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5 Questions to Ask your Mortgage Broker Before Signing Anything

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Taking on a home loan can be a daunting experience, and one of the biggest decisions you will ever have to make, so it is crucial to have all the facts at hand when deciding where to get your loan. Despite the solid reputations of the big banks, you should strongly consider mortgage products from the smaller banks, such as the BOQ Clear Path Home Loan, which can offer very competitive interests rates and often beat the big banks hands down.

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Regardless of where you go to get your home loan, the following five simple questions will help you navigate and simplify the process, any mortgage broker worth their salt should be able to give you clear and concise answers.

Do you have references from previous customers?

Whether you are getting renovations done, hiring a new employee, or looking for a babysitter, the first thing you want to have are references from their previous customers. This is such a simple question that it is often overlooked, but getting a home loan is life-changing decision and it makes sense to talk to your brokers previous or current customers to get the low-down on how well they did their job. If this question is met with evasion or shrugged off, its time to find a different broker.

What is the best interest rate you can get me?

The most important factor in any home loan is the interest rate. Having a clear understanding of how the interest rates of various loans are structured enables you to compare loans like-for-like to find the one that suits you best. Some banks try to lure customers in with a special rate, only to have it revert to the standard variable rate after one year or less. Don’t be fooled by such offers, ask your mortgage broker to explain how your interest rate might fluctuate over the entire life of the loan and whether a fixed rate or variable rate loan is best for you.

What are all of the fees will I have to pay?

There are a plethora of fees associated with getting a home loan and you should be wary of fine print and vague language when going through the application process. Ask your broker to explain how all fees are calculated, from first applying for the loan to finally receiving the money, and then on, for the entire life of the loan. Many savvy banks are now offering fee-free applications for their home loans, for example, the Clear Path Home Loan from BOQ. Not having to pay an application fee can take the uncertainty out of applying for home loans, as if you are not successful, or change your mind, you have not committed any money and can move on to consider other options.

Are there any penalties for overpayment or early payment of my loan?

Paying off your loan early is the key to saving money and owning your home sooner. If interest rates drop, and you can afford to pay more, you don’t want to be penalised do you? Ask your broker to explain if any administration fees apply for paying more than your monthly repayment or if there is a penalty for repaying your entire loan early.

What documents do I need to provide and how long will the loan take to be processed?

Supplying the requisite documents is essential to making your application proceed smoothly and quickly. Ask your broker for a complete list of the documents you will need to provide, this will usually include proof of identification and employment, bank statements, proof of your liabilities and assets and depending on your situation, a credit history and tax records. Your broker should be able to give you a clear time-line for the processing of yourapplication once you have supplied all of the necessary documents.

Armed with these five simple questions, you should be quickly able to tell whether your broker is reliable, professional and able to provide you clear answers to help guide you through the application process.

Own a Business? Think About Your Plan

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Hey, everyone! I’m back here….it appears OG and I are going to write at FFA once per week. My posts here will be more structured and on-task than my writing at Stacking Benjamins. If you’re looking for more humorous writing, find me there……

 

I just got off the phone with my coach. We have a session three times per month and they’re a powerful use of time. Not only do we focus on business, but on the balance between my business, personal and spiritual life.

This month we’ve begun digging deep. Here’s what we’re working through:

1)   I’ve listed all of my important strategic priorities for the fall.

If I don’t prioritize what’s important to me right now, I find that it gets lost in the shuffle. It’s better to plan my fall now to make sure that those events that are important to my business and family all make the cut.

2)   I took out the calendar and planned my model week. This also included making sure I block out time for family and friends. I don’t want to get buried in my work and forget my priorities.

For me, the Apple calendar works best because I use mostly Apple products. However, you should do something similar and find a good  calendar that will automatically sync with all your devices. That way, whenever you remember something that needs to be added to a calendar, you don’t have to worry about being at your desk.

3)   I reviewed my business accounts. Because I’m starting to build up some money in my business accounts that I’ll be spending later in the year, I’m interested in business savings. By setting up separate accounts, I can make sure my “buckets of money” for different projects don’t inadvertently get spent on other, less important pursuits.

4)   I scheduled creativity.  This is an important one for me. To write entertaining pieces and fun podcasts takes a ton of creative “juice.” Studies have shown that a neatly sewn calendar actually decreases creativity. I’ve scheduled time to read (called R&D) and time to play games with friends. I also schedule time to listen to other podcasts and read other blogs.

5)   I created automation whenever possible. If I could automate it, I’ve scheduled ways to get it done. Much of my twitter and Facebook posting can be prescheduled. Because I’ve found a bank that offers free business banking, I’ve automated much of my financial tasks. Anyone helping me on the back end of the site is given tasks each Monday so that I’m able to concentrate on the reader experience.

 

That’s what I’m doing to plan for the fall. How about you?

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Money in two countries? Here Are Your Options

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If you have savings abroad, where should you save?

 

When I was a financial advisor I worked with several international families. Generally, they all had the same concern: which currency should I save money toward?

There are two ways to look at this problem. First, you could bemoan the fact that you have to guess which currency is the right one to save toward. There’s significant upside and also significant downside. If you save into the wrong currency, you could find yourself with much less money than if you picked correctly.

The second (and in my view….better) way, is to avoid the decision altogether and save into BOTH currencies. This is enticing for a number of reasons:

1)   You aren’t placing a bet, therefore avoiding the “which is better” issue.

2)   You can now focus on withdrawals, rather than savings. If currency fluctuation continues (and it will), you’re in the enviable spot of pulling dollars from the currency with the highest return at the time.

3)   You have flexibility built into your plans, especially if you wish to travel abroad.

Of course, there are also risks to think about. While I like the “not choosing” strategy, there are a couple of reasons to be wary:

1)   You may have tax returns in multiple countries. If you’ll be required to file tax returns for the countries where you have savings, you may find that the cost and time associated with this plan isn’t worth the effort. That’s why I only recommended saving internationally if you were going to accumulate

2)   You’ll have to facilitate international money transfers. By understanding the process, fees, and (maybe most importantly) time this process will take,, you’ll have realistic expectations. By partnering with a good international bank, you can quickly learn the ropes of having money in multiple countries.

3)   You’ll have to stay on top of different “dashboards.” As I’ve mentioned in previous pieces, I prefer diversification but with simple tools to examine so that I can quickly make decisions. Having money internationally can compound the task of setting up monitoring systems if you aren’t careful.

As you can see, I think the rewards clearly outweigh the risks when it comes to international investments. If you have enough money abroad to make the process worthwhile, understand taxation of international assets, and have good banking partners, the process can be smooth and rewarding.

Photo: Rome Cabs

Mortgages for a Young Borrower

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Thanks to RefinanceMortgageRates.org for the guest post!

For a young adult, purchasing a home has many advantages. Home owners can quickly establish good credit, accumulate equity, build net worth, and create a sense of stability for themselves. Also, going through the process of buying property at a young age allows buyers to become familiar with a good long term asset class: real estate.
However, before a young adult decides to embark on home ownership, there are a few important points they absolutely must understand. By understanding the steps involved in the mortgage process and accurately planning your budget, you will have more success in keeping and maintaining your loan.

 

How Do I Establish Credit to Qualify For A Loan?

To secure a good mortgage interest rate, you will need to have an established credit record and at least two years on the job at the same company at a consistent pay rate.
Establish your credit by finding and using a secured credit card. This type of credit requires you to place a deposit against the card which equals your credit limit. Don’t be confused between a secured credit card and debit card; only the former will ensure that the company reports your good standing to the credit bureaus.

As you begin making timely payments on your new card, look to establish other lines of credit. Do not, however, create too many lines. Mortgage companies worry about a metric called your debt to income ratio. Too much debt will show you with an unbalanced credit health, and will make it difficult for you to secure good mortgage interest rates. A good rule of thumb is to never exceed 50 percent of your credit limit in charges on your credit clines and cards. This will help you achieve the highest credit score possible without a mortgage.

After two years on the job and a credit history of 18 at least months, it’s time to begin shopping for a mortgage!

 

What Are The Down Payment Requirements?

Place at least 20% of the purchase price down on the home you’re purchasing to receive the best mortgage rates from a commercial lender. I know what you’re thinking: this could be a significant amount of money for a young up-and-coming borrower. If you have the ability to save this sum in a short time…do it. This will secure low interest rates and create instant equity in your new property.

If you’re unable to save such a large amount in a short period of time, check out something called “mortgage insurance.” This type of insurance is offered by agencies such as the Federal Housing Authority (FHA), Veterans Administration (VA), Department of Agriculture (Farm Home), and occasionally even from private insurers.
Mortgage insurance allows you to place as little as 3.5% down on your home. Here’s why: the insurance policy states that the mortgage will be paid even if you default. Banks feel much more comfortable with this in place. However, there’s more good news about these programs. They allow for lower credit score qualifications, enabling more people to purchase homes.

As a last resort, you may also wish to consider borrowing money from family or friends for the large down payment. It should be noted that many banks now frown on this method for down payments. You will need to speak with your preferred lender to glean whether they’ll allow you to borrow money for a down payment.

 

How Much Loan You Can Afford? (Income Guidelines)

 

This is perhaps the most important thing a young borrower should understand. Your monthly mortgage payment should never exceed 33% of your monthly bring home pay. For example, if you bring home $3000 a month after taxes and insurance premiums, your mortgage payment should not exceed $990 per month. By keeping to this guideline, you should have enough budget room to easily afford your loan.

Many lenders will provide mortgages that are up to 40% of bring home pay. This creates risk for both the borrower and the lender. The average person needs at least 67% of their income to pay for living expenses and saving for their future. Once you pass this threshold, other areas of your life are certainly going to feel the weight of the mortgage.

The best thing you can do for your credit and lifestyle is to only purchase a home you can afford on your current salary. As your life develops, your career blossoms, and your need for a larger home increases, you can sell your current home and purchase one based on your new income and desires.

This information was provided by RefinanceMortgageRates.org. Click here for more information on mortgage, refinancing and housing.

Photo Credit: Kimubert

How to Fix Your Rotten “Get Out of Debt” Plan

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If my title intrigued you, I’ll assume your debt payoff strategy is in shambles.

I’m not surprised if it is. Many people struggle with debt:

  • The average person carries $7,800 in consumer debt.
  • 33% of this is revolving debt. The rest are loans.
  • $51 billion of fast food was charged to credit cards
  • Over 2 million households in the U.S. have more than $20k in credit card debt

It seems that many of us are in a never-ending spiral that we can’t escape.

Yet, successful businesses manage debt effectively every day.

Why is it that the same people who make these business decisions so effortlessly during the day come home and make emotionally fueled decisions at night?

That’s easy. They separate their working thoughts about money from their home life thoughts about money.

For some reason, when we reach home, we go from pragmatic individuals who can easily make objective, fact-based decisions for a company, to people who are emotional about their credit card debt and student loans.

I watched it happen for 16 years, but this behavior doesn’t make any sense!

You deserve success in your life. You deserve to have a debt payoff plan that actually works. All that you really need? Change the way you look at debt and your own financial picture.

Think of your own situation as if you were controlling a company.

Here are three crucial differences:

1) Companies manage interest rates and terms effectively, while most people don’t.

The average person says “I want a 15 year mortgage because my house will be paid off earlier than it will with a 30 year loan.” Really? Why is that? You can’t pay off the loan on a different schedule than the bank approves? Companies don’t begin negotiations by asking “when is the loan due” and then try to weasel the term to a shorter duration. Successful companies ask the bank for the longest, most flexible term available and then have their intelligent accountants create and maintain a repayment plan that works best for their goals.

Why do businesses do this? It makes financial sense to find a low interest rate and flexibility.

Why don’t we do it at home? We can’t trust ourselves to stick to the plan. We’ve messed it up so often in the past that we know we’re more likely to be successful if we have someone else do the thinking.

– How would you rearrange your debt if you focused on flexibility and interest rates?

2) Corporations focus on the big financial “game changer” moves while individuals worry about the latte factor and whether they should brown bag their lunch or eat at a restaurant.

Companies will focus time and attention toward negotiating salaries and health care costs to save millions of dollars. An employee stealing a few pencils and some toilet paper are a blip on the bottom line. Yet, the same people who focus on whether to raise the price of goods sold to increase profits $10 million will go home and waste all their time cutting a few coupons to save $4.73. What if they used this time to negotiate a raise or find better employment? That could mean $10k more to the bottom line instead of $4.73!

– What would happen if you focused your energy on major financial decisions instead of the line-by-line budget items?

3) A company makes decisions based on building financial muscle, not based on “feeling good.”

Companies weigh the financial impact of decision “A” against decision “B” and most often choose the more profitable path.

I’ve had clients who are vice presidents of major companies tell me, “I’m going to pay down a 3% loan before I tackle raising my 401k savings.” Why? “I hate having that hanging over me.”

While I appreciate the sentiment, I think this is where you modify the Nike slogan “Feel the fear and do it anyway” into “Feel the hanging over me feeling and do the right thing anyway.” It almost works.

  • Why do businesses analyze financial data and growth projections before making decisions? They have shareholders to hold them accountable.
  • Why don’t we make growth decisions more often at home? Would your financial picture be better if you thought of your family as shareholders? What would change about your focus?

Imagine a “shareholder” meeting to discuss what you’re doing well and where your “company” needs improvement

  • What charts would you show at this meeting? Would you produce information about your projected future? Are these accurate?
  • What changes could you make that you don’t make now if you had these?

If you were a shareholder for your company, what would you say about your stock? Going up? Struggling? Why?

Old Savings Bonds Might Be Your Most Valuable Investment

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It’s Thursday. I’m grabbin’ some coffee while OG takes the driver’s seat….

Recently, a client emailed me a peculiar list of dollar amounts and dates. Each was followed by a one or two letter symbol.

What the heck?

Finally the lightbulb went off – this was a list of US Savings Bonds we’d discussed months earlier that she’d “found” in her safety deposit box. Her question: What to do with all those bonds?  Cash them in?  Keep them?

 

The Savings Bond Conundrum

 

Clients raise this question at least once every couple months – and I’ll bet as more and more baby-boomers head into retirement the frequency is only going to increase.  For some reason, people seem to think analyzing savings bond interest is a complicated financial problem that only the best advisors can solve.  Nothing could be further from the truth – let me show you exactly how I determine whether to keep or cash in each bond.

Small Numbers of Bonds

If you own only a few bonds, I’d recommend using the US Treasury’s savings bond calculator. This tool helps you  quickly estimate the value, interest accumulated, yield, next interest payment date, and final payment date.  All you’ll need is the issue type (E, EE, or I), face amount, and the month and year.  All of that information is found on the face of the bond.

Lots of Bonds?

If you’re the Donald Trump of savings bonds, or if you want to track the bond’s value over longer periods, you should download the government’s Savings Bond Wizard tool found at http://www.treasurydirect.gov/indiv/tools/tools_savingsbondwizard.htm.  The Savings Bond Wizard allows you to save the file and refresh it each month with the most updated values. Here you can store information about each of your bonds and easily compare interest rates and the total value of your savings bond empire.

Is Your Bond Still Making Money?

Here’s a tip: don’t hold on to bonds that no longer pay interest.

After thirty years, US Savings Bonds mature and the government shuts you off like a disinherited trust fund baby.  Most bonds reach their face value somewhere between 12 and 15 years after issue and continue to pay interest until year 30.

It’s foolish to keep a bond past 30 years.  Don’t do it.

One client brought in a savings bond that stopped paying interest before Kennedy was president! Imagine how much money that’s cost him.

 

The Moment of Truth

After you’ve used all of your fingers and toes (AND one and a half neighbors’ fingers and toes) to determined whether or not it’s still paying interest (let’s assume it is), now it’s judgment time:

Can you invest the proceeds at a better rate of return than you’re receiving from the government?  

The yield on your savings bond is risk free.  Those two words are hard to beat.  I’ve seen bonds from the 80’s paying 6%. Can’t beat that. I’d keep those.

Final Step

Set a reminder to review your bonds again a few years down the line.  If you have a bond or two that you’d like to redeem, schedule it in advance.  Don’t forfeit interest because you procrastinated.  Keep an updated bond inventory and review it periodically just as you would any other part of your portfolio.

Savings bonds are one of the best ways to lock in guaranteed interest – especially if you have some from ten or twenty years ago.  Many clients are surprised when I tell them to keep their bonds; sometimes it’s in their best interest to do so!  Many times people think savings bonds are a waste of time and money. My take:  In today’s low interest rate environment yesterday’s bonds may just be a gold mine.

How to Date Your Bank

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Before I begin my joyous rant, I must comment that I’m sure there’s no correlation between the massive amount of chocolate I consumed last night and the sleepies I’m feeling today.

None at all.

monkey_dancing But, even a bad case of sugar-low can’t stop me from doin’ my monkey dance after I saw the news that Bank of America is dropping their $5 debit card fee.  Much like Netflix recently was forced to step back from plans to split their service, Bank of America miraculously realized that screwing their customers might not be in their best interest.

Better late than never.

Choosing a bank is a little like choosing a spouse. It’s a tough decision. You don’t just walk in one day and say, “Hey, bank, wanna tie the knot?” You’re going to be together in some capacity nearly every day, so it might be better to date for awhile.

My favorite banks are much like my spouse: intelligent and low maintenance.

But you don’t know that at first. I used to be a Bank of America customer. Bank of America was the pretty girlfriend who said all the right things until I found the cap off the toothpaste. Then she became the wicked Bank of the West. When I wanted to talk about the toothpaste, she disappeared behind a phone bank of polite service people who “didn’t do it.”

To get the best bank possible, you have to date. Play the field a little. Sew your wild oats. Introduce a few of your friends over to see how the New Bank acts around the family.

Here are a few of the qualities I look for when deciding on the perfect bank:

1) Fees. Banks have, among others, checkwriting fees, teller fees, debit card fees, wire transfer fees and overdraft fees. I want a complete fee schedule before deciding on a bank.

2) Convenience. Is it easy to deposit and withdraw money? How responsive is the bank if I have questions? I mentioned that Fidelity will allow me to use my smart phone to deposit checks. How much more sexy can it get than that?

3) Range of services. I want to know what online tools are available. I love online banking, so I’m going to wine and dine these features before settling on a mate. Budget tools are also important to me. I need to be able to easily track my expenses. Banks with robust budget tools are going to get a second look from me.

4) Statements. This might not be important to you. My spouse doesn’t care for online banking, and wants a statement mailed to us. It must be easy to read. I know what you’re thinking. We also have an abacus at home to help the children with their math homework. Call us the Flintstones.

5) Interest rates. Is there a fairly high interest rate money market? I don’t use CDs often, but are their rates competitive? Use resources such as www.bankrate.com to decide if this bank is in the ballpark.

Those are the four most important areas to me. Maybe you have others. Much like dating, to some degree the mix of qualities one looks for in a bank boils down to personal preference. But also like finding a mate, it’s vitally important to become comfortable with the wide range of online and local banks to see what’s available. It’s better to be surprised about how lovely your bank still is many years later, holding your hand at age 80, rather than finding out too late that she’s been in your wallet again, stealing your cash or your breath mints.

Or leaving the cap off the toothpaste.  I’m looking at you, Bank of America.