The Cheapest Places to Live in Oregon
With the coast, mountains and wine country, Oregon is a gem of the Pacific Northwest.
The post The Cheapest Places to Live in Oregon appeared first on Rent Blog.
With the coast, mountains and wine country, Oregon is a gem of the Pacific Northwest.
The post The Cheapest Places to Live in Oregon appeared first on Rent Blog.
Gone are the days of simple metal keys to get you in.
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Sweden is one of the most sought-after countries in the world. It offers an excellent quality of life for retirees with beautiful landscapes and historic, walkable cities to enjoy. The archipelagoes on both the nation’s East Coast and West Coast, … Continue reading →
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Money Girl listener Danielle M. says:
I’ve been listening to your podcast for about five years now since I graduated from college. I greatly appreciate the tips and guidance you give to the community as a whole. Thank you for giving me the confidence and knowledge to build a solid financial foundation.
I recently purchased a home, which includes a PMI payment. I also have student loans and a small car loan. We have extra money every month to put toward our loans. I understand it’s best to pay down debt in order of the highest interest rate first. I’m wondering how to evaluate my mortgage since the interest rate doesn’t include PMI payments. Should I pay down my mortgage until the PMI is gone, or is it better to focus on my higher-rate student loans first?
Thanks for your great question, Danielle! Understanding where to put your extra money each month is incredibly important. In this post, I’ll explain what PMI is, the rules for eliminating it, and how to know when it should be your top financial priority.
If you take out a mortgage to buy a home or refinance an existing home loan, the last thing you want to hear is that you have to pay an additional charge, called private mortgage insurance or PMI. You might feel even worse when you find out that this insurance protects the lender, not you!
Borrowers have to shell out for PMI when they get a conventional mortgage but can’t put at least 20% down. The amount you borrow to buy a home is called the loan-to-value (LTV) ratio. For example, if you borrow $180,000 to buy a home valued at $200,000, you have a 90% LTV ($180,000 / $200,000 = 0.90)
Borrowers have to shell out for PMI when they get a conventional mortgage but can’t put at least 20% down.
When your LTV on a home mortgage is higher than 80%, lenders consider you to be a bigger risk than if you borrowed less. The lender mitigates that risk by requiring you to purchase PMI. The policy would cover a portion of their loss if you didn’t pay your mortgage and foreclosure proceeds don’t cover your outstanding loan balance.
However, there's a bright side to paying PMI. It makes it possible for many borrowers who can’t afford to put 20% down to buy a home. And it can be eliminated at certain LTV thresholds, which we’ll cover.
The cost of PMI varies depending on many factors. These include the type of mortgage you get, how much you put down, where the property is located, your credit, your loan term, and how lenders structure your PMI fee. In general, there are three ways lenders charge PMI:
Monthly payments are the most common way that borrowers pay for PMI. Let’s say you get a 30-year, fixed-rate mortgage for $180,000 to buy a home valued at $200,000. With a 90% LTV and good credit, your PMI could cost about $100 per month.
Paying monthly PMI gives you the most transparency about the charge. It gets itemized on your mortgage statement, so you know exactly how much you're paying. And more importantly, you can see when it finally gets eliminated, which we'll cover next.
If your lender offers more than one way to pay PMI, ask for a detailed pricing comparison so you can weigh the pros and cons.
If you make a lump-sum PMI payment, it could turn out to cost more or less than the other options, depending on whether you choose to pay off your mortgage ahead of schedule. If you sell your home after just a few years or pay off your mortgage early, you don't get a return of any PMI premium.
Since mortgage interest is tax-deductible, the option to pay a higher interest rate instead of separate PMI payments could cost less on an after-tax basis. Also, PMI is currently a tax-deductible expense, although there have been periods when it wasn’t. At the end of the year, lenders send out Form 1098, which lists how much PMI and mortgage interest you paid during the year so that you can claim it on your tax return.
However, you can only claim these deductions if you itemize them using Schedule A. When your total itemized deductions are less than the standard deduction for your tax filing status, you'll save money claiming the standard deduction instead.
As you can see, knowing which option is best for paying PMI can be a bit complicated. If your lender offers more than one way to pay it, ask for a detailed pricing comparison so you can weigh the pros and cons and consider which option may cost less.
Now that you understand why and how lenders charge PMI, let’s review the rules for getting rid of it. That will help you know how high a priority it should be.
You should receive an annual notice from your mortgage lender that reminds you about your options to have PMI eliminated under certain conditions. Here are the ways you can get rid of monthly PMI payments.
When your mortgage balance reaches 78% of the original value of the property, PMI must automatically be canceled.
Request cancelation. After you pay down your mortgage balance to 80% of the original value of your home, you can ask for PMI to be canceled. Your original value can be either the price you paid for your home or its appraised value when you bought it (or refinanced it), whichever is less.
Your lender will require you to pay for a property appraisal to verify that your home’s value is the same or higher than when you purchased it. The appraisal fee could range from $300 to $1,000, depending on the size and location of your home.
Automatic termination. When your mortgage balance reaches 78% of the original value of the property, PMI must automatically be canceled. In this case, you don’t have to request it or pay for an appraisal.
Midpoint termination. When your mortgage balance reaches its midpoint, PMI must be automatically canceled. For example, if you have a 30-year mortgage, your lender must cancel your PMI after 15 years.
But keep an eye out for situations that might allow you to cancel PMI early, like when your home value appreciates due to market conditions. When your home value goes up, it lowers your LTV. Likewise, if you make additional mortgage payments that reduce your principal loan balance, it lowers your LTV. The faster you get to the 78% threshold, the sooner you can request a PMI cancellation.
Keep an eye out for situations that might allow you to cancel PMI early, like when your home value appreciates due to market conditions.
However, be aware that your lender can deny your request for PMI cancelation in certain situations, such as if you’ve made late payments. You must get current on any outstanding payments to have PMI canceled either as a request or automatically. Also, don’t forget that taking out a home equity loan or line of credit increases your LTV.
Now that you understand when you must pay PMI and when you can eliminate it, let’s turn to Danielle’s question. She's considering whether to send extra money to her mortgage and get closer to canceling PMI or if it's better to pay off her student loan or car loan faster.
First, I’d recommend that Danielle zoom out and look at any other top financial priorities. She didn’t mention if she’s regularly contributing to a retirement account or has emergency savings. If she doesn’t have a healthy emergency fund, or she isn’t investing a minimum of 10% to 15% of her gross income for retirement, that’s where her extra money should go first.
We know that Danielle doesn’t have any dangerous debts, such as accounts in collections, credit cards with sky-high interest rates, or expensive payday loans. If she did, those would need attention before addressing any other type of debt. As she mentioned in her question, it’s generally best to pay off debt in order of highest to lowest interest rate.
So, assuming that Danielle’s finances are in good shape, how does paying PMI compare with a student loan and a small auto loan balance? While ongoing PMI payments aren’t an interest expense, you can pretend that they are as a technique for understanding their place in your financial life.
Let’s say you borrowed $180,000 for a $200,000 home, giving you a 90% LTV. As I previously mentioned, you need a 78% LTV to request PMI cancellation. So, you’d have to pay down your mortgage to $156,000 to get there. If you’re at the beginning of a loan term, you’d need to shell out $24,000 ($180,000 – $156,000 = $24,000).
If you were paying $100 a month or $1,200 a year for PMI, you could calculate it as a proxy for annual interest on a $24,000 loan. That comes out to an effective interest rate of 5% ($1,200 / $24,000 = 0.05). That’s an amount you’re paying on top of your mortgage interest rate. So, if your mortgage costs 4% in this example, you’d really be paying more like 9% during the years that you pay PMI.
The benefits of accelerating mortgage payments to get rid of PMI decrease if you’re able to deduct mortgage interest and PMI on your taxes.
However, this is an imperfect calculation because it’s doesn’t account for many factors. These include how much extra you pay toward your principal mortgage balance, how quickly equity builds as you prepay it, and any home appreciation.
Also, the benefits of accelerating mortgage payments to get rid of PMI decrease if you’re able to deduct mortgage interest and PMI on your taxes. A fixed-rate mortgage that costs 4% may only cost you 3% on an after-tax basis, depending on your effective income tax rate.
In general, prepaying a mortgage to eliminate PMI ahead of schedule may not help you as much as paying down other types of debt. Depending on where you live, factors such as real estate appreciation and general inflation are likely to work in your favor, making you eligible for PMI cancellation sooner than you may think.
A super simple way to evaluate the interest rate you’re paying for a mortgage with PMI is to tack on a percentage point or two. For instance, if your pre-tax mortgage rate is 4%, consider it actually costing you 5% to 6% tops. Or if you deduct interest and PMI, don’t factor in the tax implications and just consider the mortgage costing you the same as its stated interest rate, or 4% in my example.
If your other debts cost more than these very rough mortgage interest calculations, I’d be aggressive about getting rid of them first. Again, go in order of highest interest rate to lowest.
However, if you have a small outstanding balance that you just want to wipe out, there’s nothing wrong with that. Even if it costs you slightly less in interest, sometimes it just feels good to get rid of a small debt that’s been weighing you down.
What’s most important is that you understand how much you owe, the interest rates you’re paying, and that you have a plan for eliminating debt. Even if you don’t have extra money to pay off debt ahead of schedule, tacking them in the right order helps you save the most interest so you can eliminate debt as quickly as possible.
Starting on Jan. 24, the price of various mail and shipping services will rise.
Standalone long-term care insurance policies can be prohibitively expensive. For that reason, the insurance industry has developed a long-term care rider that can be attached to an annuity. The rider enables the owner of the policy to benefit from both the income provided by the annuity, as well as the long-term care benefit, should that […]
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Furniture can be expensive. Here are the ways we got free furniture for our house and how to maximize each!
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Itâs that time of the year where many of us make — and later break — a new yearâs resolution to lose weight But what if you could get paid to lose weight? Would making money incentivize you to stick with it? Get Paid to Lose Weight in 2019  We all know weight-loss is big […]
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Learn how to get an edge on your saving, spending and borrowing strategies when rates rise or fall.
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Clothes are a basic necessity that also express your style—but building a good wardrobe can be expensive. According to Statisticbrain.com, the average American spends about $120 a month on clothes. No matter if you’re way above or below that number, the challenge is to get the most out of every piece that you bring home.
In this article I’ll give men and women eight smart tips to spend less on clothes and build a better wardrobe at the same time. You’ll learn how to create a wardrobe strategy, know what’s a good deal, how to get deeper discounts, and how to care for what you buy the right way so it lasts longer.
Use these tips to build a great wardrobe for less and protect your purchases so you can enjoy them for years:
Tip #1: Set a “one in, one out” rule
A few years ago I noticed that I kept running out of clothes hangers and my big walk-in closet kept getting more and more crammed. I was adding new items but rarely purging old ones and it was finally catching up with me.
So I created a rule that every time I buy something new, something similar has to go. For instance, if I buy a new pair of shoes, I better be ready to sacrifice an old pair that I haven’t worn in a while. Or if I buy a new sweater, I need to throw one out that doesn’t look so great anymore.
If you want to be aggressive about paring down your wardrobe to essentials, get rid of 2 items for every new one that you bring home. This strategy will really make you reevaluate what you like and wear often versus what’s just taking up space in your closet.
If you truly have a gap in your wardrobe—like no black boots or running shoes—that’s one thing. But in general we tend to buy more and more of what we already have. And the more stuff that’s in your closet or drawers, the easier it is to forget about the good pieces you already have because they get buried.
Decide why you need another top or pair of jeans before you buy it. Is it because what you already have doesn’t fit, is out of style, or just looks shabby? Be clear about why a piece in your wardrobe isn’t working and make the decision to donate it to Goodwill or throw it away before or immediately after you replace it.
Be clear about why a piece in your wardrobe isn’t working and make the decision to donate it to Goodwill or throw it away before or immediately after you replace it.
Tip #2: Create a clothing baseline
While I can’t tell you the exact number of garments you should have in your wardrobe, I recommend that you create a clothing baseline. This is the total number of items in your closet.
I settled on my hanging wardrobe baseline when I got rid of all my mismatched hangers and invested in Huggable Hangers. These amazing hangers are thin so they save space, and have a curved shaped with a non-slip, velvety surface. This prevents the shoulders of tops from getting stretched out and keeps clothes from falling off.
If you saw the 2015 movie Joy, starring Jennifer Lawrence, it tells the story of Joy Mangano who invented Huggable Hangers and many other products that sold millions on the Home Shopping Network and QVC.
These hangers make my closet look more uniform and organized, but they also keep me honest. If you only have 100 special hangers, then you can’t exceed that amount of hanging garments.
For items you typically fold, like jeans, sweaters, or t-shirts, decide how many is reasonable and stick to it. If 10 pairs of jeans is more than enough, make a deal with yourself to throw away any unused pair before expanding your wardrobe to 11 pairs.
The baseline and “one in, one out” strategy helps me stay away from mindlessly buying sale items. Even if something is at a rock-bottom price, I remember that I’ll have to give something up in order to bring it into my wardrobe.
Tip #3: Buy quality basics
I’m a big believer in buying better quality basics. Think about the foundational pieces you wear over and over, like black pants, black shoes, suits, long-sleeved white shirts, or a black sweater.
These wardrobe staples won’t last or look good for very long if they’re cheaply made. A pair of shoes that are trendy, but not well-made or don’t fit well, won’t give you any satisfaction or value and will probably gather dust in your closet.
It’s better to buy trendy items cheaply because they’ll be out of style very soon and just end up taking up space in your closet. So consider buying fewer trends and investing a little more in your basics so they last longer and prevent you from having to constantly replace cheaper versions. That saves money, time, and hassle in the long run.
Consider buying fewer trends and investing a little more in your basics so they last longer and prevent you from having to constantly replace cheaper versions.
Tip #4: Buy clothes that fit now
Never buy clothes that don’t fit you perfectly right now. I always feel like I should be a few pounds lighter than I am. But I know that I’ll feel and look better in clothes that are the right size when I need them.
If you’re in the middle of a big weight loss program or are starting a new exercise program to lose weight or build muscle, I don’t recommend buying key clothing pieces. Wait until your weight and body size stabilizes before investing a lot in your wardrobe and purging items that don’t fit anymore.
Tip #5: Never pay full price
One way to afford better quality clothes is to never pay full price. There are so many sales at top retailers and ways to get discounts online, paying full price should be the exception and not the rule.
If you find a wardrobe staple or something you need right away for a special occasion that’s a perfect fit, color, and style, then I might consider buying it. But it’s likely that you could find the same item or something similar on sale.
If you’re in a local store, don’t be shy about politely asking for a discount if an item isn’t perfect. Any damage that you or a cleaner could easily correct—like a loose or missing button or a stain that probably isn’t permanent—is fair game for at least a 10% reduction.
When I try on clothes in a store or see a handbag that I love, I typically wait and buy it online instead. Not only does that give me time to think about whether I really need the item, but it typically allows me to buy it for less.
When you start your online shopping at free sites like Ebates and Giving Assistant you get cash back. Ebates sends you a check or makes a deposit in your PayPal account for your rewards every quarter. Discounts vary depending on the retailer, so find all the major stores that sell the item you want, and then purchase it from the store that offers the best cash back offer.
Another way to avoid paying full price is to buy out of season. You probably know that if you buy a heavy coat at the beginning of winter, you’ll likely pay much more for it than at the beginning of spring. That’s because season-specific clothes—like bathing suits, summer shorts, and winter coats—hit the shelves about a month early and then are likely to go on sale about halfway through the season.
Retailers have to turn over merchandise frequently in order to make room for the next batch of incoming items. So keep the big picture of the retail industry in mind and resist the urge to pay full price for the coming season. Instead, buy quality pieces after they’re marked down, but that you can still wear.
I know that it can feel strange to buy a wool sweater when it’s hot outside or sandals when there’s still snow on the ground, but filling gaps in your wardrobe in off seasons and using online discounts are the best ways to build a quality wardrobe for less.
Tip #6: Buy easy-care clothes
The more clothing you can buy that doesn’t require expensive, professional cleaning, the better. In fact, many clothes that say “dry clean” can actually be washed at home, if you’re willing to do it carefully.
The more clothing you can buy that doesn’t require expensive, professional cleaning, the better.
I routinely wash wool sweaters, silk tops, and linen items in a cold delicate cycle with a gentle liquid detergent, like Woolite. Never put them in the dryer; let them dry naturally.
You can speed up the process by laying out an item out on a bath towel and then rolling it up, pressing moisture out as you go. Then unroll the towel and reshape the garment on a dry towel or hang up lighter pieces where they can air dry.
Some fabrics, like silk and linen will need to be ironed after they’re dry. Items that I really love are tops that have the look and feel of silk, but are polyester. They can be tossed in a cold, delicate cycle, hung up to dry, and don’t even need an iron to look perfect.
Now, certain types of clothes, like suits and party dresses, must be dry cleaned in order maintain a crisp look and to avoid shrinking. Leave woven wool fabrics or any clothing with delicate stitching, beading, or sequins, to the professionals.
Tip #7: Extend time between cleanings
No matter if you send out clothes to a cleaner or wash them yourself, remember that cleaning stresses fabric and can cause clothes to wear out faster. So forget the idea that you need to wash everything you wear every time you wear it. Extend the time between washes by spot cleaning pants, jeans, shirts, jackets, and dresses.
One trick I use for jackets and blazers is to turn them inside out, spray on a fabric refresher, and let them naturally air out. This works perfectly when the item is basically clean, but just has a little armpit odor.
Febreze is the best known fabric deodorizer and it’s not just for couches and carpets—it works great on clothes. Lysol and Dreft also make fabric refreshers and there are eco-friendly products like Biokleen and Eco Breeze.
Woolite has a product called Dry Cleaner’s Secret, which is an at home dry cleaner for delicate items, like silk, linen, and cashmere that works in the dryer. I’ve never tried it, but it claims to remove odors, stains, and body oils in about 20 minutes.
Another tip is to wear an undershirt or a basic, thin cotton t-shirt under shirts and sweaters. Men usually do this, but women should do it more often when possible.
A short sleeve shirt that covers your armpits is better than a tank or camisole so you really protect clothes from sweat stains and smells. You wash the t-shirt, but may be able to skip washing the garment you wore over it.
See also: Cool Tips to Save Money on Utility Bills
Tip #8: Take care of what you buy
There are many ways to make your clothes last longer and still look great. In addition to washing them less, you need to launder them the right way. Follow laundry basics, of course, like washing like colors together and not over-stuffing the machine.
When you get a stain, the trick to making it disappear is to treat it as quickly as possible with a stain stick, spray, or liquid stain remover. Clorox 2 is one of my favorite detergents because even when I’m sure that a stain has ruined something, if I follow the instructions, it always comes out.
Another tip is to keep clothes with elastic or spandex—like underwear, athletic shorts, yoga pants, and bras—away from dryer heat. Let them tumble on a low setting for a short period of time or lay them out to air dry. Using the dryer less protects your clothes and saves money on your utility bill!
Also make sure that any item with a zipper—like pants, skirts, and hoodies—are completely zipped up before they go in the washing machine and dryer. Zipper teeth can easily pull and destroy other garments in the same load.
If an item that you love does show damage or wear, have it repaired by a professional. Missing buttons, a small run in a sweater, or a worn heel are easy to fix and cost less than buying a new item. I’ve had quality boots re-heeled and re-soled many times and they come back looking like new.
Missing buttons, a small run in a sweater, or a worn heel are easy to fix and cost less than buying a new item.
How you store clothes is also really important for making them last longer. With dry cleaning, remove the plastic bags before putting them in your closet.
Cleaning chemicals can cause fabrics to yellow and weaken over time, so let your dry cleaning air out. For long-term storage for suits and dresses, choose garment bags made from natural fibers like cotton or canvas that can breathe easily.
Building a better wardrobe is about picking pieces that reflect your personal style, are appropriate for the type of work you do, and complement your lifestyle when you’re not working. You’ll get the most bang for your buck when you choose items that can be worn interchangeably with everything else.
Clothes don’t last forever—even when you care for them meticulously. As you need to replace old pieces, it’s a great opportunity to invest in affordable basics and update your look at the same time.
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