Total interest you will pay !

How Much Interest Will You Pay in Your Lifetime? -Tips

Nobody likes to pay interest, but it’s a necessary evil for large purchases such as a home or a car, as well as part of the deal when you charge items with a credit card. (To really make your stomach churn about the interest that you’re paying, all you need to do is take a glance at your mortgage the next time a bill is due.)

But if we were to ask you how much total interest you pay throughout your lifetime, would you know? What would your guess be? $100,000? $200,000? Something greater?

The amount of interest you’ll pay throughout your life certainly depends on a variety of factors

your credit card limit and spending behaviors and your credit score. But according to a report on Credit.com, a site that has developed a tool to calculate how much interest you’ll pay over a lifetime based on the purchases that you’ve made, the average American can expect to pay $279,000 in interest. To put this number into perspective, consider the fact that recent estimates have stated that the cost of raising a child, from birth to 18, is $245,000. So yes, if you’re an average American, you can expect to pay more in interest than you would to raise a child.

Scary, we know. Thankfully, you can take measures to ensure that you’re more than just the “average American” when it comes to interest to curb this $279,000 number. The most obvious means is to save and pay cash for all of your purchases. After all, an additional $279,000 back in your pocket over a lifetime sounds pretty good to me, no? But that’s certainly not practical for everyone. With that in mind, here’s a look at some practical advice to reduce those lifetime interest payments:

Raise Your Credit Score

It’s worth noting that the $279,000 lifetime interest payment is based on someone with a fair credit score (620-679). So if your credit score is better than fair, you’re going to be paying less than the average American over the course of your lifetime due to your status as a more trustworthy consumer, which comes with lesser rates. Is your credit not up to par? Enact some credit repair strategies to improve it, as well as your finances:

  • Pay bills on time: Payment history accounts for 35 percent of the FICO score, the largest single category.
  • Reduce credit card debt: If your credit card debt is greater than 30 percent of your total credit allotment, your score will suffer. To boost your FICO score, pay down debts so that you owe less than 30 percent of your limit.
  • Credit history, types of credit and new credit are other factors that contribute to your score, but aren’t weighed as heavily as the two aforementioned categories.

 

Refinance Loans

Perhaps you took out an auto loan or bought a house when your credit score was just “fair” and now it’s “excellent” – you don’t have to continue to pay your bills with the interest rates that came with a fair score. Consider refinancing old loans if your credit status has changed to lock in lower interest rates. Check with your bank or credit union to see what interest rates are at and consider pulling the trigger and refinancing when rates are low enough. It doesn’t take long and can pay big dividends.

Credit Card Tips

The interest you’ll pay over a lifetime on credit cards come in a distant third place compared to interest on home loans and auto loans for most consumers, but it’s still a category worth focusing on. There are a number of things you can do to reduce interest payment, such as:

  • Pay on-time, in-full: Only charge what you know you can pay off.
  • Make multiple payments each month: Making more than one payment per month, even if you can’t completely pay the card off each time, can help lower your balance and thereby your interest.
  • Negotiate a lower rate: If you’re unhappy with your credit card interest rate, just a simple phone call to inquire about the possibility of getting a lower rate can work sometimes, especially if you’ve had the card for a long time.
  • Shop around: Not happy with your current interest rate? Shop other cards.

A final tip when it comes to charging is to seek alternatives for large purchases. For instance, instead of charging furniture when furnishing a home, look for a store that offers a 12- or 18-month same-as-cash payment plan. You can do the same with large medical bills – go on an interest-free plan if it’s paid off within a certain period of time.

Just because the average American pays $279,000 in interest over their lifetime, it doesn’t mean you can’t deviate from the norm. For more information on how to repair your credit score, feel free to contact our office at 617-265-7900 or schedule a Free consultation below.

New Relaxed Mortgage Standards

Relaxed Mortgage Standards – What they mean for you.

After the mortgage crisis, lenders have gotten increasingly strict, making it hard for many people to qualify for home loans. However, new, less stringent requirements could mean that many buyers who were formerly shut out could now get the loans that will allow them to buy homes of their own.

Loans Not Available to Most Buyers

Recent figures show that almost one-third of loans went to borrowers with credit scores of 780 and above. People with scores between 700 and 790 claimed 44%. Only 23 percent of loans went to people who had scores between 640 and 699. Those with credit scores of 619 and below were completely in the cold; only 0.3% of all mortgages were granted to people in that bracket. With average FICO scores at 646 nationwide, this means that a large swath of consumers have been closed out of the housing market. This has not just been a hurdle for individuals; economists say that the tight lending market has held back a recovery in the housing market, generally dampening economic growth.

Lenders say that the tight borrowing environment is the result of deals with Freddie Mac and Fannie Mae. The organizations currently back over half of all mortgages. Lenders say that the guarantors’ policies were unclear, leading lenders to err on the side of caution. However, new standards are being released that should clarify borrowers’ circumstances and make it possible for many of those who could not borrow before to get a loan.

Easier Standards for Borrowers

The new regulations took effect on Dec. 1, so results of the new rules should be apparent soon. However, Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute, says that because the changes are big, it can take some time to see their full impact. Among the changes coming to home loans:

  • Faster turnaround times. Lenders, including SunTrust Banks and Wells Fargo, say that borrowers should see their applications processed more quickly. Generally, it has taken two months or more for an application for a loan to be expected. But turnarounds should be faster within the first few weeks of the new policies.
  • Less punishment for one-time lapses. Borrowers whose credit scores have taken big hits because of one-time events like job loss, a large medical bill or other personal catastrophes will find a more forgiving environment.
  • Fewer credit overlays. Lenders have been asking for extremely high credit scores and also asking for guarantees that include high income and high balances in the bank. Fannie Mae and Freddie Mac say that those stringent restrictions are more than they require, so these could be reduced or go away completely.
  • Less rigorous documentation. Under the previous system, a borrower who had a late payment on a car loan could have been asked to write a memo that detailed what happened and why the payment was late. This could be required even when the minor negative mark was not preventing the borrower from getting a loan. Under the new system, this sort of documentation will be less common, leading to quicker processing of loans.
  • Lower credit scores okay. In the past, many lenders would not consider a borrower under a score of 660. But, mortgage company Mason-McDuffie of California said that the new rules can let them consider credit scores as low as 620, which is the limit for loans that are backed by Fannie Mae or Freddie Mac.

 

More Opportunity

Amid all of these changes, it is expected that hundreds of thousands of borrowers will now be eligible for home loans. The Urban Institute says that as many as 1.2 million additional mortgages would be written every year if loan availability were to go back up to what are regarded as normal levels. There is strong optimism that the new rules can speed up the economic recovery and improve the finances of millions of individuals.

If you have wanted to buy a home but strict rules were keeping you out of the game, now could be the time to start preparing. Take a look at your credit health and fix up any minor blemishes. The attention to these details can mean not just getting a loan but ensuring that you get the best possible rate available. Talk to us today about the steps necessary to improve your credit and qualify for the newly available loans that can get you into a home of your own.

Low Down-Payment Mortgages

Pros and Cons of Low Down-Payment Mortgages

Since the financial crisis, it has been difficult for many people to qualify for home loans. To help more people get mortgages, the federal government said that it plans to expand the availability of low down-payment mortgages.

Freddie Mac’s last low down-payment mortgage program was discontinued in 2011. Fannie Mae had one that it ended last year; they decided to end the program when the F.H.A. increased the fees that it charges for guarantees.

Possible Risks?

Many studies have shown that home buyers who put down at least 20 percent have a lower default rate than those who make smaller down payments. Additionally, people who put down very small down payments wind up at risk if housing prices fluctuate. If the value of their house goes down, they wind up upside down on their mortgages right away.

But, with current housing costs, a 20 percent down payment is outside of many borrowers’ means. Take Boston, where the median home value is $439,000. A buyer putting down 20 percent would have to come up with almost $88,000. It’d take someone who earns $50,000 a year and saves 10 percent of income 17 and a half years to save that much.

And, there are other groups’ analyses that suggest that lower down payments are not as risky as you might think. The Urban Institute did a comparison between borrowers who had down payments between 3 and 5 percent and borrowers whose down payment was between 5 and 10 percent of the loan. Those who put in the lower down payments had lower rates of default when their credit ratings were high. Fannie Mae will consider factors such as borrowers’ annual income and the amount that they have in the bank when approving low down-payment loans.

The borrowers will have to carry private mortgage insurance to qualify for low down-payment loans. Fannie Mae’s charter prevents the organization from granting mortgages for more than 80 percent of the cost of a house.

Raising Your Credit Score

If you are cash-poor but feel that you have the financial skills and commitment to make housing payments on time, increasing your credit score can make it easier for you to qualify for a low down-payment mortgage. Many people who have had issues such as medical bills or divorce can have credit scores that wind up lower through no fault of their own. And, many younger adults or people who have always chosen to use cash will find that their credit history is considered thin. In each of these circumstances, there is a lot that can be done to increase your credit score and make it more likely that you will qualify for a loan. A few steps that can help to quickly increase your credit score include:

  • Check your credit reports for errors. Last year, the FTC performed a study that showed that 5 percent of consumers have errors on their credit report that can result in problems getting a loan. One in 10 consumers saw their credit scores change after correcting errors. Make sure you get all three reports, since they might contain different information from one another.
  • Pay off debts in collections. Unpaid collections can significantly harm your credit score. Contact creditors to make arrangements to pay off debts. In some cases, you may be able to settle for less than the total of the debt. In others, you may be able to make arrangements to pay in installments.
  • Consider consolidating loans. Having too many installment loans can drag your credit score down. Consolidating loans reduces the number of open loans you have, which can improve your credit score.
  • Pay down your credit cards. Another factor that creditors look for is the relationship of your current debt to your available credit. If too many of your cards are near the limit and you have a balance on all of them, it can look to creditors like you are overextended. Many financial experts recommend that you never use more than 30% of your available credit. Some are even more conservative and recommend keeping 10% or less of your credit utilized at all times.

It remains to be seen how the new low down-payment loans will play out. With luck, these new loans will open up home ownership opportunities to a larger pool of borrowers who have good credit but less available cash. By working on erasing any issues that tarnish your credit score now, you can better ensure that you are in a good place to qualify for the loans when you have the chance.

Bad Credit Mortgage – Credit Tips

If you have bad credit, you are far from alone. Job loss, medical expenses, divorce and other factors can affect many people and drag down their credit scores. If you have been working to get back on the right path so that you can invest in a home, your bad credit does not necessarily have to hold you back from your dreams.

Work on Improving Your Credit

Look over your FICO score and your credit reports to see which areas you can improve most quickly. For instance, eliminating inaccurate negatives and ensuring that all of your accounts that are in good standing are on your report can increase your score without you having to do a thing. Consolidating loans or opening new lines of credit can help or hurt, depending on your situation. Talk to a credit repair professional for advice.

Look for a Lease to Own Agreement

In a lease to own agreement, part of your rent payment each month goes toward the purchase of the property. Many landlords are more willing to work with people with so-so credit than banks are. The leasing period usually lasts about three years; during this time, work to increase your credit score so that you qualify for a regular loan when the time comes.

Make a Large Down Payment

With a sizable down payment, you can often get more attractive terms. If you have an inheritance, a relative willing to help with the funds or another way of getting 20% of the cost or more, see if this can help you get a loan.

Look for Owner Financing

An individual homeowner may be willing to overlook a poor credit history if you can demonstrate that you have improved your spending habits. Getting a Bad Credit Mortgage can be avoided. Usually, these arrangements involve a higher rate of interest; this can work well as an investment for the current owner while giving you access to homeownership.

Another alternative is to see if you can find a seller willing to take back a mortgage. This would, like the arrangement above, make them your lender. It is often easier to get an arrangement like this with poor credit than it is to work directly with a bank.

No matter which of the above strategies you employ, continue to work to improve your credit score. Pay every bill on time every month. Open new revolving and installment credit so that you can build a new history of on-time payments. Pay down any loans so that you can improve your debt to income ratio. Once your credit rating improves, you will get opportunities to refinance at better rates, keeping more of your money in your pocket. Remember that it’s a marathon, not a sprint. While there are ways to get a mortgage now with bad credit, working to improve your situation means a better deal for you over time.