The 13th Mortgage Payment

A lot of people, concerned with racking up too much debt focus on paying off credit card and auto loan debt as well as their mortgage. While decreasing such high-interest, non-efficient credit card debt is a good idea; it may not always be in your best interest to strive for that “13th” mortgage payment.

Mortgage debt is considered “efficient” or “good” debt. This is because this debt has a tax-deduction on interest payments and was taken out on an asset that generally increases in value, especially if you end up staying in the home for a long period of time (these last few years notwithstanding). Having such debt is not a bad thing as long as you can afford the monthly payments.

However, there are several reasons for not putting that extra payment toward your mortgage principal each year. The biggest reason is that you give up access to that money in case you need it down the road. That extra payment could instead be put toward your cash reserves for potential future cash emergencies, thus eliminating a possibly higher-interest rate on monies you are borrowing because you did not have access to your own money. Or it could go toward other savings that have the potential of paying more interest than you would save by paying down the mortgage. The catch is, if you do end up using the money, you need to make a schedule for paying yourself back just as you would a bank – with the same interest – that way you can either continue to build your savings or have access to the money for additional cash needs in the future.

Shopping for a Lender (Part 2)

It is just as important to look for a lender with a reputation for integrity and service. You will be sharing all of your most private financial information with your loan company. Signing for a loan is a big commitment, so make sure that you feel comfortable with your lender. Here are some important items to consider when shopping for a mortgage lender:

Rate Commitment
Many lenders quote an interest rate at the time of application. However, if market interest rates should go up or down during the period before you close on your loan, you need to find out what interest rate you will ultimately be charged. It is also important to know how long the lender will commit to this rate.

Loan Servicing
After your loan is closed, you will be dealing with a loan servicing company. The loan servicing company will accept your payment every month and handle any questions you may have concerning your mortgage balance. Many lenders service their own loans while many others sell their servicing to outside firms. You should know upfront that the lender you choose works with reputable loan servicing companies.

Considering the cost involved, your final choice of a lender should be one who offers you a good deal financially. However, keep in mind that you will be dealing with your lender for many years and it is always easier to deal with people you like and trust.

Shopping for a Lender (Part 1)

When shopping for a mortgage lender, you should make price comparisons, but interest rates alone should not be the determining factor in choosing a lender. Here are some important items to consider when shopping for a mortgage lender:

Fees
Mortgage lenders charge fees for a variety of things such as filing an application, appraisal, credit reports, etc. Be sure to know upfront what the lender charges are so that there are no surprises at closing. Lenders are required to state interest as an annual percentage rate (APR). This rate takes into account the loan origination fees. When comparing interest rates among various lenders, be sure to use the APR as your measure.

Processing Time
What is the average length of time for a mortgage loan to be processed? This is an important question to ask if you need to move into a home quickly.

The Whole Picture

Do you have the diversification you need to keep your portfolio on track even when the stock market falters? The first step is to sit down with your financial advisor to take a closer look at your holdings to make sure your portfolio is well enough diversified to stand the test of time.

Does your investment portfolio have the diversification you need to sail smoothly through the ups and downs of the market? True diversification means more than spreading your assets around to a handful of stocks. It means putting assets into a variety of different types of investments beyond the stock market.

The younger you are the more aggressive you can be. While no strategy assures success or protects against loss, a portfolio heavily weighted in stocks might make sense for investors in their 20s and 30s. But the closer you are to retirement, the more important it is to spread some of your money to other types of investments.

Make sure you have the diversification you need to keep your portfolio on track even when the stock market falters, The first step is to sit down with your financial advisor to take a closer look at your holdings to make sure your portfolio is well enough diversified to stand the test of time.

Plan To Get There!

Planning is the only way to make sense of the five things you can do with money. If you don’t plan, you will likely spend more, save less, invest less, and do nothing to reduce your taxes.

Don’t sell yourself short by planning your retirement based on some arbitrary percentage of your income. “Needs planning” is a good start for someone who has given no thought to retirement savings. It’s one way to convince people that they should save something, but it’s not good for people who want to do better than just get by. Don’t settle for mediocrity in your investment planning; try to excel. It’s fine to set a floor for what you will need, but then aim higher-and plan to get there! Become a “wants” planner, instead of a “needs” planner. Only when you determine what you want from life can you determine the role that money will play in helping you achieve your dreams.

Investing and Saving

The goal of investing is quite different from saving. Saving makes money available to you in a secure place; investing seeks to make 13that money grow for some future use.

Two rules of thumb: Invest 10 percent of your income, and pay yourself first. Your deposit into your investment account should be the first check you write each time you get paid, not the last. If you pay yourself first, you’ll be able to manage on what remains. If you instead plan to invest what remains from your paycheck after you’ve met other needs (and wants), you’ll find that you have little or nothing left for investing most months.

Time, Not Timing

In these days of detailed and ubiquitous reporting on stock markets one of the great dangers facing individual investors is the temptation to time the market. Never forget that time, not timing, is the investor’s greatest ally.

If your biggest concern is when to invest your money, you’re worrying about the wrong thing. Investing a set amount each month IS fine as a saving strategy, but as an investing strategy, it’s flawed. The best time to invest is as soon as you can. If you have created your asset allocation strategy, invest now!

But many people don’t follow this advice, or they try to beat the market by picking the right time to invest.

Vacation Properties and Income – Part 2

Another way for retirees to generate income from a vacation home is to sell it. By using the federal capital gains exclusion in conjunction with the sale of your primary residence, you can potentially realize tax-free income. Here’s how it works. The basic capital gains exclusion rules state that you must have owned and used the home as your primary residence for at least two years out of the five-year period ending on the date of the sale. If you are married, the full $500,000 exclusion ($250,000 for single homeowners) is available as long as one or both of you satisfies the ownership test (two years) and you both satisfy the use test (primary residence).

Vacation Properties and Income – Part 1

If you have a vacation home, you’re already aware of the enjoyment it provides and the benefits it can offer at tax time. But you may not be aware of how vacation property can be used to generate income in retirement or how it can play into an estate plan. In fact, vacation properties offer retirees a number of different options in managing their finances and estate.
Vacation property may be used to generate income in several different ways. The first, and most obvious, is renting it. The IRS allows you to deduct mortgage interest on your primary residence and one additional property up to a limit of $1 million in combined mortgage debt for mortgages taken out after 1987. Current tax rules also allow you to rent out a second home for up to 14 days per year without having to report the rent as income. If you rent for more than 14 days, the home is considered investment property, and rent must be reported as income. Converting the property to an investment property, however, allows you to deduct rental expenses, such as insurance and utilities, if you have a net profit on the property (deductions are limited if you report a loss). You can still use an income-producing property for personal use while maintaining your tax advantages — but only for the greater of 14 days or 10 percent of the total days it is rented. Maintenance days do not count as personal-use days, but use by in-laws or other part-owners does, even if rent is charged.

Simple Truths

As a financial advising firm, one of the simple truths we have learned is that relationships are the single greatest influence on how people use their money and plan for the future. When people talk about their hopes and dreams, they talk about the people they love. Their future, the life they wish to live, is always full of the people most important to them. They don’t talk first about dollars and cents, Dow averages, or bond yields. They talk about a spouse, a parent, a child. When imagining their financial futures, even those without family often focus on others, such as employees, friends, faith communities, and charities.