Tom McConnon contacted me recently and wanted me to share this post with you. If you would like to contribute a guest post, you can contact me here.

If you are a first-time home buyer, a mortgage may seem like an overwhelming and intimidating thing if you do not fully understand what it is. Here we break down confusing mortgage terminology, choosing the right mortgage for your financial situation, and how to pay it off early.

Mortgage Terminology

Adjustable Rate Mortgage – Commonly referred to as an ARM in the industry, an adjustable rate mortgage is one in which the interest rate is intermittently adjusted according to a set industry index.

Annual Percentage Rate (APR) – In regards to a mortgage loan, the APR is simply the measurement of the full cost of the loan (including fees and interest) given in a yearly rate.

Mortgage Broker – A broker is an industry expert who arranges funding and negotiates mortgage contracts for clients. They are not the lender themselves but often require a fee or receive a commission.

Term – A mortgage term refers to the amount of time you have to pay off the loan, typically anywhere from 10 to 30 years. The longer you have to pay off the loan, the lower your payments will be; however, your interest rate may be higher.

Interest Rate – How much you will be paying the bank just to borrow the money. The rate is different than the actual principal (or amount) of the loan.

Closing Costs – These are fees associated with the finalizing of a mortgage. They typically include things such as an appraisal, attorney/notary fees, registry fees, etc. Closing costs are part of every mortgage.

Choosing the Right Mortgage for You

Choosing a mortgage term that is right for you depends largely on your financial situation and how you view your home. Some people opt for a longer mortgage term (such as 30 years) since it affords them lower payments. Other homeowners prefer shorter mortgage terms with larger payments so they can pay it off sooner. Traditionally, the more money you put into your home, the better off you’ll be since your home is (typically) an appreciating asset.

Early Mortgage Payoff Tips

Many homeowners choose to pay off their mortgage in less time than the term of the mortgage. This is especially ideal for homeowners who plan to stay in the current home indefinitely.

Pay more than the required monthly payment. Adding a specific dollar amount that goes towards your principal can really add up, even if it is only $30 a month – that’s an extra $360 a year that goes toward the loan principle. Supplement only what you can afford.

Add to your home’s value by updating or improving the rooms that will net you the most profit: the kitchen and bathrooms. This will enable you to make money if you ever sell the house.

Shave years off your mortgage term by paying 13 monthly payments each year, instead of the standard 12.

See if your lender offers biweekly payments, instead of monthly ones – make sure the fee for such a service is worth the fee it costs.

If you want to increase your financial responsibility and accountability while paying off your mortgage early, try an accelerated mortgage program, such as the Money Merge Account.

If interest rates drop, consider refinancing if you can lock in a rate that is a full 1 percent lower than your current one.

Posted under How to Get Out of Debt

Bankruptcy is a financial practice that allows you to officially declare that you cannot repay your debts now and do not see how it will ever be possible in the future. Declaring Bankruptcy is a big step. For some people, there are other ways to get out of debt, like debt consolidation or negotiating with your lenders. However, if your best option for getting out of debt is bankruptcy, than you should take steps to make this financial situation work in the best possible way for you. A financial profession can help you do that. In any case, before you jump into anything, you need to fully decide if bankruptcy is right for you.

First, it is important to learn as much as you can about bankruptcy. For individuals, chapter 7 and chapter 13 are the two types of bankruptcy that can be filed. There are other options for businesses and entities. Learn the difference between the two so you can see how they work. If bankruptcy is right for you, you must be aware of your obligations and your lenders’ choices.

Once you have learned all you can about bankruptcy, take a moment to consider other options. For example, you can consolidate your debts into one large monthly payment. If you are considering bankruptcy because you just barely miss paying off your bills on time every month or if you feel overwhelmed by credit card debt, this may be a great option for you. You can also try doing nothing and living simply for a number of years, which works well if you have no family for which you are responsible. Another options is negotiating with your lenders. In the end, there are many different options other than bankruptcy, so make sure that your second step is to consider them all.

Next, check out the requirements for eligibility for declaring bankruptcy. If your debts are too high and your income too low, you probably will not qualify for chapter 13 bankruptcy. On the other hand, if your income is too high and your debts too low, you probably will not qualify for chapter 7 bankruptcy. In some cases, you may not qualify for either, and this is a sign that you did not think through your other choices.

Consider all of your property and debts if you do qualify. What will happen to your home? Your car? Your retirement plan? Every state has different specification when to comes to this, so make sure that you understand how your property will or will not be taken. Also, it is important to begin compiling lists of your assets and debts. Remember that some debts cannot be wiped out, like child support payments.

Once you have all your information compiled, you can begin the declaration process. It is best to work with a lawyer or financial professional to complete this task, and remember to always be completely honest. Declaring bankruptcy is not for everyone, but it can work for some people.

Source: debt

Posted under Debt Articles

A dark feeling rises from the pit of your stomach and a wave of heat courses over your face. Every time you think about the bills, your financial situation or the phone rings, this homegrown dread makes itself known. Your stomach churns, the heartburn begins, again.

You’re having problems thinking clearly, you’re tense, on edge and can’t make a clear decision. Forget thinking about the future, how about just getting through tomorrow.

All sorts of thoughts race through your mind. You wonder how you are going to make the car payment, pay for food and if you’d be better off dead than alive.

The creditors are calling, demanding and threatening you for money you just don’t have. You had some and sent it to them to keep them happy in the past but now the savings is all gone and there is no money left.

Rather than thinking clearly or investigating all of your options on how to deal with this, you really can’t think much further ahead than getting to work, getting home and making it through another day.

But work has become a painful task. With your tossing and turning, waking up in a panic about your situation, and not being able to really drift off to sleep till dawn, you’re not rested. Every little thing causes you to clench your jaw; the kids, the cat, the commute, and the co-worker.

Forget having a easy relationship with your spouse these days, now it seems like every thing is about tension and conflict. There is no rest, no sex, less love, more stress. It all feels like it is cascading down on you without hope and without solutions.

The weeks roll by, the car may be gone soon, foreclosure looks like it might be in the future. But how did you get here you ask yourself.

It all started innocently enough, a card here, a deserved vacation there and when cash got a little tight, you used the credit cards for necessities to make the short month stretch just a little bit farther. You’re not really sure how it happened but one day you woke up and the balances were just more than you could believe. A number so high that the thought of ever being able to pay more than the minimum payment seemed impossible.

The transition from hopeful to hopeless went rather briskly. By the time you saw the reality of your situation it made you want to vomit, and angry. Now you’re angry at the world, your family, the kids, the pet, the job, the spouse and you feel like God has abandoned you. You feel fear, vulnerable and afraid. You just want someone to wrap you in a warm hug, rock you back and forth and say it is going to be all right. You just need to find a way to put these bad feelings away so you can get back to living again.

That’s what being in debt is like for many.

Posted under Debt Articles

How to Legally Eliminate Consumer Debt

People often ask how to legally eliminate debt. Aside from some very basic techniques, there are no magic wands to wave to make the debt disappear in an instant. But I wanted to review some of the easiest ways t eliminate your debt to imporve you debt ratio and make you credit look better, legally.

Free Credit Report

The first step towards making your credit look better is to figure out what your credit looks like now. It may be possible to get a free copy of your credit report online. What you are looking for is to get your hands on a consolidated credit report and monitor your progress as it improves online. Equifax offers a Gold 3-1 service that will work just fine for you.

Unless you monitor your credit report you’ll never know how far you’ve come. And while you are at it, when you order your credit report also order your credit score. The gold standard in credit scores is the FICO score. And while other credit scoring models exist, the FICO score is the most widely used and recognized. The FICO site also gives you great modeling tools to see how specific changes to your financial situation will help or hurt you.

Once you order your credit score, see where you score ranks in comparison to other people.

Debt Settlement

Settling your debts can be both a wonderful tool and a horrible experience. I would suggest that you work with a professional group that can help you to do it right.

The problems with debt settlement occur when consumers try to settle their debt when they are current on their bills. If you are current, creditors generally don’t reduce or settle your debt for less than you owe as long as you are demonstrating that you can make the payment. In this case your actions speak louder than your words.

But to fall behind on your bills to access a better debt settlement means that you are going to trash your credit, probably go into debt collection and increase your stress levels. This is where most consumers get upset, they fail to understand all of this when they sign-up for a debt settlement program and then act surprised when the collection calls and bad credit come calling.

If you have cash available, and you are already behind on your bills, a lump-sum debt settlement may be a good option to try. Again, use the services of a professional debt settlement company to make sure you are really getting the best deal. Otherwise, how would you know?

The debt settlement company will typically settle the debt for 60% of what you owe. But be aware, settling your debts can create a tax liability that you’ll have to pay at the end of the year. Again, this is why working with a professional debt settlement company is the way to go.

Debt Consolidation Loan

You really can’t borrow your way out of debt, but you can rearrange the debt to lower your monthly payment. But by doing this what typically happens is the debt is extended out for a longer period of repayment the the end result is that the total amount you will repay in interest will be much higher.

The best debt consolidation loans are typically only available to people who own a home and have sufficient equity in their home to borrow against. When you do this you are really converting unsecured credit into a debt consolidation loan that is now secured with your home. If, for some reason, you were unable to make your monthly payment, instead of just getting a collection from a debt collector, you might find yourself facing eviction and foreclosure.

The small minority of unsecured debt consolidation loans actually work out or are beneficial. Most unsecured debt consolidation loans are a scam and charge high fees, even higher interest rates, and you never get approved for them. These same concerns are the ones expressed by people about payday loans. But as long as you, the consumer, are aware of what the costs are for a debt consolidation loan or a payday loan, you are adult enough to make your own choice if this is a smart move for you.

Debt Consolidation - Consumer Credit Counseling

A credit counseling program does not negotiate with your creditors to develop a program to get you out of debt. The credit counseling program simply looks at who you owe, applies the formulas the creditors give them and create a debt management plan where you make one payment to the credit counseling group and they then carve up the payment and send your creditors their little piece of the pie.

Bankruptcy

You can legally file bankruptcy to get out of debt. A bankruptcy lawyer that is licensed in your state can help you to better understand what going bankrupt is all about and how it will impact you. Even if you don’t think you want to file bankruptcy, you should still find a local bankruptcy lawyer and have a conversation with them so you can be better informed about all of your get out of debt options.

It would be a mistake to pre-judge that you won’t consider going bankrupt unless you understand more about what it will mean to you in your situation if you file bankruptcy.

Cash Out Assets or 401K or IRA Accounts

If you have cash in savings to use to pay off your debt, that might be a smart thing to do and it’s legal as well. Where people make stupid mistakes is when they borrow from their retirement accounts. The argument is that the loan only charges 5% to repay but in fact the loan costs the interest charged plus any amount your investments would have made if you left the funds in.

If you borrow money from your 401k or IRA then you may also have to pay a tax penalty. You should get good tax advice and understand how much this will cost you in penalties and taxes before you do this. You don’t want to be surprised with a huge tax bill.

Borrow Money

You can always borrow money from friends or family to get out of debt but no matter what people say, borrowing money from personal friends and family can change the dynamic of the relationship. And if for some reason you can’t repay your loan, you will be financially harming people that you love and care about. Not cool.

Posted under Debt Articles, Legally Eliminate Debt, Self-Help