Stuff to look at when it's time to cut back....

Posted By Paul

Hi Everyone,

It looks like there might be crazy times ahead for the economy, so I thought I'd start making a list of easy things you can cut if you need to tighten the belt.

Here we go:

Cable - if you ever need to save a few bucks, it's easy to either cut back on your cable package or get rid of it entirely.

Gym memberships - though I think it's good to exercise and stay healthy, a gym membership can always go if money gets tight. See Matt's earlier post: Budget For Fitness Without A Contract

Smoking - okay, I'm not a smoker and never have been, so I don't know first hand how hard it is to quit, but if you do the math, it's really hard to justify smoking when money is tight.

Newspaper and magazine subscriptions - when money is tight, you can always cancel your subscription (or just not renew it).

Home internet - unless you have a home based internet business, you can always cut your internet service.

Redundant phone plans - do you have cell phones and a conventional line? It might be possible to cut out one or more of the lines.

Expensive car washes - you can always increase the interval between car washes or wash your car yourself.

Expensive hair care - you can try out a cheaper haircut, or just go a little bit longer between haircuts.

Starbucks - see my earlier post: Starbucks

Spa stuff - I know that monthly massages/facials/etc. are awesome, but they're also expensive.

Movies - read my earlier post: No More Movies

Dining Out - cut back or just try to find cheaper places.

Maid/Yard Service - If you have one or both, consider getting rid of them and do it yourself. View it as exercise (see gym membership above).

Storage fees - If you are paying for storage, take a moment and see if what you are storing is really something you can't bear to part with.

One idea that works pretty well for me is that if I decide I want to try to scale back, it doesn't mean I have to cut something out entirely. I can just find a cheaper option or maybe scale back on the frequency. For example make a plan to cut back on movies and rent DVD's instead. If you enjoy a monthly spa trip because you enjoy getting pampered as a treat, consider trying a cheaper treat like a manicure. You don't have to cut out treats, you can just make an effort to find cheaper treats that are still fun.

3.875 on a 30 year fixed? What's the catch?

Posted By Paul

This weekend I was looking in the paper and saw several ads offering 3.875% on a 30 year fixed mortgage.

Having just refinanced I was confused...since I know that at their best the banks were offering 4.3% for a 30 year fixed. I figured there had to be a catch.

Well after some research it looks like there is a catch....sort of.

This is called a 'builder buy down' loan. As with all mortgages there are all different types of builder buy down loans, but the basic idea is this:

Are you familiar with mortgage points? The idea is that a bank will lower your mortgage rate if you are willing to pay some money up front as a fee (1 point just means once percent of the loan as a fee).

So let's say your bank is offering a 30 year fixed loan at 5%, and you need to borrow $200k to buy your house. When a bank says they offer you 4.5% with one point, it just means that you pay 1% of the mortgage up front as a fee to get the better rate. So in this case you'd have pay $2k in fees to get the 4.5% rate.

So basically a builder buy down mortgage is where the builder pays the point(s) for you. Think of it from the standpoint of the builder.

Let's say you just built a house that you are trying to sell for $500,000. Maybe by paying $10,000 (two points) you might be able to offer a rate that will entice buyers. From the standpoint of the builder:

1) It gets the house sold - if real estate prices are falling then the builder probably want to unload the house before the value falls any more. Paying the $10k now is probably a no brainer if the builder is worried that in a few months the house will be worth $490k or less anyway.

2) The house is sold at its list price - you see this in the fine print of these loans. This is important because often the builder isn't just trying to sell one house, but many houses all in the same neighborhood. By paying the $10k to get you the lower rate, the house still goes on record as selling for $500k. This means that it will hopefully keep the appraised values of the other homes in the neighborhood higher. If instead of giving the bank the $10k to get the better rate the builder instead just knocked it off the price, and sold it to you for $490k then now every other similar house in the neighborhood could be viewed as being worth $490k. If you are the builder and you have 20 of these homes to sell a hit like that is something you'd like to avoid. It's much better to pay the points to the bank and keep the value high. It's kind of a sneaky way to make the value of the home SEEM higher than it is, but from the builder's standpoint it's a smart move.

So overall, a builder buy down is a sign that the builder is REALLY motivated to sell the property (this is no surprise in today's market). IF you want to get the house anyway then there's no harm in taking advantage of it, just keep in mind that:

1) A builder buy down of a mortgage is a sign that waiting could result in lower house prices.

2) The higher appraised value of the house could affect your property taxes.

3) There are all kinds of builder buy down loans some only lower the rate temporarily (like for the first few years) so make sure you understand the terms of the loan.

There is a great detailed article on builder buy down loans here:

Builder Buy-Down at Lendingtree

I thought that the article did a great job of summarizing how to view these offers so I thought I would quote the final paragraph of the article here:

"A buy-down can be very attractive, but it shouldn’t be the decisive factor in your home purchase. Regardless of the buy-down, you should shop around, compare loan products from different lenders and take care not to overextend your ability to make your mortgage payments after the buy-down expires."

An unexpected savings from driving less

Posted by Matt

This should be a quick one. I just had to share such an easy way to save money!

I downloaded and skimmed through Suze Orman's 2009 Action Plan last week and found a savings tip that I actually put to use:

Designate one car as your “low mileage” car; if you keep annual mileage below 7,500–10,000 miles, the premium discount can be 10% or so.

I already knew that driving less was a good way to save money: reduced fuel expense, less wear and tear, etc. But this was news to me. I did the math and, sure enough, I've been averaging about 6800 miles per year or so. I contacted my agent to let him know and he quickly agreed to update my policy.

Now I didn't have high hopes for the savings; I thought it would be a few bucks or so. After a few days of waiting for my online account to be updated, I was elated to discover that my 6-month premium dropped from $320 to $263.22!

You may not be able to reduce your driving to this level (it helps to telecommute occasionally and bike or ride my scooter in the summer time), but if you have, make sure you're getting the discount!

Is it time to refinance?

Posted By Paul

So you've probably been hearing about the historic mortgage rates, and maybe you have been thinking about refinancing.

Well since I've been looking into it myself I thought I would share what I've learned from the process.

Before calling up a lender, there are a few items that are good to get clear in your head:

1) Your refinancing goal: Do you want to pay less interest in the long run? Do you want to pay off your house more quickly? Do you want to lower your monthly payment? It's important to be clear on these questions since various refinancing choices (or for that matter whether or not you should refinance) often come down to your refinance goal.

2) The timeline for your house: It's so hard to predict, but if you can make a guess as to how long you plan on staying in your house it helps make various decisions easier.

So if you have these items clear in your head, now what?

At that point you can call a mortgage person and have them run some numbers for you. Keep in mind that usually the way the whole thing works is that you refinance (which includes fees) and the good news is that you get a the new rate, but the bad news is that you pay the fees. You can of course roll the fees into the principal of your mortgage, that means no out of pocket costs to you (which is good) but the amount of principal you owe on your mortgage just went up (which is bad).

There are lots of mortgage calculators out there, some of which are specific to refinancing. Here is a page with a lot of them:

http://www.mortgage-calc.com/

I like the 'Simple Mortgage Refinance Calculator'. It asks you for the basic numbers of your refinance and then calculates your payment change and the number of months before the interest savings offsets the closing costs.

Where I am personally coming from in this refinance is that in these uncertain economic times, I'd like to lower my monthly payment. The refinance is a trade off for me. By refinancing I reset the clock on my mortgage (I'm now scheduled to pay off my house in 2038 if I stick to the payment schedule), and the fees (which I am rolling into the loan) makes the amount I owe go up slightly.

However my wife and I talked it over and we decided that in these uncertain times the fact that our required monthly payment goes down is worth it. We figure that we can always pay extra to the mortgage. In fact our plan is to continue to pay the "pre-refi" amount every month and just apply the extra towards the principal. The nice thing is that if things ever get dicey (like I get laid off or some other big expense comes up), we can always stop paying the extra.

We toyed with the idea of refinancing at a 15 year mortgage, but even with the better interest rate our payment would go up a good bit, and that just isn't our priority right now.

Lots of choices in refinancing, it really helps to figure out a few basic questions to guide you as you run the numbers.

Recycling Child Car Seats

Posted By Paul

If you have read Matt's earlier post:

The Baby Gear Underground

The article talks about ways to save money on baby stuff. When we were expecting our first child we received all kinds of stuff from people (which was awesome). Among the hand me downs were a car seat and several bases from Matt. We took them to a free clinic put on by the police department showing how to properly install it.

We were surprised to discover that the car seat and the bases they gave us were too old to be considered safe (they were able to check the date of manufacture via an id number on the car seat).

So not only did we have to get a new car seat and base, we also had to dispose of the old ones.

I always feel bad when I take a big chunk of something and toss it in the trash, so I decided to look around to see if recycling was an option before tossing the seat and three bases in the dumpster.

Well there was some good news! There are a few places that accept and recycle infant car seats, and one of them was nearby in Portland.

If you find yourself with a car seat that your child has outgrown, instead of tossing it, try to find a place where you can recycle it.

For people near Portland you can contact:

Legacy Health Systems Recycling Program.

I took the car seat and bases to the recycling center and dropped them off with no problems.