Personal Finance

How To Pay Off Your Mortgage Early The Smart Way

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dream of paying mortgage off early

There are a lot of people out there who dream of paying off their mortgage early. As a financial advisor, I would often have to talk them out of unusual schemes for paying off their house early, like raiding their 401k. It isn’t a bad thing to pay off your mortgage, but it isn’t as great, or as simple, as you might think either.   The Right Way To Pay Off Your Mortgage Early Instead of raiding your retirement fund, or cashing in Aunt Nancy’s inheritance, the best way to pay off your mortgage early is to add a little bit of extra principal each month. Just like saving each month adds up over time, so does paying off your mortgage. Each extra bit of principal you pay not only lowers the principal, but it lowers the amount of every payment after that going to interest. So, if you add an extra $20 per month starting with payment one on a thirty year mortgage, that’s going to add up to a lot of extra principal; it’s just going to take a very long time. In reality, those extra payments won’t add up to much until near the end of your …

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Zillow Can Keep Zestimating

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are zillow zestimates accurate

If you have had even an inkling of interest in real estate in the last few years, you have probably heard of Zillow, the online real estate website. It’s one of many online financial services shaking up the game like the Acorns savings app, or the Digit app. Zillow built its audience on the concept of a Zestimate, and online, computer-based algorithm that provides an estimate of the value of your home. People love seeing what their house is “worth” today, this month, and over time. The Zestimate is updated as often as the algorithm gets new data. Are Zestimates Real Estimates? Zillow has had to fight off people from the real estate industry who don’t like the company giving people ideas that makes it harder to earn that real estate commission. Sometimes, it makes people think their house is worth too much, and sometimes it makes people think the house they want to buy is overpriced. Either way, that is a headache for realtors and real estate agents. According to a recent lawsuit, it also caused problems for home builders who accused Zillow of hurting their ability to get the proper sale price for their homes by publishing Zestimates …

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Mortgage Rates Climbing

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rising mortgage interest rates

Mortgage rates have ticked up in the this month. Despite stories saying that rates have “jumped” the rise has been rather tepid, and still hasn’t taken rates back to their post election highs in the 4.25% range. Rates had peaked back in January when some analysts still suspected that Crazy Trump was all an act and that the newly elected President would settle into the office as a regular business-friendly, regulation-busting, Republican. However, the Russia scandal has plagued the administration and health care has twice stalled out, pushing any pro-business legislation off. As a result, rates have basically trended eastbound and down, if you will. Do Mortgage Rates Really Matter? It’s always dangerous to say, “This time it is different,” in the world of finance. Such sentiments are typically used to justify things that should not be justified. However, is the world really different this time around with regards to mortgage interest rates? Consider that rates are still historically low, and that they will continue to be so long as they stay below the 5.0% to 5.5% range. A full percentage point is several Fed interest rate hikes away (a year… two?), or an economy that shakes off its slow …

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Another Stock Market Record

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For the past year (and longer) we’ve been reading article after article about how the stock market is set to implode, and yet, here we are… another intra-day record high for the Dow Jones Industrial Index. The Market Will Go Down… Eventually The truth is that the stock market will go down sooner or later. It always does. And, when it does, many of the people writing these now year-old doomsday articles will attempt to claim credit for “predicting” the market crash. (Although, there may not be a crash. A simple months-long 5% correction would take care of a  lot of the market’s pricing issues.) What they won’t do is tell you how much money they would have cost you if you had listened to them while the run up continued. Consider this: The Dow is up over 17% for the 1-year period. In other words, if you had gotten out when last year’s alarm bells started ringing, you would have missed a 17% increase in your investments. That 17% increase would have a very large cushioning effect on any sort of coming 10% correction, or even a 20% crash. In other words, if you had been listening to these …

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What Interest Rate Hikes Mean for Young People

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interest rates young people

I got an email excitedly saying that I should be explaining how interest rate increases will affected younger investors and the personal finances of young people. I didn’t really think that was necessary, but it keeps popping up elsewhere with even more breathless writing copy, so it’s time for a real recipe for Federal Reserve interest rate hikes. Interest Rates and Young People Let’s start from the beginning. Neither interest rates, nor money, nor investments, care how old you are. It all works the same for every age. That being said, it is true that interest rates have been so low, for so long, that anyone under 35 probably has never experienced higher interest rates. So, let’s go over what higher rates are like. History of Interest Rates First, remember that while the Fed has raised interest rates several times since December 2016, they have all been small 0.25% interest rate hikes. The current rate is 1.25% (technically, the Fed sets a range of 1.0% to 1.25%, but for graphing purposes, you’ll see 1.25%.) This is not remotely “high.” In the 1980s, the Fed Funds rate was an astounding 18% to 20%, as they tried to reign in inflation, and …

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The Uncorrectable Housing Shortage

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low cost housing density home

Here in Colorado, there is a housing shortage, especially near the bigger cities where the majority of people live, like the Denver metro area, Boulder, Ft. Collins, Loveland, Colorado Springs, and so on. The problem is in many ways self-inflicted. There are only so many buyers looking for houses above $500,000. There are many more buyers looking for houses below $500,000, and even more looking for houses below $300,000. A subdivision of homes priced between $200,000 and $250,000 would likely see a months-long waiting list in just hours. Why No One Builds Lower Priced Homes Anymore During the last housing crunch, buyers (like me) lined up to by houses from builders based on models. You put your name in the lottery for a lot, and then got to customize the house. The downside was that you had to wait the better part of a year to actually move into your new home while they were buying it. Back then, different builders built to different price points on large tracts of land. If you couldn’t afford the houses being built by one builder, you went with a different builder in that development. Check out my WalletHub review. Today, most builders are …

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Will The Fed Trigger a Recession?

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Will the Federal Reserve trigger the next recession? The Fed is meeting and most analysts expect that they will signal that they are making no changes in their plan to move forward with at least two more rate hikes this year despite the weakest first quarter economic growth in three years. More Rate Hikes or Bust The Fed is still trying to work its way out of the “historically low” interest rate environment it has been forced to use to keep the economy upright since the Great Recession a few years ago. The trouble is that despite years of economic expansion, none of those years have come across as particularly strong. In fact, with just two exceptions in the last few years, every time the Fed thought the time was right to raise rates, new, bad economic news came out to derail their plans. This time, however, the Fed looks like it will not be deterred by any run-of-the-mill negative data. Even as inflation falls. Fed officials are blowing off the poor first quarter of economic performance. They say that they fill it is temporary and the economy will recover and continue to grow at a better rate, as soon …

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Best Argument For a Coming Recession

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no inflation

Recently, I wrote about how lots of various financial analysts and pundits predicting a coming stock market crash or imminent recession are more interested in trying to take credit for making a guess than in accurately predicting what the facts actually support. However, there is one very good case for predicting a recession coming in the next few years. Predicting Recessions It is as likely as not that the next recession will trigger the next stock market correction. Of course, the opposite has been known to happen as well. Most recently, the internet bubble popping took the economy with it, when it caused the bankruptcy and fire sale of dozens of formerly high-spending technology companies and sent their employees flooding onto the market, just when the demand for them vanished. On the other hand, the slow motion implosion of the housing market, and its affects on poorly leveraged, and managed, banking companies, followed by their panicked actions to stay alive, is what caused the so-called Great Recession of the Bush the Younger era. Is Acorns safe? Read this review. These days, most analysts like to predict a stock market crash based on “knowing” that the market is over-valued, or propped up …

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Lowest Cost Mutual Funds No Minimums

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low cost investing mutual funds

When it comes to getting started investing, it is often that first step that becomes the biggest hold up. For many would-be investors the most formidable barrier is actually free, that of setting up an actual account. However, for those with the momentum to cross that line, the next barrier is the cost of investing, most often in the form of a minimum investment. Skipping over these two barriers is one of the things that makes automatic investing apps like Acorns so attractive to new investors. They both eliminate the need to choose and set up a brokerage account and offer a way to get started investing with as little as five dollars. No Minimum Investment Mutual Funds with Low Costs Theoretically, a single investment in a mutual fund with a $1,000 doesn’t sound insurmountable. However, when every reputable financial advisor recommends diversifying your investments among several different funds, that $1,000 minimum quickly adds up to a $5,000 or even $8,000 minimum, to obtain the right kind of diversification. Throw in a 5.25% up-front load for many mutual funds sold by advisors, and that’s a lot of initial overhead. Fortunately, there are many low-cost, do-it-yourself mutual funds that you can …

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Credit Scores Make No Sense

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credit score real number

I spend a lot of time talking about whether or not the free credit scores from CreditKarma, or the WalletHub free credit scores, or the credit scores from Credit Sesame are “real credit scores” or not. The reality is that most of the time, it doesn’t actually matter. If it’s a Tuesday afternoon and you are sitting on your porch with a cold one, it is irrelevant whether your credit score is 714 or 723 or 815. The only time it matters, is when you are actually getting a loan. An interesting situation this weekend has shown me that even those real credit scores aren’t really real. Real Credit Scores When most people talk about a “real” credit score, they mean a FICO score. Most lenders rely upon FICO scores to make a decision about lending or what interest rate you get. The catch is that there are numerous kinds of FICO scores ranging from those used to judge creditworthiness for credit cards, a different one for car loans, and another still for mortgages. Beyond that, there are three major credit bureaus and all three of them can yield a different score depending upon what has been reported to each company. In …

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