Friday, August 22, 2008

Mortgage Options, Consider a 15 Year Fixed

Since I will be moving soon (in the next 3 mos. hopefully) I've started read up more on real estate. One thing that has come up lately has been the mortgage I plan on using. So far, I've simply rented a room or shared a rental with a roommate. Being single, this has worked out fine and saved me quite a bit on my monthly living expenses. However, I'm ready to finally get a place of my own. I'd like to get something modest that can be used as a rental in a year or two.

As far as mortgages go, there are a lot of different choices. Traditionally, the 30 year fixed mortgage has been the standard. This means that there is a fixed interest rate for the life of the loan and that the loan will be paid off at the end of 30 years. Another common mortgage is the 15 year fixed, same deal but half the time. There are also interest only, where you never pay off the principal, and Adjustable Rate Mortgages (ARMs), which have fluctuating interest rates. In most cases, it is best to stick with the fixed rate mortgage. With the fixed rate you know exactly how much your monthly payment will be for the entire loan period and you never have to worry about it changing. Also, ideally, the payment will become easier to make as your career advances and as inflation reduces the relative costs of your payments.

When comparing the 15 year versus the 30 year fixed there are some surprising facts. Although many people think you can simply get a 30 year fixed and pay it off in 15 years, it doesn't exactly work out the same. If you do want to do that, you should make sure that there isn't a pre-payment penalty when you sign the mortgage. But even if you pay it off in the same amount of time, you will generally pay more interest on the 30 year. This is because banks offer better rates on the shorter, 15 year, loan. has a really good article about the differences, so I'll just show some highlights here.

  • "you end up paying less than half the interest over the life of the loan"
  • "While the monthly payments are somewhat higher on a 15-year mortgage, the interest rate is typically a bit lower, which offsets part of the increase in the monthly payment."
  • "by paying less interest you'll also get less of a tax deduction... However, tax deductions for mortgages are over-rated. Sure, if you're in the 28% tax bracket you save 28 cents for every dollar you pay in interest, but you're still paying 72 cents in interest to a lender."
  • You build equity much more quickly
  • You own your own home in half the time
  • The higher the interest rates, the more dramatic the savings in a 15-year mortgage versus a 30-year mortgage

Saturday, August 16, 2008

The Companies I Use

When I logged in to my USAA account today, I saw a message saying that you can now access your account information through text messaging. This got me thinking about how much I like my banks and other companies I use for financial services. So here are some quick thoughts on each of them.

  • USAA - I'm really happy with their customer service and range of services. They are always quick to answer my questions. I'm also really pleased with how well they keep up with technology. Things like banking through text messaging and depositing checks online via your scanner are big pluses for me. The only downside is the low interest rates on checking and savings accounts.
  • ING Direct - For long term savings, I use ING Direct. Back when I first made my account they were one of the highest interest rates. They still offer great rates but aren't the industry leader anymore. They also have a very user friendly website.
  • E*Trade - I wish the commissions here were lower, but they aren't terrible. They charge me to get money out if I don't want to wait two weeks for a check to be mailed to me. Anyway, I rarely use them anymore. If you need a broker, I'd research it a little. I have no problems that would prevent me from using them in the future though.
  • Wachovia - This is my brick and mortar bank. I hardly ever use them. For 5 out of my 6 years in the military there has not been a Wachovia nearby. USAA handles my needs much better and is more military friendly.
  • Vanguard - I moved my IRA from USAA to Vanguard back in January. I have been very pleased with the move. Vanguard boasts some of the lowest expense ratios around and has a great website to handle everything I need. I've also heard good things about TRowe Price if you don't have the minimum amount to open an account at Vanguard ($3000 when I opened).
If you are thinking of switching any of your financial institutions, I strongly recommend that you look at for some comparisons, and also google for some reviews online.

Tuesday, August 5, 2008

Lack of Imagination?!

So I found this quote a while back using StumbleUpon. It was by Oscar Wilde and it said "anyone who lives within their means, suffers from a serious lack of imagination." I immediately took offense to that. I would argue the opposite. That it takes a lot of imagination and creativity to live within your means. For example, you have to come up with new ways to entertain yourself when you don't fall back on the standard tv, restaurant, movie, or mall for enjoyment. Coming up with frugal date ideas always takes some creativity.

Also, when cooking at home you can be imaginative with your food. I recently built some adirondack chairs which used some imagination and creativity. A lot more than taking a trip to Disney World or going to a show. My point is that living frugally requires more imagination than just spending at your leisure. What creative ways have you exercised frugality?

Sunday, August 3, 2008

The Cost of Food

First off, let me apologize for my lack of posts the past two weeks. I've been pretty overloaded with work the last two weeks. I will make an effort to get some more articles out now that I have some time though. Today I found out about a little gem from the USDA called the Cost of Food at Home. This is a table published by the USDA every month that estimates the amount per individual that should be spent on food, depending on the age and sex of the person as well as how frugal or liberal they are with their food spending.

According to the chart, I vary from $39.10 to $76.00 /week as a 24 year old male. It might be a fun challenge to see how close to (or how far below!) the expected costs you can get. It might also be useful in creating your monthly budget. This makes me wonder what other data is out there from government sources that might be helpful in financial planning.