Do you want to save some money? Who doesn't? These days, you really need to look at all the ways you can save a buck. Here are a few to consider.
Mortgage rates are the lowest they have been in more than 30 years.
Yes, I know there are closing costs involved with a mortgage, but if you are going to stay in this house for the next few years, you will recoup these costs and also save on the interest payments. Some mortgage companies are offering mortgages with no points. Now is one of the best times to "shop the market" for the best deals available. It's a competitive market.
So, you have an adjustable-rate mortgage, and it has saved you some money? That's fine, but maybe it's time to see if the rate for a fixed-rate mortgage is even cheaper. It never hurts to check it out.
If you have a home equity loan in addition to your regular mortgage, you might be able to combine the two and really save some money. I will repeat my original statement: Mortgage money is the cheapest money you will ever buy. Why? Think about it for a moment. Let's assume you have a mortgage with a 7% interest. It's a fixed rate, guaranteed for 30 years. As you know, the interest for a home mortgage is still fully deductible. If you are in a combined tax rate of 30%, that 7% mortgage only costs you 4.9% after taxes. The combined tax rate is for both federal and state taxes. If your combined rate is 40%, the cost for the 7% mortgage goes down to 4.2%.
Now you can see why I say it's the cheapest money you will ever buy. Where else can you get long-term dollars that cheap? It's becoming rare to find any money you can buy in which the interest is tax-deductible. With that in mind, why on Earth would you want to pay this off and eliminate a good tax deduction with such a cheap rate of interest? Interesting question, isn't it?
Incidentally - if you currently have a $100,000 mortgage on your house at 8.5%, your monthly payments are around $769 per month. If you refinance to a 6% mortgage, the payment will go down to $600. That saves you $2,028 per year; over the life of the mortgage, that's $60,840. (If you were really nice, you would send some of that savings to me! After all, who gave you the idea?)
Ready to save some more bucks? Do you still keep savings in the local bank? Is it still paying you a rate currently below the inflation rate? Do you realize that low rate is still subject to income taxes? In other words, if the bank gives you 2%, and you are at a combined tax rate of 30%, your net rate is only 1.6%. Isn't that wonderful? If you kept your money there long enough, it would all disappear!
Do you want to do better? Why not put your savings into a United States savings bonds account? You keep the interest you earn. The interest savings bonds are now paying is even higher than what you are getting at your bank, which you have to "share" with Uncle Sam. There is no "sharing" with the interest on a savings bonds account until you cash in. Go to www.savingsbonds.gov and check out the Series "I" bonds. They are currently at 4.66%. You must keep the money in the account for at least one year. If you redeem the bonds within five years, you're charged the last three months of interest paid. If you only maintain your funds there for one year and cashed them in, you'll still net 4.5%.
Do you have any loans or large credit card balances? Do you have any "credit" life or disability coverage on those loans? Unless you have one foot in the grave and the other on a banana peel, get rid of that junk! It is, by far, the most expensive coverage anyone can buy. By the way, no one can make you keep the coverage, as long as you have other coverage you can use to cover the loan. Check all loans for this coverage, including your mortgage. Companies make more money on this coverage than they make on the loan.
Well, that should be enough to keep you busy for a while. I'll be back again when you least expect me, with more ideas that can save you money. By the way - what are you planning to do with all this money I am saving you?
Click here for previous articles by Stanley Greenfield, RHU.