The Finance Blogger

Last week we were asked for help from a reader who is looking for a motorcycle loan to help him purchase a used motorcycle for a total cost of $25000.  His credit rating is considered bad due to some payment problems he had on another loan. He indicates that he failed to make some payments on the loan. Which drove his credit rating into the basement. However he has since repaid the entire loan.

Unfortunately for this reader, his situation is a good example of why you should always pay your loans and other monthly payments on time. It takes very little to end up with a bad credit rating. Then you are stuck looking for bad credit motorcycle loans at high interest rates and not so great terms. This reader is facing in all likely hood payments that will be in the $500 a month range. Even if he is successful at obtaining a loan at 6% spread over five years for $25,000. He is facing payments of at least $473 per month. Then he will need to add insurance as well to the monthly payments.

Lower Priced Motorcycle to reduce his Motorcycle Loan

He probably should look for something a little less expensive at this stage. At least until his credit rating is in better shape and he has saved a little money that can be used as a down payment. Even if he only borrowed $20,000, his monthly payments would decline to approximately – $378, almost a savings of $100 a month. This is substantial when you make $500 a week.
Read the rest of this entry »

Well, this is a subject that many people who are about to retire or have just retired think a lot about. The kids are gone. You are tired of the big house, the cost of maintenance and upkeep, not to mention the cleaning.  The answer many people immediately think about is that they will downsize to a smaller home. Their costs should be less, they will save money and life will be great. Should we downsize to save money or stay in our current home?

It turns out that this is not always the case and it really depends on where you live and what your real motivations are for downsizing. This is something we have been giving a lot of thought to recently and we have just about concluded that the smart thing is to stay right where we are complete with the big house, the pool, and the big yard. Now before you say they are crazy, read the rest of this post and then tell me what is wrong with our logic. We are trying to avoid the emotional side of the decision since once emotions get involved you never know were things will end up.

Should we Downsize – Our Situation re Downsizing

Anyway here is our situation. We would like to move to a nice condo where we really do not have to worry about anything, just pay the condo fees and pay for utilities and any decorating that we may have inside our unit. Well, it turns out, at least in the area that we live in, the condo fees for a nice condo are really high, in access of $500 a month. Taxes are also the same as what we pay for our current home. So we are not going to save anything really from an operating cost perspective. This is really a critical point in the cash flow part of the analysis.

When it comes to price for something nice were we live, the price for a 2 bedroom apartment style condo is near what our home is worth. By the time you pay for legal fees, real estate fees, and decorating, I will have to take out a mortgage on the new place and be further in debt. We have concluded for these reasons that it is cheaper to stay just where we are and pay for people to clean snow off the driveway and do other odd jobs that are needed from time to time.

Sure we have the responsibility of maintaining our home, but with the current economics in our area, it just does not make sense to move and downsize right now. Even bungalows are more expensive than our current home of 4 bedrooms. Now we have to mention that prices are certainly not the same in every area. They vary a great deal and the costs for condo fees also vary a great deal so your answer might be different than mine, which is ok. You need to do your own analysis and make your own decisions. All we are saying is that it makes no sense for us at the present time to downsize and move.

Should we Downsize – One last comment.

We also really like our home and do not want to or need to move or downsize. There is no pressure to move or change homes. This makes our decision even harder from an emotional perspective. We want to stay, but also want something at a lower cost. These decisions are not compatible with each other.

The upshot of all of this talk is that we plan to stay right where we are. For those of you considering the big decision to downsize or not, you really should compare the following costs:

• Cost of new place vs. what you can sell yours for
• Moving costs including real estate and legal fee’s
• Decoration costs of the new place
• Taxes at the new place vs. your current home
• Utility costs at the new place vs. your current home
• Maintenance costs for your current home
• Condo fees at your new home if moving into a condo
• Maintenance fees for your new home
• Upgrade costs such builder upgrade costs
• Landscaping costs, fencing, etc if applicable

By the time you compare all of these things, it is just cheaper to stay right where you are!

Comments and thoughts are welcome about things we did not think about or include. For more information about the question, should we downsize our home, click here.

Save

Retirement and 2nd Marriages

I was having coffee with a buddy the other day and we were discussing a lot of things that are going on around us, when we touched on an observation that we both have made over the years. We are both in retirement, we do not have a 1^st mortgage let alone a 2^nd mortgage,  we both have long term marriages and we have only been married once.

We were discussing how a number of friends of ours are on their 2nd or even their 3rd marriages. They are still working. Some even have young children from these 2^nd and 3^rd marriages which they have to support. They are around the same age as us and will be working for some time. One of the reasons that they are still working is the fact that they had to pay for expensive divorces.

Even if there was no contest of the estates, and the settlement was 50-50, there still is a huge impact on the savings and retirement pensions of these people. They had to purchase another house to live in and make payments on a new mortgage. They lost the equity in the first home they bought and so on. There may examples like this that contribute to a negative financial situation for the person that is remarried.

They simply do not have the ready cash and savings that many other people have who have not separated. In addition two people are always better than one when it comes to paying for lodgings such as homes, condos and apartments. This is true whether you rent or own your own place.

Retirement and 2nd Marriages

Getting remarried is not all bad. If you marry someone who has a job and can support herself or himself, you now have two incomes to split the bills with and pay for the extra things that we all like to have. The net though is really what you spend on legal fees fighting the settlement and support costs that are incremental to what you would have normally spent supporting your estranged spouse or children. Avoid paying extensive legal fees if you can.

Let’s face it , when you spend money on support for the family when you are married, it is spent usually a lot more efficiently than when you are separated. Sometimes when there is animosity between the parties, people tend to be a little more free spending their ex-spouses money than they normally would. They also try to win the kids affection by buying more expensive gifts and lots of them. Instead of being together they compensate with gifts which costs a lot more.

Retirement is More Difficult

Retirement and paying mortgage payments in this situation is very difficult for many people. Consider that your friends are out on the golf course. Or traveling while you are still working because you had to start over with a mortgage and payments due to a divorce. Note that we are not suggesting consumers should stay together due to the financial issues. Rather we are trying to ensure that consumers are aware of the long term financial impacts when a divorce takes place. In addition to all of the other issues that they need to deal with during a divorce.

Many of our friends who are the same age as us and retired are in a better situation that those people who are dealing with divorce and 2nd marriages. We are not suggesting that people should stay together because of these issues. If the marriage is not working then you may as well move on. Always have an eye on the long term goal of where you want to be when you retire.

In our next post we will look at some of the areas that cost more. Why do our buddies really need to continue working to support themselves into retirement as well as their estranged families.

We would like to hear your comments and let us know if you agree or disagree with our comments.

We received a question about bad credit motorcycle loans and information from a reader and will answer his questions in our next post. His credit rating is not so good and he is finding it difficult to obtain a loan for a motorcycle that he would like to purchase. He needs $25,000 which is going to be a tough proposition given his credit rating.

Bad Credit Motorcycle Loans

Question to Debt Counselor:: I am trying to find a lender that will lend me enough money to by a motorcycle. I have a bad credit rating and I am having a tough time getting a loan.  I have a small amount to put down as a down payment, so I need enough to cover registration, insurance and of course the motorcycle.

This is a brand new machine with all of the chrome and features that any enthusiast could ever want. I am really excited about buying this motorcycle and just need someone to lend me the money for the loan.

Do you currently have a loan? :: No

Home/Motorcycle Loan Amount:: $25,000

Other Loans, Including Credit Cards: About $4,500 on credit cards

Are you employed and for how long:: Yes and I work in an auto shop as a mechanic

Your credit rating to be – excellent, fair, or bad? : Bad due to nonpayment of a loan that I have since repaid and I am now working on my credit card debt which will be fully paid in 8 months.

Gross Amount Per Paycheck : $500 a week

Do you agree to have this information published online, without your PRIVATE information of course? :: Sure what do I care

Extra information here please (some detail)::

I really need wheels to get back and forth to work. Right now I am riding a bicycle to work which is not cool at all. The guys at the shop laugh at me when they see me riding up to the shop on a two-wheel bicycle.  I am not sure they are laughing at me because of the bicycle or what happened to me on my old motorcycle.

The motorcycle that I did have, blew a cylinder and will cost too much to repair. I even tried to find a new engine to fit on the frame. But could not find any that would match the frame and pass a safety. It was pretty old anyway. The one that I would like to purchase is a used machine with only a thousand miles on it.

All I need to do is find financing for it since the dealer does not have any financing plans that would fit my situation. What can I do to find a lender to loan me a motorcycle loan. This deal is not going to last forever. I would really like to be on a bike again, motorized version that is.

If you have a question about debt, loans , mortgages or other financial situations, please feel free to leave a comment with as much detail about your situation as you can. We will try to answer your question in our next post.

For more posts about bad credit situations and what to do about it, click here.

We had a question from a reader about whether they should opt for 30 year mortgages or take something shorter such as a 15 year or 20-year mortgage. He stated that he could afford the monthly payments of all of the mortgage terms so that this would not be an issue for them. Their credit rating is good and they are looking for a relatively small mortgage by today’s standards. It really boils down to whether a 30-year mortgage is the right vehicle for them when it comes to finding a mortgage for the home they want to buy.

There are many issues to take into account when you decide on the term of the mortgage that you will agree to. While you do not want to be housebound by large mortgage payments, the general rule would be to take the shortest term you can afford and repay the mortgage as quickly as you can. This minimizes the total interest you pay and the overall cost of the mortgage. There are other factors as well to take into account, so we will discuss a few of them in the following paragraphs.

No 30 Year Mortgages in Canada

In Canada, the maximum mortgage that can be negotiated in terms of length is now 25 years. gone are the long mortgages that minimized monthly payments.  In the US as far as we know, long term mortgages of 30 and 35 years are still available. Clients should recognize that they will pay much more in interest with these really long mortgages.

Interest Rate – The interest rate will vary for the different types of mortgages and you will renew your interest rate every 5 years. With a long term mortgage, consumers pay very little of the principal in the first 10 years so you really do not build up equity. Equity increases come from the home as it appreciates if it does over the time you have the home. In some cases, such as in the past few years the value of homes has declined. Something to think about.

Prepayment Options – Although you do not repay much of the mortgage in the first 10 years with a 30 year mortgage, there is one way around this that will decrease the amount of interest you pay in total and build up equity more quickly. Make sure you have the option to repay a portion of the mortgage every year, usually 10%. This is a great way to increase your equity and decrease your interest cost as well.

Mortgage Insurance

Insurance Costs if any – Some companies want special insurance costs added. Check this out to make sure that this cost is well understood.

Ability to Pay – Shorter-term mortgages mean larger payments since you are paying the mortgage off more quickly. Ask your bank to give you a quote for the various terms including the 30-year term mortgage so that you can assess your ability to meet the monthly payments without placing undue stress on your budget and quality of life.

Retirement Concerns

Years to retirement – The reader who posed the original question has just graduated. He has many years to go before they will be retiring, so this is not an issue for them. However if you are 50 and you’re applying for a 30-year mortgage, some banks may not be willing to provide you with approval of a 30-year mortgage.

As you can see there are lots of factors to consider in deciding how long a mortgage you are going to apply for. It is an individual decision based on your situation. Hopefully, this information helps our readers. If you have questions, please feel free to leave us comments with your questions. For more information about mortgages, click here.

Save

There is another huge market that many people participate in. The fixed income market such as GIC’s and bonds issued by government and corporations. These typically are a little more secure and pay a specified interest rate on a monthly, quarterly or semi annual basis to the holder of the investment. These investments are rated as are other investments. Triple A bonds are the best investment and typically pay a slightly lower interest rate due to their perceived security. Bonds that are generally referred as junk bonds must pay a higher interest rate to attract investors and are  inherently more risky as well. The bond market is actually larger than the stock market is!

GIC’s or Guaranteed Investment Certificates

These typically are for a specified term at a specified interest rate and you cannot cash them in ahead of time. They are the most secure investment that you can invest in and as a result they also have the lowest interest rates as well. Many people use these types of investments to park money in for a short period of time. While other investors who do not tolerate risk very well will place their money into these types of investments.

Interest Income – Government and Corporate Bonds.

Companies and governments at all levels will issue bonds again at a specified interest rate and term. Basically you purchase a bond and hold it until it matures at which time you receive your original investment back.  They pay interest income to you on a monthly or quarterly basis typically.

Call Options are tied to bonds. If a bond has a call option, it means the company can recall the bond at a specified time. Typically they will do this if interest rates have fallen and they feel they can borrow money more cheaply.

Selling bonds can be accomplished at any time with most bonds. However you will not necessarily receive the value of the bond. If the interest rate the bond is paying is higher than the prevailing interest rate, the price of the bond will be at a higher level than the maturity value. Correspondingly if the interest rate is lower than the prevailing rate, the price of the bond will fall as well. This is a risk you must take if you are planning to sell early!

Bond Ladders and Diversity

As with all investments, diversity is a mandatory rule that all inverters try to follow.  Never put all of your money into one bond or company. Spread your money over multiple bonds, company’s and industries while all the time maintaining your investments in blue chip type companies.

Interest rates vary over the years and the worst thing you can have happen is for all of your money to mature when interest rates are low. Inverters typically will invest in bonds with maturities that vary across many years. For example, if you have $100,000 you might purchase 10 bonds of $10,000 each with maturity dates spread over 10 or 15 years. So in this example, you would have only $10,000 to reinvest every year and if one year interest rates are really low, you do not have your entire investment portfolio to invest at low rates.

What Happens to Bonds you Have When Interest Rates are on the Rise?

If you hold bonds that are currently at competitive interest rates and the government decides to raise rates, the value of your bonds is going to decrease to reflect this new higher market interest rate. This is only an issue for people who plan to sell their bonds prior to maturity. If you plan to hold your bond until it matures, collect the interest that comes with the bond, then you need not be concerned about this decline. When your bond matures, you will receive your original investment amount back at that time.

Interest income – To summarize:

• Bond ladders
• Diversify
• Blue chip
• Low risk

That’s why bonds and GIC’s appeal to many people who do not want the risk of stocks keeping them up a night. They can go about their daily lives without having to be concerned about whether their investments are at risk or not. Well at least the risk is reduced, although there is always some risk.

For more information about investing, click here.

Save

In our last post we talked about guidelines for lottery group play and some of the problems that can arise if you do not document things properly and follow some well understood guidelines. Lawsuits and all kinds of nasty things can occur. None of us really want to have to deal with these problems. Especially when we have won a lot of money on one of the lotteries as part of a group. It should be time to celebrate. Not have to deal with expensive lawyers in court to determine who is part of the group and who is not part of the group. Bottom line, document everything . Get people to sign off as part of Lottery Group Subscriptions.

In this post we are going to discuss lottery subscriptions. At least one lottery in Ontario, Canada offers this feature and it seems to work well and that is why I thought I would write this post. We have not won anything big yet, and we have been at this for the past 15 years or so. Talk about perseverance. No one wants to quit in case the following week is the big winner!  Loto649 offers this subscription service along with forms you can use to document who belongs to the group.  This is a good plan to follow if you are an administrator of a group or group play captain as defined by loto649!

Lottery Group Subscriptions – Play

Basically the way it works is that you first have a form signed by all members who are part of the group, giving their names, their phone numbers, their address and their email id’s. This documents who is in the group and provides all of the contact information. For a group like ours this is really important since we have been at this for so long. Most of us have moved, changed jobs etc, but email and phone numbers seem to be constant.

Once you have collected the money you will then fill in a loto subscription form, sign it as the group captain and send it in.  We renew our subscription of 6 months at a time and pay the corresponding amount for two draws per week. We fax the form to the lottery commission, with the visa number for the group captain. He just charges it to his visa card and uses the money collected to repay his visa account.

Lottery Group Subscriptions – Subscription Renewal

The lottery commission renews  the subscription and then sends out a confirmation form showing the numbers we have selected and the time frame for the draws. The group captain then scans this form and sends the scanned copy out to all of the participants so they have their own copy. This is a great way to do it since everyone has copies and everything is documented.

Winning Numbers

Every time we win something, a check is sent to the group captain in trust and he then sends an email to all members advising them of the win. If it is a small amount we just hold it for the next renewal, however it is a large amount, we distribute the shares to each member. Unfortunately in all of this time we have yet to do any distributions.

This approach has worked well for us. Sometimes we have trouble collecting the money for the next renewal, not because people do not want to pay, but because they are away traveling or just forget to send checks in and they need to be reminded.

That’s basically how we operate. If you have suggestions for group play on the lotteries or if your lottery does something different, let us know by leaving a comments for us.

An update to this post is being made to indicate that we no longer are using the subscription method because the lottery discontinued the service. Now it takes a great deal more work and the organizer, me, was not  willing to take on the extra effort. So we have disbanded our lottery group after about 15 years with no major wins. Too bad but that is the way life is.

We received a question about 30-year mortgages from a reader and will answer his questions in our next post. They are trying to figure out the best approach in terms of a long term mortgage vs. a short term mortgage, what the issues are and which makes the most sense for this reader in their situation. There are many consumers in this situation about to purchase a home. Should they go with a long term mortgage to minimize the payments? Or should they take a shorter mortgage term with higher payments and less overall interest charges? This is an important question that has long term impacts on their financial life.

Question to Debt Counselor about 30 Year Mortgages

We are about to purchase a home and arrange for a mortgage on this home. We have an option to go for either a short term mortgage of 15 years, a medium-term of 20 or a long term mortgage of 30 years. The 30-year mortgage has the lowest monthly payments. However we pay the most interest with a 30-year mortgage. We are wondering what we should do. We can afford to pay the increased payments of a 15-year mortgage. As consumers we are also a little afraid of a long term mortgage since we will take a long time to build up any equity on our home from our monthly payments. We understand that virtually no equity will be built up in the first ten years of the mortgage, so we are tending to lean towards a shorter mortgage.

Do you currently have a mortgage? :: No, this is our first mortgage

Home/Mortgage Loan Amount :: $150,000

Other Loans, Including Credit Cards:: Nothing significant, we pay our credit cards fully every month. Our car is fully paid for.

Are you employed and for how long:: I graduated from a university and have been working for one year so far.
Read the rest of this entry »

Our last post dealt with private loans and private mortgages which also includes lending to family members.  However we thought we would do a specific post about lending to family members. This is often were disagreements occur due to poor documentation and misunderstandings around the personal loan. They can sometimes can affect relationships for many years. If family members do not communicate and work to solve the problems in a constructive manner, they may lose a great deal of money.

Lending to Family Members

They may be small loans or they may be larger loans and mortgages. Regardless of what they are there is always room for misinterpretation which causes conflict.

If you really do not want to be lending money to family members, then don’t but offer to help them get a loan from a bank. You have to remember that it is not just a loan they want, but favorable terms as well that they are after. Low or nil interest charges, forgiven loans perhaps, low payments and looking the other way if they miss a payment. A bank will not provide them with this kind of leeway, so if you are concerned about any of these issues or just do not want to be in the business of lending money, then don’t.  Help them get a loan, but do not co-sign for the loan or you could end up paying the loan off yourself if your family member walks away from the loan.
Read the rest of this entry »

In our last post we talked a little bit about dividend income vs. interest income. This post is going to focus on why dividend paying stocks are a really good buy right now and probably offer the best opportunity over the long term to find financial appreciation. Although there are never any guarantees, sometimes the slow steady approach is the best bet, especially if you invest wisely in good quality stocks.  This means stay away from get rich quick growth only speculative stocks! And definitely do not put all of your money into one stock, mutual fund or bond. It is just too risky. But back to dividend stocks and why we like them so much.

The assumption is that you invest in a AA or AAA blue chip kind of stock that is paying reasonable dividend rates. Right now the yield for these types of stocks appears to be around 3% to 5% depending on the price of the stock on any given day. While this is not a fantastic yield it is reasonable compared to current interest rates on bonds and certainly better than treasury bills. If you also purchase a stock that has a history of increasing their dividends on a regular basis, even better. You have built in growth into your income stream.

How Dividend Income Works

So if you own a $100 stock that has a yield of 4%, this means you are getting $4 in dividends every year which you can take as cash to reinvest, take as income or participate in a stock reinvestment plan if that is offered. The stock is going to vary a great deal depending on the volatility of the market. It could be $110 one day and two weeks later down to $80, but the important thing is that you still get your $4 dividend unless the company finds itself in trouble and has to stop paying dividends.

Opportunities for Growth

Some stocks never move to much. They will be the same value year after year, paying out their dividends to their investors.  On the other hand if you have a dividend growth stock, on average the stock is going to appreciate based on how investors evaluate the company. While you never make money until you sell, your investment can increase over time. All the while you are receiving dividends from the stock. Some people will hold the stock for a long time preferring to receive the dividends as income.

Dividend Growth

As stocks appreciate , the yield will go down since the dividend remains the same yet the money that the stock is worth goes up. Investors will sell the stock to reinvest in something else that pays a better yield. As a result a company is forced to increase their annual dividend to bring the yield up, retain investors and anyone who is looking for income.

The net result is that you can gain from dividends. The dividends may increase over time and the stock itself can also increase over time providing three ways to make money. However there is always a caution. Stocks also go down in price for a whole variety or reasons and you must evaluate every situation and not panic. I was told by one adviser that one of his clients portfolio is all dividend paying stocks. The portfolio lost over $100,000 during the 2008 depression. She did not panic, just continued to collect her dividends from her blue chip stocks. Today her portfolio has not only recovered what she lost, it has also grown a great deal as well!

As interest rates rise, you may see the value of your stocks decline. Unless they raise their dividends to increase the yield. While you may not like the value of your stocks going down, your main focus is on income generation. Increasing dividends will improve your income level considerably.

If you are planning to invest in stocks, aim for blue chip dividend paying stocks. Diversify and monitor on a regular basis. Avoid the quick money schemes. If a company does get into serious trouble, bail out before you lose it all!

Most of us have heard about a group of people getting together, picking their favorite lottery numbers and then registering as a group to try to win the big one. The ones we hear a lot about are those that did not document who was a member of the group. They did not have a set of guidelines that were understood by the group. Invariably what happens is that there is someone who feels they were unjustly left out of the winnings and that is where the lawsuits start. Some people are just after the money and have no business in trying to take a share of the cash either.

Problems with Money

Whenever there is a lot of money involved, that is when the greed comes out and people either try to keep others from getting their fair share or they are trying to get what they think is there share. When you read about these stories you just have to shake your head and wonder how did they let them get themselves into this predicament?

Well it turns out that the lottery corporations publish guidelines for people in a group to follow and guidelines if you happen to be the administrator of the group. We are going to republish them here and perhaps make a comment or two as well based on our own personal experience. These are good lottery group play guidelines to follow and hopefully since they come from one of the big lotto groups, they are based on their experience.

Lottery Group Play Guidelines

Here they are:

Before the Draw

• Choose one person to act as the group play captain, to coordinate group numbers, collect payments and validate tickets.
• Create a list of play group members for each draw. Use a lottery group play form available at most lottery retailers or online from your lottery.
• Clearly state the jackpot amount, draw date, cost per play and cut off time for payment.
• Agree on and document what will happen if someone is not able to pay before a draw.

After the Draw

• Sign the winning ticket immediately. Write “in Trust” by the signature line to show that this ticket is a group play ticket.
• Distribute copies or computer scans of the ticket to each group member.
• Check the ticket after the draw
• If you have won the lottery, check the signed ticket at an authorized retailer. Or call your lottery for more information on the next steps.

Discussion about Lottery Group Play Guidelines

This is really about trust of your captain or organizer for your lottery group play. Also trust of the individuals who are in your group. As well as those who may be in the group or feel that they are, although they do not pay every week.

If you are having issues with payment, and win a big lottery win, there is a possibility of ending up in court. Either the person who did not pay that week is going to sue for his or her share of the lottery win. Or those people who did pay are going to object to the non payer participating in this win. Then there are the people who  will say, if someone would have asked me, I would have paid. They want their share. This sort of thing really happens. The best way around this is to make sure everything is well documented.

We are going to write a couple more posts on this subject over the next few months. Your comments are welcome and appreciated. Especially if they help our readers avoid having significant issues with their group play.

Our previous reader asked a number of questions about whether they should take advantage of an offer from a family member who is offering them a private mortgage loan.

There are lots of advantages about taking advantage of a private loan or private mortgage. However there are also lots of disadvantages as well. It really depends on the individuals that are involved and whether there is a desire to make it work, whether both parties are being honest with each other and whether both parties have the same understanding about payments, terms and interest rates. Since the loan is private, many people do not document all of the assumptions and agreements very well and this is where the misunderstandings start, which can lead to bad family relations in the short term and sometimes in the long term as well.

We have compiled a few of the things that are must do’s when agreeing to a family loan or a private mortgage loan.  The more you follow these guidelines, the less chance there will be that  you will run into trouble, however there always seems to be a way to make a mess with things and consumers seem to be adept at this.
Read the rest of this entry »

We received a question about private mortgage loans from a reader and will answer his questions in our next post.

Question to Debt Counselor about Private Mortgage Loans

We have an opportunity to borrow some money from a family member to use as a private mortgage loan and we are wondering if we should go ahead and take advantage of the offer.  The interest rate is very good and of course we do not need to qualify or show our credit rating. The family member wants to help us purchase our first home and is willing to act as the mortgage holder and provide us the funds. Should we go ahead with this offer?

Do you currently have a mortgage? :: No, this is a first time home purchase for us and we are really excited.

Home/Mortgage Loan Amount :: $90,000, we have a down payment of $25,000

Other Loans, Including Credit Cards:: nothing

Are you employed and for how long:: Just started a new job after graduating from university.
Read the rest of this entry »

We received the following question and information from a reader about a bad credit home loan in San Jose and will answer his questions in our next post.

Question to Debt Counselor::

I am trying to arrange a Bad Credit Home Loan in San Jose with my home offered as security against the loan. The only reason I am doing this is that I have a bad credit rating. And I am wondering if this approach will work given my circumstances. I plan to consolidate credit card debt at a lower interest rate. My credit rating suffered as a result of missing several payments on the credit cards. A report went to the credit rating agencies. I have never missed a payment on my mortgage and do not even plan to. Our home is our castle. We will do everything we can to retain our home and not risk losing it.

Do you currently have a mortgage? :: I have a small mortgage. I have never missed a payment. There is lots of equity in the home, enough to support taking on this additional home loan even with a bad credit rating.  If needed we could also arrange for an appraisal to establish the value of our home.

Home/Mortgage Loan Amount :: $10,000

Other Loans, Including Credit Cards:: My credit card balance is approximately $9500. It will be paid off with this bad credit home loan.

Are you employed and for how long::. I am employed for the past 10 years. The company is very profitable. I see no reason I should not remain with this company for many more years.
Read the rest of this entry »

It is really tough to find good investments these days from interest oriented income. Iy is really tough to find investments that pay 4 to 6%  unless you are going with higher risk investments. Triple B rated bonds and stocks sometimes offer this kind of yield. But then they are higher risk than many other companies that have a triple A rating. You have to trade high yield for high risk stocks and bonds.

Be prepared to accept the volatility of some of these investments. It is really quite simple. High yield and high risk vs. low yield and low risk. Each investor must decide what level of risk they can tolerate and how much money they want to risk. Can you afford to deal with volatility and worse, partial permanent loss  in your capital? Remember if you sell on a down day, you have locked in your losses.

Dividend Income vs. Interest Income – Buying Commercial Bonds

The bond market is apparently much larger than the stock market and yet it seems to get much less press than the stocks do. Bonds can be purchased any day from most companies at various rates and terms. Bonds are all rated based on the company that is selling them and depending on the coupon rate and term, may sell at par value, higher or lower to provide a yield rate that you can compare to other interest bearing certificates.

The yield rate is a very important number since it indicates the real return that you should expect to receive based on what you are actually paying for a bond. For example a bond that is priced at $110 per unit of $100 means that you will pay $5500 for a bond that has a value of only $5000. If the coupon rate is 5% then you will receive 5% of $5000 every year or $250 in income. Since you paid $5500, the real yield is $250 / $5500 or 4.54%

It is very important to understand this concept, since the yield reflects the real return you will receive on your money. Bonds vary in price based on the coupon rate they carry, the term to maturity, whether there is a call allowance on them and what the prevailing interest rate is for interest bearing investments. Once you know the price of the bond and the coupon rate, you can calculate the yield you will receive on the money you make available for investment.

Dividend Income vs. Interest Income – Dividend Income

If you focus on dividend paying stocks, they can be measured using yield rates as well. If a stock is worth a $100 and they pay an annual dividend of $4, then the yield at that time is 4%. However the value of stocks vary a great deal since they are traded daily on the stock market. A $100 stock might be $95 one day and a$105 the next day with corresponding changes in the yield rate.

If the stock appreciates in value over time, then not only do you still get the dividend for as long as you hold the stock, you may also make a profit if you sell the stock at a higher value than what you paid for it.

When you calculate yield on stocks for both growth as well as dividends, you must also take into account the commission charge from your broker. Some people use discount brokers were others use full service brokers. Regardless which one you use, you should take this cost into account. Especially when calculating the overall yield rate for growth and income related to stocks.

Should I Buy Dividend Paying Stocks or Bonds?

The answer is probably yes to both. You want to be diversified and stay conservative in terms of going with high quality investments that are invested for the long term. Bonds have slightly less risk associated with them. However there is no growth potential if you keep the bond until it matures. Stocks on the other hand may appreciate in value over time, however there are no guarantees. The stock market varies a great deal almost every day.

This post should be considered a brief high level discussion on the subject of dividend income vs. interest income. We will discuss additional issues associated with each in future posts. Comments are welcome about either that will assist our readers in understanding the benefits of either.

For more ideas about investing, click here.

Save

In our last post we talked a little about tax issues for snow birds from Canada. These are people who spend a lot of time in the US to get away from the Canadian cold winters. Typically they will leave in Nov and return in April. They are spending as much as 180 days in the US enjoying the southern climate and warm temperatures that the US has to offer. The term snow birds also includes people who spend as little as one month in the US as well. So it is really anyone who heads south for some part of the winter.

The IRS has developed definitions and tests for assessing people in terms of residency. Most importantly whether they would qualify to pay taxes or not. Although it appears most Canadian snow birds would not fall under these definitions. It is a good idea to become aware of these tests. Make sure that you have taken the steps necessary to not qualify as a resident alien in the United States. The thing that many Canadians fail to think about is that once you are in the United states or any other country for that matter, you fall under their laws. It really does not matter whether you are Canadian or not.

Rules for Snow Birds

The following outlines the substantial presence test that the IRS applies:

• If you were in the United States for 183 days or more in the current year, you meet the substantial presence test and are considered a resident alien of the United States.
• If you were in the United States for between 31 and 182 days in the current year, you may meet the substantial presence test.
• You were in the United States for less than 31 days in the current year, you don’t meet the substantial presence test, and are considered a non-resident alien of the United States.

Demonstrating a Closer Connection

Demonstrating that you are not a resident alien can be accomplished in a number of ways providing that you are prepared. Here are a few that seem to qualify:

• Your tax home is in Canada. If you are not employed or self-employed, your tax home is where you regularly live, as shown by owning or renting a house, condo, apartment, or furnished room. Your Canadian home must be available to you continuously throughout the year at all times, and not just for the period that you are not in the United States.
• If you are employed or self-employed, your tax home is the location of your principal place of business or employment, regardless of where you maintain your family home.
• You had a closer connection to Canada than to the United States during the current year. Various factors demonstrate that you maintain more significant ties to Canada than the United States. These factors include the location of the following:
  • your permanent residence
  • your family
  • location of personal belongings, such as cars, furniture, clothing, and jewelry
  • your bank
  • where you carry on business (if applicable)
  • social, cultural, religious, or political organizations to which you belong or in which you participate
  • the jurisdiction where you vote
  • the jurisdiction where you hold a driver’s license.

If you are concerned about this issue or are being assessed as a resident alien, it is time to seek out an expert. Someone who can assess the details of your situation and outline what you need to do. This post is just a rough guideline. It should be considered an outline of the issue facing snow birds who are dealing with US tax issues.

Comments are welcome.

California Home Improvement Loans. We received the following question and information from a reader and will answer his questions in our next post. His questions are about home improvement loans and whether he should apply for a loan at this time. His concern is about going further into debt or just living with the home in its current state. This is a common problem for many home owners who are concerned about taking on more debt in a tough economy for retaining their jobs or finding a new job.

Question to Debt Counselor about California Home Improvement Loans::

We are trying to decide if we should apply for a home improvement loan. We live in California and our home is about 20 years old and we would like to take out a loan to help us with a number of improvements that we wish to make. The kitchen needs to be updated and there are a number of small items that need repair. This is an optional thing for us and we are very concerned about going into debt with the current economy and not knowing what will happen to interest rates over the next year or so.

Do you currently have a mortgage? :: We currently have a small mortgage with only another 5 years to pay on the mortgage.

Home/Mortgage Loan Amount :: The amount of the home loan we are looking to borrow is $40,000, which is what we will need to spend on new appliances and an updated kitchen in our home.

Other Loans, Including Credit Cards:: We also have a car loan and pay $400 a month towards it. The credit cards we have a zero balance, we pay those off each month.

Are you employed and for how long:: I am currently employed, however plan to retire in the next 2 or 3 years. There is also some concern that the company may need to downsize to deal with reduced sales etc, so this is another huge concern.
Read the rest of this entry »

Our last reader is looking for help obtaining what is called a Poor Credit Home Loan. Their credit rating is poor to bad. They are having trouble finding a lender who will take the risk and lend them a small home loan of $15,000. This is due to the fact that their credit rating is poor.  Managing your credit rating is extremely important these days if you want to obtain a loan of any kind. Also at decent rates and terms. Lenders appear to just not want to take the chance on a poor credit risk.

How He Ended up with a Poor Credit Rating

Our reader mentioned the reason that he felt that his credit rating was relegated to the poor category. He is probably right. He learned a tough lesson while disputing a charge with a local company. Basically what happened is that he paid for an item with his credit card. Then decided to return the item, expecting that the company would credit his credit card for the full amount. Apparently there was some sort of disagreement. Which ended with him and the company in small claims court. Eventually they settled and our reader got his money. But not after a significant time delay. While a frustrating experience, at least he got his money  back!

He also tried to use his credit card in this dispute by not paying his credit card company. This simply does not work! As far as the credit card company is concerned you owe them money for something you purchased and if you have any kind of disagreement, it is between you and the company you purchased the item from. End of story. So lesson to be learned for us all, always pay your credit card on time and avoid being hit with a poor credit rating.
Read the rest of this entry »

Having a bad credit rating is bad enough, however when you also need a home personal loan, it can get quite frustrating. Whatever your reason for needing money, many people finally realize that they should have paid more attention to their credit rating when they are turned down for a loan or they have to pay a higher interest rate than they expected.  Once you have a bad credit rating, it is very difficult to find anyone to lend money to you at reasonable rates and terms. When you do find a bank or company that will provide Home Loans for People with Bad Credit, they want a high interest rate and they want expensive terms usually in the form of high fee’s. They tend to take this position so that they can protect themselves financially from customers who are unable to repay their loans.

Home Loans for People with Bad Credit  – Interest Rates?

Bad credit home loans will usually be a percent or two higher than the regular loan interest rates. Even then, depending on your circumstances for how you  ended up with a bad credit rating, you may still not be able to find a lender. With all of the losses these days in the housing industry, the record of people walking away from homes etc, there are just not that many lenders that are willing to lend money to people with bad credit ratings. Bounced checks and checks that are refused due to insufficient funds are a big warning for any lender who is reviewing a loan application. Next are the pay-day loan lenders and other unscrupulous lenders that charge extremely high amounts of interest which are even higher than those charged by credit card companies.
Read the rest of this entry »

We received a question about adjustable rate mortgages from a reader and will answer his questions in our next post. He currently has a fixed rate mortgage and will be renewing the mortgage in the near future when it matures. He wants to know if he should change to an adjustable rate mortgage instead of just renewing with a fixed rate mortgage. What are the costs and savings opportunities associated with each? These are pretty typical questions that many homeowners are interested in. It is a complicated process for many people and they can use all the help they can get.

Question to Debt Counselor:: Adjustable Rate Mortgages

I have a question about adjustable rate mortgages. We are going to be renewing our current mortgage which was a fixed rate mortgage for the past 5 years and we are wondering if we should switch to an adjustable rate mortgage. The interest rate is lower than the fixed rate mortgage, so we would save a lot of money by moving to this type of mortgage.

Our current mortgage holder offers both types of mortgages and we can select either type of mortgage at this time with no penalty what so ever. If the interest rate stays the same for the next five years, selecting an adjustable rate mortgage will save us a great deal of money. If the rates do up as everyone seems to be predicting, our adjustable rate mortgage will also go up and it could go higher than the fixed mortgage rate that is currently being offered.

We are really not sure what to do about this decision and have been spending nights thinking about this issue wondering what to do.

Do you currently have a mortgage? :: Yes, with 15 years left based on fixed term interest rate

Home/Mortgage Loan Amount :: $65,000

Other Loans, Including Credit Cards:: None, all credit cards are fully paid each month

Are you employed and for how long:: yes, for the past 10 years with the same firm
Read the rest of this entry »