determine the fair market value.

The appraisal is important to the lender because the home serves as collateral for the loan.

If you’re unable to repay your mortgage and the lender forecloses, it wants to be able to sell the home to recoup the money it lent you, so it has to make sure you’re not overpaying.

Learn about the factors that influence a home’s appraisal value in my Mortgage-Calc.com article.

The Best States To Start Your Business

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If you're thinking about starting a business, you may have heard that some states would be better locations for your company than others.

Moving from the Washington, D.C., area to south Florida meant major savings for Roberto Verrocchio, owner of Antico Elements Architectural Products in Miami.

“If I had to rent the same retail / office space in the DC area it would cost me a fortune. Miami rental rates are still very competitive,” he says.

Verrocchio also saves on state income taxes because Florida has none. (The other states with no state income tax are Alaska, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming.)

Assuming you’ll be living in the state where your business is based, cost of living is important, too. In addition to low taxes, you’ll want to look for low housing, transportation and energy costs.

The type of business you’re running may limit your list of potential locations, however. If you want to operate a ski resort, Texas and Florida aren’t going to be appealing choices even if they do have low taxes and a low cost of living.

Read more about how your choice of state can affect your business in my Investopedia article, The Best States to Start Your Business.

Ways to Lower the Ongoing Costs of Home Ownership

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Owning a home is expensive--it's probably your biggest monthly cost, especially if you factor in not just your mortgage payment, but also your property taxes, insurance, electric, gas, trash and water bills. To reduce some of your ongoing home ownership expenses and make your budget more manageable, consider the following possibilities.

1. Challenge your property tax assessment.
Homeowners who think their property tax bill does not accurately reflect their property’s value can challenge the assessment. For example, if you recently had your home appraised for a refinance and it shows your home’s value is $150,000, and similar homes in your neighborhood have been selling in the $145,000 to $155,000 range, but your property tax bill places your home’s value at $175,000, you may be able to use your evidence to successfully argue for a reduction in your property tax bill based on a taxable value of $150,000.

2. Take advantage of every tax deduction you qualify for.
Because of the way the standard deduction works on your income tax return, the mortgage interest tax deduction isn't always as valuable as people think.

However, for homeowners who have significant itemizable expenses in addition to mortgage interest, home ownership typically has ongoing tax benefits. Home-ownership-related tax deductions allow people to take advantage of other deductions they otherwise wouldn't qualify for because they wouldn't itemize. These include property taxes, state income taxes and charitable donations.

For example, if you normally donate $1,000 a year, if you don't itemize, you won't see any tax benefit from your donation even if it's made to a tax-exempt nonprofit. But if you itemize, the same donation costs you less. If you're in the 25% federal tax bracket, your $1,000 donation will save you $250 on your tax bill. You'll achieve the same rate of tax savings on your itemized state income taxes and property taxes.

Here are some other areas where you might be able to reduce your tax bill by itemizing expenses:
-Donating gently used clothes, household items and furniture to charity
-Personal property taxes
-Gambling losses not in excess of gambling winnings
-Interest on money you borrowed to fund investments

3. Refinance.
Even if you have a fixed-rate mortgage, it makes sense to keep an eye on mortgage rates. You never know when they might drop far enough to suddenly make refinancing a smart idea. If you have an FHA loan, you can do an FHA Streamline refinance even if you're underwater. VA loans also have a streamline option, which you can learn more about at VA mortgage options. Refinancing is a great opportunity to increase your monthly cash flow and your long-term net worth by reducing the amount of interest you pay on your mortgage.

Put these savings in your emergency fund and you won't have to borrow money to make home repairs or upgrades. The ability to pay cash will give you even greater savings since you won't have to spend anything on interest payments. Make sure to ask yourself these six questions before you refinance.

4. Don't buy a home warranty.
This advice probably sounds counterintuitive. Wouldn't a home warranty, which provides coverage to repair or replace many of the major systems and appliances in your home for just a few hundred dollars a year, be a great way to keep maintenance costs to a minimum? Unfortunately, home warranty companies have poor reputations when it comes to customer satisfaction, and the contracts contain lots of fine print that lets home warranty companies get out of paying almost any claim at their discretion. You're better off putting the money into a rainy day house fund for handling unforeseen repairs.

A settlement company helps protect your interests at closing

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When you buy or sell a home, escrow is the process that transfers the home from the seller to the buyer. A neutral third party oversees this process.

That third party can be an escrow company, a title company or a real estate attorney. They work with all the parties involved in the transaction to collect all the paperwork and funds necessary to close the deal.

Learn about the key functions of these settlement firms in my Mortgage-Calc.com article, A settlement company helps protect your interests at closing.

What To Do If You Filed Your Taxes Late

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This year, your federal income tax return was due on Tuesday, April 17. That's because the usual deadline, April 15, fell on a Sunday, and a federal holiday, Emancipation Day, fell on April 16.

If you didn't file your return on time despite the extra two days, find out what you should do in my article, What To Do If You Filed Your Taxes Late.

The Best Time for Young People to Get a Credit Card

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It may not seem like it, but it is possible go to through life without using a credit card.

That being said, when used responsibly, credit cards offer numerous advantages over other payment methods.

They're convenient, they protect you against fraud and theft, and they offer cash back and other rewards.

They can also help you build the credit history you'll need if you want to borrow money to buy a house or a car.

If you think paying with plastic might be the way to go, I have some points to consider in deciding when to get that first card and why. Read more in my Investopedia article, The Best Time for Young People to Get a Credit Card.

A charge card that charges interest? Stay away

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American Express wants to reward you for learning a bad habit. It's dangling reward points for its existing charge card customers who enroll by June 30 in a program that essentially transforms their plastic into a credit card.

This is a bad idea. Find out why in my Interest.com article, A charge card that charges interest? Stay away.

The Most Common Types of Consumer Fraud

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"Although consumers are protected by a number of consumer protection laws, including the Consumer Credit Protection Act, there are still many opportunities for people to be taken advantage of by unethical professionals and corporations," says Steven Wolf, Executive Director and Forensic Accountant in the Washington, D.C., office of Capstone Advisory Group.

If you can't rely on government agencies for protection, what can you do?

"An educated consumer is the con-man's worst enemy," says financial coach Todd R. Tresidder, founder of FinancialMentor.com.

Become that educated consumer by learning about some of the most common frauds victimizing consumers right now in my article, Most Common Types of Consumer Fraud.

5 Reasons to Use a Real Estate Agent in a Down Market

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Some people think that in a down market, the last thing they should be doing is paying a 6% commission to sell their homes.

But going it alone and doing a "for sale by owner" isn't a good idea right now.

Find out why in 5 Reasons to Use a Real Estate Agent in a Down Market.

Buy from Enterprise, score a 1.49% auto loan from PenFed

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Pentagon Federal Credit Union is offering a phenomenal interest rate on used-car loans to purchase Enterprise Car Sales vehicles.

Through May 31, you can borrow as much as $70,000 at this low rate for up to 60 months as long as you apply online.

This 1.49% rate is even lower than PenFed’s usual great rate of 1.99% on new- and used-car loans.

Find out all the details in my Interest.com article, Buy from Enterprise, score a 1.49% auto loan from PenFed.

Three days to swap car loans?

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CarMax is the nation’s leading retailer in used-vehicle sales, and it offers a substantially better buying experience than you’ll get at many new-car dealerships.

But you shouldn’t assume CarMax’s 100 stores offer the best auto loans.

Find out more about how to get the best auto loan and CarMax's Three-Day Payoff in my Interest.com article, Three days to swap car loans?

Have Housing Prices Bottomed Out?

Photo: Marion Doss

Are we finally starting to recover from the housing crisis?

Everyone seems to have an opinion, but the facts present a mixed picture.

Find out what the official housing data say and how that information jives with what real estate professionals are saying in my Investopedia article, Have Housing Prices Bottomed Out?

For the greatest college savings, skip this insurance plan

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I don’t know about you, but when I see a company use words like “guaranteed return” and “risk free” to refer to an investment product, red flags go up. The only investment I can think of that meets these criteria is an FDIC-insured certificate of deposit.

The Gerber Life College Fund makes these claims. That made me wonder if they were misleading consumers with promises that were too good to be true.

If the claims were true, I wondered, can the Gerber Life College Fund help you save enough to pay for your child to go to college, and will it provide enough life insurance coverage if you die unexpectedly?

See what I found out in my Interest.com article, For the greatest college savings, skip this insurance plan.

I also learned something about options for college savings.

A major advantage of the Gerber Life College Plan over other college savings plans is that the money in this plan isn’t considered in calculating a student’s college financial need. Better-known college savings plans like 529 plans count against a student’s financial aid eligibility. But that doesn't make them an inferior option. In fact, they're better even after the financial aid eligibility hit.

Andrew Schrage, co-owner of the Money Crashers Personal Finance website, says 529 plans are the best college savings plan. He suggests Illinois’ Bright Start College Savings Plan and Utah’s 529 plans for their low fees, Ohio’s plan for “stellar investment options,” and Michigan’s program if you’re risk-averse.

That being said, you can use the money from the Gerber Life College Fund for anything; a downside of 529 plans is that the money must go toward college expenses.

“This can pose an issue if, for some reason, your beneficiary doesn't want or need to attend college,” Schrage says.

However, the 529 account can be transferred to another family member, or you can withdraw the money and pay a 10% penalty on the account’s earnings. Personally, I would take the chance and put my money in a 529 plan.

Bank Account Tips for Young People

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Choosing the right bank account is important.

As the hub for all your cash inflows and outflows, you want it to be easy to use and not charge you any ridiculous fees that needlessly eat away at your balance.

If you're just getting started with managing your own bank account, the tips in my Investopedia article, Bank Account Tips for Young People, will show you how to do it right.

Savings program from Wells Fargo is anything but

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Are you looking for an easier way to meet your savings goals? Here’s a product you can skip.

Wells Fargo’s Way2Save program is supposed to help consumers by automating savings.

The Way2Save account automatically transfers $1 from your Wells Fargo checking account to your linked Wells Fargo savings account each time you make a debit card purchase, pay a bill online through Wells Fargo Bill Pay or make an automatic payment from your checking account when you sign up for Save As You Go transfers.

However, this product is more likely to harm consumers than help them for three big reasons. Find out what they are in my Interest.com article, Savings program from Wells Fargo is anything but.

Hot mortgage rates greet warmer weather

Photo: Chasqui (Luis Tamayo)

After a brief spike in mortgage rates earlier this spring, the cost of home loans has once again has settled to record lows.

Right now, the average 30-year, fixed-rate mortgage will cost you a bit more than 4%. This is great news if you’re beginning a housing search.

With mortgage rates as low as they've ever been, and home prices off by a third or more from their highs last decade, is now the right time to buy, or will there be a better deal around the corner?

Find out in my Interest.com article, Hot mortgage rates greet warmer weather.

4 Behaviors That Sabotage Your Investment Goals

Photo: Alan Cleaver

Sometimes we think we're doing everything right, yet we fail to achieve our goals.

If you've noticed that your investment returns are falling short of your expectations, it might not be the market's fault.

One of these four reasons could be the true culprit.

Find out what they are in my Investopedia article, 4 Behaviors That Sabotage Your Investment Goals.

New Construction's Hidden Costs Can Burn Buyers

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Many homebuyers think that purchasing a brand-new home is smarter than purchasing a "used" home.

A new home's maintenance costs should be minimal; its construction materials, systems and appliances should be up-to-code and energy efficient; the floor plan and amenities should meet the needs of modern buyers; and the home should be move-in ready.

A new construction home also has an emotional appeal for buyers who like the idea of living in a home that's completely clean and potentially perfect.

What many buyers don't realize is that new homes often have numerous hidden costs.

If you're considering new construction, learn what you should look out for to make sure you're spending your money wisely and you don't experience any unpleasant surprises in my Investopedia article, New Construction's Hidden Costs Can Burn Buyers.

Savvy sellers never pay full real estate commission

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There's a dirty little secret some real estate agents probably don't want you to know.

You don't have to pay 6% commission to sell your home.

If you do, you're throwing away thousands of dollars that should go into your pocket.

"Technically, there's no such thing as a 6% commission unless the client agrees to it," says Michael Soon Lee, broker-owner of Realty Unlimited in Dublin, Calif.

That's because commissions, like closing costs, are negotiable.

Get the full story in my Interest.com article, Savvy sellers never pay full real estate commission.

A cash-out refinance can cost you big

Photo: Ben Husmann

Cash-out refinancing has a somewhat deservedly bad reputation because during the housing bubble years, people used their homes as ATMs or piggybanks. Cash-out refinancing contributed to the number of homeowners who ended up underwater and played a role in the housing crisis.

The popularity of cash-out refinancing may have declined, but many borrowers are still doing it.

A cash-out refinance -- assuming you have the equity -- might seem like a good short-term solution when you don't have enough money to pay for a major expense.

It's easy, interest rates are low and mortgage interest is tax-deductible.

But even if you don't end up underwater or otherwise get in trouble by cashing out, you could still be hurting your finances in the long run.

Cashing out often works out to be very expensive because of how mortgage amortization works. At the beginning of your loan, most of your monthly payment goes toward interest. It’s not until the later years of your loan that most of your monthly payment goes toward principal.

Before doing a cash out refinance, you need to calculate the long-term costs of doing so in order to make an informed decision. To uncover the total costs, use an online amortization calculator.

Think about whether what you're cashing out for is worth the true cost and the impact on your net worth.

Waiting isn't fun, but consider delaying gratification. Instead of cashing out now, why not do a regular refinance to a lower interest rate and use the monthly savings to pay off the mortgage early? Without a mortgage, most people will experience a huge increase in monthly cash flow.

That money can be used for anything, interest-free.

Owning a home free and clear can also bring a significant feeling of accomplishment and might allow for freedoms like quitting your day job to start your own business or working part-time and traveling more.

Avoiding a cash-out refinance now could mean reaching a place of significantly greater financial and personal freedom sooner rather than later.

Learn more about the math behind cash-out refinancing decisions in my Interest.com article, A cash-out refinance can cost you big.

Do Your Research Before Claiming These Deductions

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Can you really claim that deduction?

Some of the tax deductions you hear about most often are actually quite difficult to qualify for.

It's important to understand how these deductions work so you don't anticipate tax savings that you won't receive.

Read about are the rules and limitations you should be aware of for five common deductions in my Investopedia article, Do Your Research Before Claiming These Deductions.