MMA Users Log – Small Payments equal Years of Mortgage

January 27th, 2009

Oh My God!  I am a United First Financial MMA client and I recently made a change.  I was paying $130 a month to our Orthodontist for my daughters braces.  The last check was returned to me because that debt was paid off.  When I originally set up the “EXPENSE” as $130 a month I was on version 3 and I could not put in an ending date.  So what I did now is add next month as the ending date for this expense.  I could have deleted the expense since I no longer have it but I thought I’d use the ending date feature.

Well what happened is that my mortgage payoff date moved forward 3.5 years!  Three and a half years with just a $130 increase in cash flow!!!  Wow!! I’m so excited.  It’s pretty amazing the ability of the MMA to calculate that for me and illuminate my money sense.  I’m on the way to becoming moneywise!!

Refinance the mortgage or not? It’s not always the best.

January 27th, 2009

The many mortgage brokers that call me all tell me the same thing, with interest rates as low as they are now and by the way they are only going to go up, isn’t it time for you to refinance and lock in that new low rate?

What they don’t tell you is that more than half of the refinance candidates would be better off financially not refinancing.  The brokers get paid on every refi so asking them if it is beneficial to you to refinance is not the best advice.  The mortgage professionals typically point out the low interest rate and the lower monthly payment but nothing else.  They don’t tell you that if you are refinancing a twenty-seven year mortgage that you are increasing your payments by three years!!  Also, when the broker is talking they often say that the refinance will be no out of pocket expense to you and you are thinking cool, no cost.  But that is misleading.  The costs are often rolled into the mortgage balance.

Most folks when looking at whether they should refinance or not look at only the interest rate and the lower monthly payment.  And most often the decision is made on just the monthly payment reduction.  Even the refinance calculators do not show you the total costs of a refinance.  All they give you is the monthly payment savings amount and then divide that by the cost of the refi and then in summary give you the number of months to recoup the initial cost.  That always is some number of months so that calculation always shows you that it is beneficial to refinance (assuming the new monthly payment is lower than the original payment).

They conveniently forget to show you that now your mortgage term is now longer and so your overall cost over the life of your loan is higher.  But if you look at the longer duration of the mortgage and take the mortgage payment and times it by the increased number of payments you get a rather large number.  But since you have a monthly payment savings you divide that large number by the monthly savings to get a number of months it will take to break even.  So it would make sense to refinance to a lower interest rate loan if you plan on keeping your loan longer than the break even point.

If you are familiar with United First Financial MMA program there is one other calculation that can be done to insure that it would be beneficial to refinance or not.  Your agent can run the new numbers through the Analysis software.  The Analysis takes into account the lower interest rate, the longer mortgage duration, and the increased cash flow created by the monthly savings rate.  Then and only then can you be sure the refinance would be beneficial.

Don’t be taken by a lower monthly payment.  Always ask for the TOTAL COSTS.

Economy and Savings, Is Consumer Spending Necessary?

December 12th, 2008
What’s happening with the Economy is a necessary part of the cycle.
With Americans saving less of their income over the past 15 years and each year the federal budget deficit growing larger the proverbial “bm” has hit the fan.  And finally, I say.  I know that consumer spending is good for the economy but does the economy have to rely THAT much on our spending?  When is it ever been healthy to spend all you make.  70% of Americans live paycheck to paycheck, spending everything they make.  That has to stop! 
 
Up until the late 1980s the savings rate hovered around 10% but since that time it’s dropped like a load of bricks.  In 2005 the savings rate went negative!  Do you know that the consumer credit card started being used (or should I say abused) throughout American families in the 1980s, even though they came out much earlier?  I see a correlation there.  Remember that old saying, if you can’t see it it doesn’t exist?  If you don’t carry money around in your pocket you won’t spend it.  So with credit cards you don’t see the amount increasing so you just keep on going.  Then there’s also the beloved thought that we all deserve the good life, don’t we?  And spending takes us there, doesn’t it?  It’s only money after all.  Right!
 
I think our economy needs to rely less on consumer spending.  If we all spend less on frivolous things then we can save more.  If we save more then more money will be in the investment arena.  With more saved money each year that beautiful compounding interest process can go to work creating more millionaires of us in our later years. 
 
Isn’t that were each of us want to be?  Financially free of our debtors, making our money work for us, having real assets to support us through those many years of retirement.  Isn’t that everybody’s dream? 
 
4 Steps to financial freedom
1.  Pay Yourself First (save)
2.  Reduce unnecessary debt (spend less)
3.  Manage your money smartly (ThinkMoneyWise)
4.  Develop multiple streams of income (make more money, start a business)