Loans

Feds Raise Interest Rates, Promise More

June 19, 2018 By Twila VanLeer

The Federal Reserve raised the prime interest rate recently by just a small percentage, but enough to raise expectations that Americans will face higher borrowing costs for homes and other big-ticket items., including credit card costs.

The benchmark rate now stands at 1.75 to 2 percent. It’s the first time the rate has reached that level since 2008, when the economy tanked while the feds were hoping to get rates down to zero.

The recent action indicates the Fed has confidence in the current economy and that it has enough strength to accommodate a slight increase in borrowing costs. The increase is evidence that recovery from the 2008 recession is strong.

The current increase is the second this year and the seventh since the recession.

While announcing the increase, the federal agency also indicated that two other jumps in the prime rate are likely this year.

Buying A Home? Check This List

March 30, 2018 By Twila VanLeer

Buying a home, for many Americans, is like slipping into a foreign country. Myths about mortgages abound. Go into the process as well prepared as you can by considering these facts:

• Perfect credit is required. Not so. Having a higher credit score is helpful and may get you a lower interest rate, but it is not the only factor a lender considers when you come to borrow money for your home. If you can show that you are able to repay a loan you probably can swing the loan if your credit score is above 670.

• Rising interest will prevent your owning a home. Rising interest rates do, as a matter of fact, affect how much of a loan you can qualify for and the kind of loan you might be offered, but it doesn’t mean you are out of the market. CoreLogic projections show that an 0.85 percent increase in interest will cost the buyer another $100 per month. That may seem like a lot, but it is less than the period of all-time high interest rates in the early 1980s, when a fixed 30-year mortgage rate was at 18 percent.

• You need a 20 percent down payment. Conventional home loans may make this requirement, but there are other options. FHA loans require only 3.5 percent down. VA loans may be financed for up to 100 percent of the price. Lending institutions often have provisions for loans with a minimal amount down, say $1,000. The downside of a small down payment is that you may be required to buy private mortgage insurance.

• Prequalification means you have the loan. Going through a prequalification process determines how much mortgage you can afford by computing your income and liabilities, but it is not a binding agreement. The potential lender will look at additional documentation before you are fully approved.

• A 30-year mortgage is best. It’s the most popular option, but not the only one. A 15- or 20-year loan can save a lot in interest payments. An adjustable rate mortgage starts with a fixed rate then is adjusted according to market factors. That means your payment will fluctuate over time.

Don’t compare mortgage options based on their advertised rates, but look at their annual percentage rate, which lenders are required to advertise, along with mortgage interest rates. The APR includes estimated fees and other charges, giving you a more accurate picture of what you can expect.

Should You Refinance Your Car

November 1, 2017 By Twila VanLeer

Car Refinancing — Should you look at redoing your car loan? There are some reasons that it is a good approach.

When your finances get pinchy, refinancing your larger loans is a tempting idea. Should you, for instance, look at redoing your car loan? There are some reasons that it is a good approach.

Your own situation, lifestyle and other financial commitments should all be considered before you dive into a refinance, but here are some tips:

Car purchases in general have a lot of options. If, on second thought, you think you may have made the wrong choice, reconsider. Paying off the loan more quickly can save as much as $1,000 over the term of the loan. It makes it worth the initial stress of making slightly larger monthly payments.

If interest rates have dropped while you have been paying on the vehicle, refinancing is a good idea. If the deal originally called for a interest rate higher than 6 or 7 percent, you almost certainly will see a savings at a lower rate. Getting your financing through a financial institution rather than through the dealer may get you a better deal. Do a little comparative shopping and see where you can get the best interest.

If during the time you have been paying monthly installments your credit score has improved, you have a bargaining chip for better terms, especially if the car payments, in particular, have been regular and on time. If getting out of debt has been a target you have faithfully zeroed in on, you can reward yourself by looking at a car refinance that will lessen the pressure a bit.

If you have leased a vehicle and the lease is about to expire and you are debating whether to purchase the car or trade it in on something else, consider carefully. The car industry has reported a glut in leased car returns and you may be able to capitalize on that fact. Don’t jump into a new arrangement until you have done some research.

If, in the end, your objective is to have more free money, then a refinance extending the term of the loan, with smaller monthly payments, may be what you need. The negative, of course, is that you will be on the hook for a longer period of time, but freeing up more money will help take away the sting.

Have Student Loans Forgiven

September 16, 2017 By Twila VanLeer

Student Loan Forgiveness — Take care to remain cognizant of the eligibility rules if you want to stay in the running for loan forgiveness.

The U.S. government provides some opportunities for having student debt erased, but there are specific guidelines and some traps to avoid.

The Public Service Loan Forgiveness Program (PSLF) specifies that it is available only to those who have paid regularly for 10 years and who are working for a government agency or a nonprofit.

This fall marks the first time the program kicks in and there are only a few hundred used-to-be students who have signed up so far. Failure to understand the rules has led many graduates to make decisions that now make them ineligible.

Four of the most common mistakes include:

Having the wrong type of loans. The student must have borrowed from the federal Direct Loan Program to qualify. Some 19 million people – 44 percent of the borrowers got their loans in other federal programs, according to current Department of Education statistics. They can get around the provision by consolidating debt under the direct loan program. However, past payments won’t count toward PSLF until the consolidation takes place.

Misunderstanding of “qualifying payments.” Eligibility is based on making 120 payments. They must have begun after Oct. 1, 2007 through a qualifying repayment plan (generally an income-driven plan.) Payments must be in full and made within 15 days of the due date. The borrower must be a full-time employee of a qualifying federal employer. Making extra payments won’t help with eligibility as only one per payment period is eligible. At least some payments must have been made under an income-driven plan that caps payments at a certain percentage of income. Payments don’t count if the borrower was still in school, during a loan grace period or while the loan was in deferment or forbearance. (If a borrower has stayed with the standard 10-year plan, he or she will have paid off the loan before consideration of PSLF is considered.)

Working for the wrong employer. To avail oneself of PSLF, he or she must work for the government, a 501(c) (3) nonprofit or an organization providing a qualifying public service. A full-time public school janitor could qualify. Before accepting a job, an individual hoping to take advantage of PSLF should see that the prospective employer qualifies.

Falling for fraudulent promises of forgiveness. A NerdWallet investigation showed that many companies use false claims and promises to reduce or eliminate loans and they charge high fees to enroll people in the free federal program. An Obama “free loan forgiveness” program, for instance, is one such scam. The term receives more than 18,000 online searches per month, even though no such program exists. Be wary of companies that charge a high up-front fee or add monthly amounts. What they are offering is likely to be too good to be true.

The PSLF program is not set in concrete yet. The Department of Education is considering cutting funding, arguing that it is too expensive and that it tends to benefit graduate and professional school students, many of whom acquire debt in six figures before they are ready for careers. Keep posted for changes, but take care to remain cognizant of the eligibility rules if you want to stay in the running for loan forgiveness.

Giving Money to Relatives Or Friends Common

April 26, 2016 By Twila VanLeer

Many households give or lend money to help others out. — Many people give or lend money to help family and friends out.

Opening one’s wallet to help a family member or friend is “a hidden dimension of the financial system,” according to a study from the Pew Charitable Trust. “Transfers of money across household lines are really important for keeping families afloat.”

25% Of Households Lent to Friends Or Family.

About 25 percent of American households gave or lent a median of $1,000 to friends or family in the past year, the study showed. More than 7,800 households were included in the survey. Black households are most likely to give or receive such help, but the practice is spread among all demographics.

Burden Created.

It isn’t always easy. One in five of the respondents said the “gift money” creates a burden on the giver. Not unexpectedly, the households with the least income saw their donations as a difficulty. But even those making $85,500 per year reported that their generosity was a burden.

Single Mothers Receive And Give The Most.

Single mothers are among the most common recipients, but they also are more likely to give when necessary. Half of all the single-mother households either received or gave help, compared with 30 percent of two-parent households. Some 75 percent of the single parents said it was hard to give, but they also are the group that recognizes it may need a boost at some time. They are, in essence, investing against future need, creating a safety net that they can use to tide them over emergencies.

More Common For Parents To Help Adult Children.

The study showed that adult children in the period from 2005 to 2013 were more likely to draw on cash from their wealthy parents than was common in the 1980s. About 10 percent of those in the more recent group received help with a home purchase, Pew found. Slightly more than 30 percent were given money to help with education costs, enhancing their ability to become more wealthy in the future.

The bottom line of the Pew Study: Poor people tend to help each other out so they can get through tough times. Wealthy families benefit financially when they donate to kin.