Mortgage rates continue to drop

Stumble it! Tip it! Facebook it! | 05/14/12

Mortgage rates continue to go lower.  Crazy low: 30-year fixed-rate mortgages at 3.61%, and 15-year fixed-rate mortgages at 2.83%.  This places the rates squarely below 4% and 3%, respectively.

Seriously: How low can they go?

These rock-bottom mortgage rates are happening at a time of year during which sales are most brisk: springtime.  Demand for mortgages doesn’t seem to be driving their price up, which could indicate that lenders are still holding on tight to their money, or because there are a lot of properties that are worth less than what’s owed against them.

With the rates as low as they are, any fixed-rate mortgage — even a 30-year mortgage — above 5% is a candidate for a mortgage refinance.  The refinance payback time is reasonable.

The trick then becomes getting the refinance approved, and therein might be the rub.  If the value of the property is less than what is owed against it, a refinance is unlikely because the lender couldn’t recoup its money in the event of a mortgage default.

On the loan origination side, if the prospective borrower’s credit is anything less than stellar, they may have a hard trek to getting the loan in the first place.  Creditworthy people won’t have issues, but the bar has been raised compared to where it was five years ago.

When to pull the trigger?

That is the six-figure question, isn’t it?  Borrowing money hasn’t been this cheap in decades but it doesn’t make sense to buy if you’re not ready.  Don’t worry; it’s okay!  Home ownership has its own set of headaches compared with renting.

On the other side, the low mortgage rates make reasonably-priced homes even more affordable for creditworthy borrowers.  What’s more, there are more reasonably-priced homes around because of the downward price pressure from foreclosures and the like.

One thing is for sure, though: Banks won’t pay people to borrow.  The rates will only go so low, and they don’t have much more room to go down.  We’ve got to be getting close to the bottom.  Then, it’s all uphill from there.

So I recommend keeping an eye on mortgage rates if you’re in the market for a new mortgage or a refinance.

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Posted in Mortgages | 3 Comments »

Time is not money

Stumble it! Tip it! Facebook it! | 04/28/12

I’m sure you’ve heard the expression “time is money.” Time is related to money, for sure:

• People exchange their time for money at their jobs.
• People choose to pay others to do tasks that will take time away from something they’d rather be doing.
• People take time to make lunches, change their own oil, mow their lawn, etc., to save money.
• People pay more to live in a city to cut down their commute time to work.
• And so forth …

There is one big difference between time and money, which is why time is not exactly the same thing as money.  Time is scarce.  Money can be lost, made back, saved, spent, invested, multiplied.  Time can only be spent.  It provides no return, and everyone gets only so much of it.  When it’s gone, it’s gone.

And when your time is almost gone, it becomes incredibly valuable.  The value of money dwindles to nothing at this point.

Which is why that it’s sad to hear that Jerry Meekins, a veteran of the Vietnam War, has decided to make it his “primary goal” to get Spirit Airlines to change its blanket no-refund policy on airline tickets.  The crux of the linked story is that Mr. Meekins bought a plane ticket from Spirit Airlines, found out two weeks later that he was terminal, requested a refund, and the refund was refused, in line with the airline’s (presumably clear) policy that the tickets are non-refundable.  Additionally, the airline offers low-cost travel insurance ($14 for $300 worth of coverage) that pays out if documented “sickness” is provided, so it’s probable that Mr. Meekins would have gotten his money back with this coverage in place.

Why be remembered for a fool’s errand?

It’s Mr. Meekins’ choice how he spends his final months.  (Maybe he’s already quit fighting the airline.  I hope so.)  What I don’t get is that why he chose to waste any time at all on this issue.  Is fighting for the cost of a plane trip — with an airline that has made it clear that it will stand up to the bad press it will get by not issuing the refund — a good use of his time?  Even if he does get his money back — will it be worth his time?  Not at this stage in his life.

The people that know and love Mr. Meekins will remember his war record, his service, and the other good things he’s accomplished with his life.  Lots more people will just know that he had a bone to pick with an airline, and some of them will side with the airline, not him.  (I think the airline did nothing wrong here.)

He should just let the ticket go.  It’s lost.  Fuhgeddaboutit.  (And, by the way, he should have bought the travel insurance.)

I know that this tiff with Spirit Airlines isn’t his life’s meesage.  He should spend his remaining time getting that out, whatever it is.

Time is not money.  Time is way more valuable than money.

Posted in Commentary | 13 Comments »

A neat way to see the interest you save by paying extra principal

Stumble it! Tip it! Facebook it! | 04/19/12

I’ve been taking a Bible study offered by Crown Financial Ministries.  It’s a well put-together study that involves scripture memorization, Bible verse study, group discussion, practical exercises, and more.

This past week’s topic was debt, and not surprisingly, the Bible doesn’t have too many good things to say about debt and encourages people to avoid almost all kinds of debt, and to get out of debt as quickly as possible.

Part of the discussion within one of the workbooks revealed a nice illustration of how paying extra on debt saves interest expense over the life of the loan.  All that’s needed is an amortization schedule.

Let’s take a 30-year fixed-rate mortgage with starting principal of $100,000 and a rate of 5%.  The monthly payment is $536.82.  Here are the first five payments, split up by principal and interest, and the balance after making the payment:

Pmt#	Payment	Principal	Interest	Balance
1	536.82	120.15	416.67	99,879.85
2	536.82	120.65	416.17	99,759.20
3	536.82	121.16	415.66	99,638.04
4	536.82	121.66	415.16	99,516.38
5	536.82	122.17	414.65	99,394.21

For the first $536.82 payment, $416.67 goes to interest, and $120.15 goes to reducing the loan principal to $99,879.85.

Now let’s say that I wanted to retire the loan faster by paying extra toward principal reduction.  This saves me interest in the long run, but how much?

Let’s say that I make an extra principal payment with my regular first payment. Let’s say also that the extra principal is $120.65, which is the principal part of the second payment (in bold below).

My balance then is then $99,759.20. So, I’ve arrived at the loan balance I should have after the second payment, without paying the interest part of the second payment. Therefore, I saved $416.17 in interest by making an extra $120.65 payment when I did.

Pmt#	Payment	Principal	Interest	Balance
1	536.82	120.15	416.67	99,879.85
2	536.82	120.65	416.17	99,759.20
3	536.82	121.16	415.66	99,638.04
4	536.82	121.66	415.16	99,516.38
5	536.82	122.17	414.65	99,394.21

That’s one of the clearer explanations I’ve seen for how you save interest by paying down a loan faster.

Posted in Basics, Biblical Finance, Debt Reduction, Mortgages | 7 Comments »

I guess I’m nuts: I bought no tickets for the $640M lottery

Stumble it! Tip it! Facebook it! | 04/1/12

No doubt there are three highly ecstatic people in this country: the three people who chose the magic numbers on the record-breaking $640 million Mega Millions lottery.  Let’s hope that they haven’t gone through all of the money within the next few years, as they’re likely to do.  (The US Government, of course, will burn through its 25% withholding cut in less than a half-hour.)

One gentleman quoted in the MSNBC article, who bought five tickets for chances at the giant jackpot, had this to say about the enormous payout:

“When it gets as big as it is now, you’d be nuts not to play … You have to take a chance on Lady Luck.”

Well, no, not really, I don’t have to take a chance.

With rare, highly-inspired exceptions — yes J I’m talking about you — lotteries are a tax on people who don’t comprehend astronomical probabilities.  There are 176 million combinations of numbers for the Mega Millions game.  Only one of those 176 million combinations is the big winner.  Here are some roughly comparable odds:

• Flipping a coin 27 times in a row, and getting heads every time
• Rolling twelve dice and coming up with the same number on top
• Warren Buffett picks one person in the country at random to have lunch with, and it turns out to be you

The size of the jackpot accumulating from weeks without winners doesn’t change the astronomical odds against hitting the right combination of numbers.  The odds of winning are exactly the same with a $15 million jackpot as with a $640 million jackpot: really, really lousy.  What’s more, the winners have to split the jackpot; having this much interest in the lottery increases the likelihood that there will be more than one winner, which there was.

Why waste any money at all on these kinds of almost impossibly long shots?  Why not give Lady Luck the finger and actually do something to create your dreams?

Posted in Commentary, Taxes | 11 Comments »