What exactly is PMI?

Over the weekend, I received a lot of question regarding PMI insurance. What exactly is PMI and why do people have to pay it?

When you purchase a home, if your down payment on a home is less than 20 percent of the appraised value or sale price, you must obtain private mortgage insurance, known as PMI, with your lender.

The amount of your PMI is about one-half of 1 percent of the loan, according to the Mortgage Bankers Association of America. Mortgage insurance premiums are not tax deductible. PMI is added to your monthly mortgage payment.

So, now that you know the "why" and the "amount", what is it? It's foreclosure insurance that your lender makes you, the borrower pay. (ouch) You just purchase a new home and the lender is making you pay insurance so they recover there loan if you can't pay.

Here's a tip that will save you some money. Keep track of your payments on the principal of the mortgage. When you reach the point where the loan-to-value ratio hits 80 percent, notify the lender that it is time to discontinue the PMI premiums. The Homeowners Protection Act of 1998, which took effect in 1999, requires lenders to tell the buyer at closing how many years and months it will take for them to reach that 80 percent level and cancel PMI. Lenders must automatically cancel PMI when the balance hits 78 percent.

Is the First Time Home Buyer Tax Credit a good thing?

When I first heard about this tax credit, I thought to myself, "who'll qualify for this? No one I know. the window of opportunity is to narrow. You have to purchase your first house between April 9th and July 1st of 2008."

Low and behold, I got an email from my good friend and bicycle mechanic Bill G. today. Bill works on my bike and I do his taxes. (Who's getting the better deal here? I'm getting off track.) Anyway, Bill and his wife Amy did buy their first house between those two dates andthey qualifies for the credit. It's up to $7,500.

On the surface, this looks like a great deal for anyone who qualifies. You'll get this refundable tax credit when you file your 2008 taxes. So do them as soon as you can.

There is a catch. This is really an interest free loan from the government/IRS. You have to start paying back this credit/this loan in 2010 and over a 15 year period. So, assuming you get the maximum credit of $7,500, you'll be paying back $500 a year for 15 years. If you sell your home prior to paying off this loan, the government will get paid off from the proceeds of the sale.

So I ask, is this a good deal or not? An interest free loan is appealing but a loan is a loan no matter what and as the Bible clearly states, the borrower is slave to the lender. (Proverbs 22:7) Personally, I do not want to be in bondage to the government/IRS for 15 years. With that said, if you could / would use this credit to clean up some other debts then this could be a good deal for you. But I have learned that having debt is usually a symptom not the problem in and of itself.

Financial Stress

Recently I've been consulted by a number of people who are experiencing financial stress in their lives. The reasons are all different but the anxiety and pressures are similar. What's a good plan to deal with financial stress?

Here's my advise.

1. Acknowledge that you feel overwhelmend by your situaition
2. Pray for God's help and comfort as you go thought this time
3. Exercise hard. Yep, exercise helps you clear your head.
4. Talk with someone you trust. They are not emotionally attached to the situation like you are.
5. Cut out all extras. Yes, cable TV is an extra.
6. Are there things you can sell on Ebay or Amazon?
7. Talk to those you owe and explain your situation.
8. Never sign or agree to something you don't understand
9. Never allow automatic drafting out of your checking account
10. Talk with your church. Most churches have a "helps / benevolence" fund.
    

Life change continues. . . .

Three cheers for our current Financial Peace University Class. In this weeks lesson, we covered dumping debt. This is one of my favorite lessons. Dave Ramsey spells out 15 debt myths.

Here are my top three myths from this lesson:

1. You'll always have a car payment. I'm living proof that you can save up and pay cash for a car. It really is doable.
2. If I loan money to a friend or relative, I'll be helping them out. (No way) If you do this, you just changed your relationship to master / servant.
3. I can get a good deal on that zero percent interest new car loan. Fact is, that new car goes down 70% in value in the first 4 year and that so called zero percent interest rate is built into the price of the car.

Well, these three debt myths along with the other 12, lead to the destruction of 7 credit cards from this FPU class. These cards are not part of my 200+ destroyed credit cards sitting in my office.

To quote Dave Ramsey, "Debt is Dumb".

A great story on Debt to good not to share

The Wall Street Journal recently did a story on Debt. Titled "Hi, My Name is Fred, and I'm Addicted to Debt.

The article mentions two of my favorite things. Financial Peace University and Granger Community Church.

If you have a few minutes check out the Wall Street Journal article by clicking here.

Credit Card Interest . . . . Well Duh

As I was getting ready to leave the house today for work, I caught out of the corner of my eye some lady on the news testifying about her interest rate on her credit card. I didn't pay much attention to it and went out into the snow.

I looked at the business section of our local paper online and the lead story's title is Card rate changes catch many unaware. The story goes on to tell how this same lady from the news thinks it's unfair that her credit card company raised her rate from 18% to 24.4%.

I'm not going to get into is this fair or why she has a balance on her credit card. My thoughts in all of this is as Dave Ramsey says, Credit Cards Reek. You will never experience financial freedom using credit cards as your emergency fund. 18% or 24.4% it doesn't matter. You have to come up with a financial game plan that excludes the use of credit cards.

By the way, here at NewPointe, we start sign-ups this weekend for Financial Peace University. The next round of classes start Jan. 15th. This class is life changing. I can't wait to get started.

Minimum Payments. What is it costing you?

Let's face it. The interest you pay on your credit card debt is like throwing money away. This is a blanket statement but what is credit card debt really costing you?

If you are making the minimum payment on your credit card each month their's a free tool that shows you just how much this is costing you. Check-out this credit card calculator over at bankrate.com.

Here's an example: If you carry a balance on your credit card of $5,000 @ 12% interest and make the minimum payment each month of 2.5% $125. It will take you 219 months (just over 18 years) and cost you $3,180 in interest to pay off the $5,000. Ouch!

If you could bump up your payments to $200 per month, you would pay this same $5,000 off in 29 months (2 1/2 years) and pay only $782 in interest.

Two points in all of this. One, Stop using credit cards. Two do whatever you can to be able to pay more than the minimum monthly payment each month.

Nana Nana Na, Nana Nana Na, 8 Credit Cards Goodbye

I so excited. Last night during our Financial Peace dumping debt lesson, we cut up 8 credit cards. Way Cool!

I believe that the families who were bold enough to come up in front of our class and say no more to their credit cards are feeling a tremendous sense of freedom today.

Truth be told, I have no idea if these families have credit card debt but the fact they are saying goodbye Credit Cards is a step toward financial freedom.

I'm so very proud and blessed to be part of life change here at NewPointe.

How best to pay down your debt?

There's more than one way to attack your debt. The first step in this is stop borrowing money.

When your ready to get serious about becoming debt free, you need some tools to help you get there. I'm a big fan of Dave Ransey's debt snowball concept. It's the system I used to become debt free.

Just the other day, I came across a new online service, www.debtlogistics.com. This site analyzes your debt and suggests ways to pay it off most efficiently. There's lots of good stuff here for free. You can get a personalized plan for $30. My suggestion is check out the free stuff then head over to Dave Ramsey's site.

One of the happiest days of your life will be the day your can proudly say, "I'm debt Free"