Home Equity line of credit loan

Is a Home Equity Loan Right for You?

A home equity loan is something alluring for many people, especially when they have expenses to deal with. Sometimes, taking out a loan can only do worse, as you know that you’ll have to face the challenge of monthly installments. But if you’re a homeowner, you have the chance to take an equity loan, which is very tempting.

Home equity loans are like a second mortgage, and they can work amazingly as long as you’ve built enough equity. But is this really the right option for you? Are you wanting to know how to invest in real estate using a home equity loan?

It Has Lower Rates

One of the reasons why people are put off by other types of loans is represented by the high interest rates. Like it wasn’t already enough that you’ll be in debt for years to come, you’d also have to handle the interest rate.

This is what makes the home equity loan so convenient in this regard. Rates are much lower, so you would be able to afford them. Most times, these rates will be below those of payday loans, credit cards or anything of the sort.

It’s Flexible

The great thing when it comes to a home equity loan is its flexibility. Unlike other loans that are only offered to you for specific purposes, equity loans are different. They can be used for pretty much any purpose, so whether you want to go on a vacation or your house is in desperate need of reparations, the loan can help you out.

You Get Larger Funds

Home equity loans are offered depending on the equity you build. Of course, the market value of the house at that moment is also relevant, but you can help increase the amount if you know how. If you make big down payments, renovate your home or pay off more than you need to, you have great chances of increasing the home equity loan amount in case you’ll need it.

Mortgage refinance calculator pros and cons
Related Article: Mortgage Refinance Calculator | Pros & Cons of Refinancing Your Mortgage

You’ll Have an Additional Debt

Sure, the loan can help you big time, and you’ll be very happy to have some extra money. But the problem with home equity loans is the fact that you’ll have one additional debt to deal with. Although it has favorable interest rates, it doesn’t change the fact that it’s still debt, and it may interfere with your budget in the future.

You May Lose Your Home

If you are unable to pay off the loan, things can get worse. Basically, your house will serve as a collateral guarantee to the loan. This means that if you won’t be able to pay it off when required, or you fail to make a lot of payments, you can be left homeless. This is why you must be sure you’ll be able to handle the responsibility before you take out the loan.

Final Thoughts

Home equity loans can be great for those who really need them for various reasons, and if you’re able to afford it and deal with the payments, it’s not a problem. But if you think the debt will be hard to manage, then a home equity loan may not be right for you, as you’d take a lot of risks.

Mortgage refinance calculator pros and cons

Mortgage Refinance Calculator – Pros & Cons of Refinancing Your Mortgage

Pros & Cons of Refinancing Your Mortgage

Many people with mortgages are taking refinancing into consideration. Whether they’re out of money and need to find ways to decrease their debt, or simply want to get rid of it much earlier, mortgage refinancing is a concept that can make this possible.

Simply put, mortgage refinancing is a new loan that you take in order to replace the already existing one. You hear your neighbors and colleagues at work talking about the advantages it packs, but is it really that perfect, or does it have its flaws as well? There is nothing that is entirely perfect and, as you can imagine, there are downsides to mortgage refinancing as well.

Our Excel Mortgage Calculator can also help you determine if it’s right for you. So, let’s examine the pros and cons of this concept and determine whether you should consider it or not.

Pros of Refinancing Your Mortgage

  • Lower Monthly Payment

By refinancing your mortgage, you’re lengthening the term of your loan. Although this doesn’t sound dreamy, you’ll have more money to save each month, and less money to spend paying off installments. In other words, affordability will increase. It’s better to check a mortgage refinance calculator and see whether this option will work for you.

  • Lower Interest Rate

The interest rate is one of the main reasons why people consider refinancing their mortgage. When the loan repayment is already high enough for you, the last thing you want is to deal with a high interest rate too. Through refinancing, you have chances to lower not only the interest rate but also the actual mortgage payment.

  • You Might Get Cash Back through Equity

If you’re the happy owner of a home with lots of equity, then you are lucky. By refinancing your mortgage, you may even get back some of the money if the equity is enough. Therefore, you have the opportunity to use the money for reparations, improvements or paying other debt.

Cons of Refinancing Your Mortgage

  • Spending Too Much Time

If you want to refinance, you will need a lot of time, which can be difficult if you are someone with a busy schedule. You need to look for reliable lenders, choose a loan and sign closing documents. So, if you’re always busy, this might not work out for you.

  • Refinancing Costs

One of the many things that put people off when they check a mortgage refinance calculator is the cost of the refinancing process. It requires closing costs, which could sometimes be as much as 6% of the amount of the loan. Usually, these can be included in the loan balance, but you may also be required to pay on spot when closing.

  • Longer Term

Sometimes, the loan term may extend, leaving you to deal with the loan for much longer than you initially thought. It may end up being repaid 10 years later, and dealing with a loan for that long can be nerve-wracking.

Final Thoughts

Mortgage refinancing can be very useful for some people, but it also comes with its own set of drawbacks, as you were able to see. It’s better to use a mortgage refinance calculator before you apply, so you can determine if it’s the right course of action.

How to Pay Your Bills Online

How to Pay Your Bills Online the Right Way

Being able to quickly, safely, conveniently, and accurately pay bills from home (or anywhere else you can access the Internet) is probably the single biggest advantage of having access to your bank account online.  And as far as that goes, I’m NOT a fan of “automatic draft,” but I AM a fan of “paying bills online,” or “online bill pay.”  I will now explain the difference between these two payment methods.

Automatic draft

With automatic draft you authorize a company to electronically withdraw money you owe them directly from your account.  Companies tout automatic draft as a consumer benefit because it’s convenient (you don’t have to write a check or take any other action) and cost-effective (you don’t have to pay for postage or worry about late fees).  While it’s true that automatic draft is both convenient and cost-effective, bear in mind that it’s the companies you deal with that control the amount and timing of the electronic transfer (which is why they love it so much).

So why am I not such a fan of automatic draft?  Note that it’s fine if everything goes exactly the way that it should – meaning that you’re charged correctly at the right time.  After all, if you owe someone $100 on the 1st of the month it’s actually nice if that happens without you having to think about it.  No, if you’ve got automatic draft and you get poor service and/or you’re incorrectly charged then suddenly you’ve got a different problem: the company already has your money, thus leaving you the burden of getting it back (which puts you at a disadvantage – you always want to be the one holding the money in a financial dispute if at all possible).

Be Careful of Auto Billpay

As an example, my  friend Alison once joined a health club that required payment through automatic draft as a condition of membership.  We agreed and everything went fine…until she decided to terminate her membership.  I remember balancing the bank statement sometime afterwards and seeing a charge from the gym.  Somewhat irritated I thought, “Surely that’s the last charge.  Didn’t Alison terminate her membership over a month ago?”  But the next month’s bank statement came and a monthly charge was still coming through!  We then realized this was never going to stop unless we took action.  It took several calls to the heath and their accounting office to get things straightened out, and we finally did get our money back, but it took a good deal of effort our part to make that happen.

So to summarize, one of the main drawbacks of automatic draft is that if there’s a problem then you have to make all of the effort to fix the company’s mistakes in order to get your money back.  I don’t like that.  I would recommending using your credit card.  Still, I’m not saying you should never consider using automatic draft.  For example, in some cases when paying back a loan you’ll be offered one interest rate, but if you agree to pay it back using automatic draft then you’ll be given a lower rate.  So the bottom line is that if a company you’re dealing with is willing to share some of the benefits they receive from getting paid by automatic draft then I believe it’s worth considering.  If they’re not – if all they want is an automatic way to take your money at the time of their choosing – then I think you should select the method of payment that’s best for you, and most often that will be to pay your bills online using your bank account (which is sometimes referred to as “online bill pay”).

Paying bills online (or online bill pay)

Like automatic draft, paying bills online using your bank’s website is convenient and cost effective.  In addition, it enables you to control how much money you pay, who you pay it to, and when they’ll be paid.  This is how it works.

  1. Log on to your bank account (for general information on how to do this if you don’t already have access to your bank account online click here).
  2. Go to the “Pay Bills Online” section (the name will vary by website).
  3. Enter who you want to pay (if the payee is not already in your bank’s records then you may have to input the information manually the first time you make a payment).
  4. Decide which account you want the money to come from (it could be from a checking or a savings account you have at the bank).
  5. Enter how much you want to pay them.
  6. Enter the date you want them to be paid.

After you’ve input this information then one of the following two things will happen.

  1. If the payee is set up for electronic payments at your bank then the money will be transferred from your account to the payee’s account on the date you selected.
  2. If your payee is not set up for electronic payments then on the date you selected your bank will automatically print a check and mail it to the payee.

Note that paying bills online is slightly more work than automatic draft because you do have to take some action: you have to log onto your account and follow the steps above.  However, it still saves you postage and the time it takes to write checks (just like automatic draft).  But even more than that, paying your bills online enables you to take control of your hard earned money by determining how much you will pay, whoyou pay it to and when they’ll be paid.

Bank Accounts - how to manage your money

6 Benefits of Managing Your Bank Accounts Online

By managing your banking needs online to the extent possible you can cut down on the number of inconvenient, time-consuming trips that you would otherwise have to make to the bank.  Following are some specific and useful things relating to your bank accounts that you can do online.

#1 – Check account balances

You can check the current balance of your checking and savings accounts online.  This is useful because it enables you to see whether certain charges (such as a recent purchase) have hit your account and whether or not the amounts are accurate.  It also enables you to see whether checks you’ve deposited have cleared.

In addition, if you have a credit card issued by the bank, you can also review your credit card activity online.[1]   Again, this is very useful because it enables you to verify if your credit card transactions have processed and whether or not they’re accurate.  It also gives you the ability to monitor your account as often as you like to ensure that no unauthorized charges have been made.

#2 – View check images

By accessing your account online you can view (and print) images of checks you’ve written.  This comes in very handy if you lose a check carbon and you can’t remember who the check was to or how much it was for.  To give you an example of something I’ve done many times, say that you’re organizing the check carbons for checks your recently written as part of updating your checking account balance.  You’ve got check carbons for checks 1001 through 1010, but the carbon for check 1008 is missing.  So what does that mean?  Did you void check 1008 or did you actually write it?  You can solve the mystery by accessing your account online and looking up check 1008.  If it hasn’t cleared after a period of time you most likely voided it, but if it did then you should be able to see it online, even to the point of being able to print out a copy for your records if necessary!

#3 – Pay bills online

The ability to pay your bills electronically is a HUGE benefit of doing your banking online.

#4 – Transfer money electronically

Another convenient feature of online banking is the ability to transfer money electronically between your financial accounts.  For example, you can transfer money between:

  • A checking account and a savings account at the same bank.
  • A checking account and a savings account at a different bank.[2]
  • A checking (or savings) account and an investment account with another financial institution (which gives you a convenient way both to invest and to draw funds from your investments as needed).

Transferring money from one account to another at the same bank or financial institution is generally very straightforward.  However, to link accounts at two different banks or financial institutions takes a little more work.  To do so, log onto your bank or financial institution’s website, go to the “Electronic Funds Transfer” section, (the name will vary by website) and follow the applicable instructions.[3]  Is the process of figuring out how to transfer money between your financial accounts a bit of a pain?  Sure, but you’ll reap the rewards of your time and effort for doing so many times over.  Here are some examples of how.

  • Each time you get paid you can transfer money to your savings account.  It can either be a fixed amount each paycheck, or you can vary it based on your goals and the amount of extra money that you have.  Likewise, if your checking account is getting low then you can bolster it by transferring money to it from your savings account.
  • If you’re in your working years, you can set up your primary checking account to safely, conveniently and consistently transfer money to your investment account to save for retirement or other long-term goals.
  • If you’re retired, you can transfer a set amount each month from your investment account to your checking account as a living allowance.  In addition, you can transfer additional money to your checking account for whatever purpose at any time (assuming you’ve saved and have the additional funds!).

Again, prior to online banking, doing any of the above transfers was a real pain.  It required you to go in person to your bank or financial institution or to do everything by mail.  But with the ability to do these kinds of transfers online, you can move your money to where it needs to be in a manner that’s quick, safe, time-efficient and easy to track.

#5 – Stop payment on a check

If necessary for whatever reason, you can put a “stop payment” on a check in order to void it before it’s deposited or cashed.  You used to have to make a trip to the bank in person to stop payment on a check, losing valuable time in the process (because for a stop payment to work it has to be done BEFORE a check clears!).  However, you now have the ability to stop payment on a check through online banking.

#6 – Communicate with your bank

Getting answers to short, specific questions used to require a time-consuming trip to the bank to talk to a service representative or to navigate through an impersonal (and often overly-complicated and unhelpful) phone menu.  Now many banks provide you with the ability to get answers to specific questions online from a service representative via email.  If you’re not able to successfully get answers in this way then, of course, you always have the option to go to your bank in person or call their customer service line.  But if you’re able to resolve your questions online then that’s so much more convenient!

Invest the time to learn how to access and effectively use your bank accounts online

Online banking is really about investing.  How is that?  Remember, effective investing means making a sacrifice now in order to reap far greater benefits in the future.  In this case, if you take the time to learn how to access and effectively use the online features of your bank accounts (which not only include the items above, but even more) then you will reap great dividends in the future in terms of saving time, stress and money (no more stamps for bills, for example!).

So, if you don’t already have an online account with your bank or financial institution, follow the instructions on their home page to set one up.  If you have any trouble doing so then find their phone number in the “Contact Information” section of their website and talk with someone with their technical services group.  If that doesn’t work then, in order to obtain all of the benefits of online account access, it’s well worth the effort to make a trip to the bank in person to get help directly from a service representative.

[1] If your card was issued by a financial institution other than your bank then you’ll have to log on to their website to view your credit card activity.

[2] Not all banks provide this service, but an example of one that does is ING Direct.

[3] If you don’t already have an online account with your bank or financial institution, follow the instructions on their home page to set one up.  If you have any trouble doing so then find their contact information on the website and consult with their technical services group.  If that doesn’t work then, in order to get online account access, it’s well worth the investment of time to make a trip in person to get help directly from a service representative.

Credit Card Statement Balance

Understanding Your Credit Card Statement Balance

Credit Card Statements are Logically Organized

Like a lot of financial paperwork credit card statements seem to come at you with a lot of information, but if you know how to read them then you’ll find that they have lots of useful information organized in a logical way.

Credit Card Statement Balance Summary

Your credit card statement will have a summary of your account’s activity for the past month.  Following is an example of how it’s organized along with an example of what each line item means.

Previous Balance (or Beginning Balance)$1,880This is the ending amount from your prior credit card statement that carries over to the current month.  In other words, it should be equal to the “New Balance” on your lastcredit card statement.[1]
Less: Payments and Credits($225)This is the amount you paid on your credit card the prior month.  It can also have miscellaneous credits such as refunds from store returns.
Add: Current Charges$375This is the total amount of your credit card purchases during the past month (which ties to the “Summary of Current Credit Card Charges” below).
Add: Finance Charges$20This is the current month’s interest that you owe on your outstanding credit card balance.
Add: Fees and Penalties$10This is where charges will show up for things such as annual fees, late payment fees, penalties for exceeding your credit limit, etc.  If you don’t understand why you were charged this amount then contact your credit card issuer.
Equals: New Balance (or Ending Balance)$1,060This is the sum of your outstanding balance from the previous month ($1,880), less payments you made ($225), plus interest and fees ($20 and $10), plus amounts charged for the month ($375).  The total ($1,060) represents the amount you would need to pay in the current month to settle your credit card balance in full (though you can pay less than that all the way down to the minimum payment which is described below).

Summary of Current Credit Card Charges

In addition to summarizing the activity in your account, your credit state statement will provides details for all of the charges that you made in the past month.  Examples of such charges are as follows.

Crash and Bash Auto$245This was a one-time charge to cover a car repair.
See-it-Again Movie Rentals$20This is a recurring monthly charge for a subscription-based movie rental service.
Forgotten Fine Dining$55You charged this amount at a restaurant, but you’d forgotten about it until you got your credit card statement.
Phantom Industries Nonrecurring Charge$40This is a charge that you don’t recognize.  You should search your records to determine what it is and, if you can’t figure it out, you should call the company (their number or website should be on the credit card statement).
Nasty Surprises Incorporated$15This is a charge from a company you recognize and have dealt with in the past, but for reasons you don’t understand they’ve charged you unexpectedly.  You should call the company to find out why.
Equals: Total Charges for the Month$375This is the sum of the above amounts, and it ties to the “Current Charges” line on the “Credit Card Statement Summary” above.

Rewards Summary

If you have a rewards credit card where you accumulate points, flight miles, or other incentives then you should see a summary of your rewards activity on your statement organized something like this:

The minimum payment and the due date

Your credit card will always show you your minimum payment, or the lowest payment the credit card issuer will accept by the due date without penalizing you according to the terms of your credit agreement.  Depending on terms of your credit agreement you can expect your minimum payment to be between 1% and 4% of your current balance.  So based on the figures in the example above if your minimum payment percentage was 3% then you would have to pay at least $32 by the due date in order to avoid late payment penalties ($1,060 x 3% rounded up to the nearest dollar).  Again, you can always pay more than the minimum payment, but you have to pay at least that much.

3 Key Things to Look for When Examining Your Credit Card Statement

Now that you understand the fundamental of reading your credit card statement I want to reemphasize 3 points that I alluded to above.

  1. You should recognize all vendor charges – Nobody should charge your credit card unless you give them express permission to do so.  Thus if you see a charge from a company you don’t recognize, you should follow up to see if it’s legitimate.
  2. Vendor charges should be accurate – Once you’re sure that nobody unexpectedly charged your credit card, you should then make sure that you were billed the right amount for each transaction. If not then you should find the paperwork for the applicable charge(s) and contact the company directly to resolve the problem (their phone number and/or website should be on your credit card statement or the receipt from the transaction).
  3. Your credit card company’s charges should be correct – You should understand both the rationale and amount behind all credit card interest, fees and charges.  If you see anything that look unusual, inappropriate, inaccurate or excessive then don’t hesitate to contact your credit card issuer to get some answers.

[1]  To further illustrate, if $1,880 was the “New Balance” or “Ending Balance” on your November credit card statement it should also be the “Previous Balance” or “Beginning Balance” on your December credit card statement.