Is a Shorter Mortgage Smarter?

With today’s low interest rates, more borrowers find shorter-term options affordable. The monthly payment for a 15-year, fixed-rate $100,000 mortgage at 5.38% is $811 (principal and interest only), compared with $600 a month for the same amount borrowed for 30 years at 6%.

While the 15-year mortgage takes a bigger bite out of your monthly budget, it allows you to drastically trim the interest paid overall. In this example, you’d pay the lender nearly $70,000 less in total interest with a 15-year mortgage than you would over 30 years ($45,931 vs. $115,838).

If you can afford higher monthly payments, should you go for 15 years? Earlier freedom from mortgage payments and immense interest savings are two reasons for doing so. But before deciding, you need to ask yourself a few other questions:

Is there a better way to use that money?–When you put extra money into house payments, it’s like earning a return on that money equal to the mortgage rate, notes Jack Harris, research economist at the Real Estate Center, Texas A&M University, College Station, Texas.

“If that amount could be invested somewhere else at no risk at a higher rate,” he advises, “then you should pass on the 15-year mortgage.”

Do you need the bigger tax break?–You pay off a 15-year mortgage sooner, and thus the interest portion of your payments dwindles faster than with a 30-year. Same goes for your tax deduction for mortgage interest.

But for many borrowers, the tax break issue isn’t crucial and gets overplayed, Harris contends. “A lot of homeowners don’t even take the tax break” because it doesn’t exceed the standard deduction.

Is your income variable?–If so, you may want to avoid locking into higher monthly payments. You could fall short some months, risking default.

Keep Credit Intact: Dispute Report Errors

An error on your credit report can cost you more than just the time it’ll take to correct it. That error also could result in a lower credit score, which could mean you’ll pay higher interest rates on loans or be denied outright. Getting slapped with an undeserved high-interest rate happens to about 5% of consumers who have credit report errors, according to newyorktimes.com.

Credit reports and credit scores, while different, work in sync. A credit report shows your credit activity over time. It shows if you owe money and to whom. It also shows whether you make payments on time or if you’re late; it shows if you’ve stopped making payments altogether. Based on information in your credit report, a credit score is a three-digit number lenders use to assess whether or not to offer you credit and at what price. Negative credit information, accurate or inaccurate, can result in a lower score.

If you have a low credit score, you’ll pay more to acquire a loan, but that’s not the only way a low score affects your finances. A low score also can result in not being able to rent an apartment, get affordable insurance coverage, or get a job.

The first steps in making sure your score is the score you deserve are to review your credit report for accuracy and to report any discrepancies, according to the National Foundation for Credit Counseling (NFCC), Silver Spring, Md. Follow this advice to make sure your report is clean:

* Check your credit report. You can request one free report a year from each of the three major credit reporting bureaus by visiting annualcreditreport.com. This is the only website officially authorized to provide credit reports. You also can call 877-322-8228 or complete a request form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Stagger the reports every four months in rotation so you can keep tabs throughout the year. Review your report at least three months before you make a potentially affected financial move so you have time to dispute any errors and have them corrected.

* Review your report for accuracy. Look for errors, large and small, as well as omissions such as an account that you paid but didn’t get credit for. Verify the basics such as name, Social Security number, and address.

* Know your rights. The Fair Credit Reporting Act (FCRA) gives you free access to your credit report within 60 days if you’ve been denied a loan, insurance, or a job based on information in your report. It’s up to you to initiate the dispute process.

* If you find an error, file a dispute with the credit reporting agency. File the dispute in writing so you will have a paper trail. In your dispute, include your full name and address, what you want investigated, the disputed items, and an explanation of why you think the information is inaccurate. FCRA generally requires credit reporting companies to investigate items in question within 30 days to 45 days of when the dispute was filed.

* Understand that accurate negative information won’t be removed. Negative information that is true will stay on your report. Credit reporting agencies can report most negative information for seven years; bankruptcies can remain on your report for 10 years.

* Stay clear of credit repair companies. There is no such thing as a quick fix and there’s nothing that a credit repair business can do for you that you can’t do for yourself–for free. Most credit repair companies charge high fees and rarely deliver results.

For help reviewing your credit report ask the staff at Hopewell Federal Credit Union or call an NFCC member agency certified counselor. Call 800-388-2227 to be connected to an agency in your area, or visit DebtAdvice.org.

Saving for the Season: Tips for Curbing Holiday Travel Costs

The holiday season is a time for celebrating with friends and family, but the stress of paying for all of those gifts, meals and trips can put a damper on the festivities. Getting to Grandma’s house (or that relaxing beach) isn’t as cheap as it used to be—airfare and hotel prices tend to skyrocket around this time—but a little advance preparation can make a big difference when it comes to travel costs. Here are some of the best ways to save on your holiday getaway so you can focus on the fun stuff.

Travel Rewards Credit Cards
These credit cards are a great way to pay for holiday travel since your purchases throughout the year can actually help you pay for that holiday vacation. You can maximize the possible rewards value by approaching the use of a credit card strategically. Decide in advance which rewards are most important to you: air fare, hotel points or plain old cash. Make sure you know how to effectively build up rewards; by figuring out the best ways to use those cards throughout the year you’ll wind up with more rewards in place come holiday travel time.

Lowering Costs
When it comes to purchasing plane tickets, it’s always worthwhile to ask, am I saving enough? Tweaking the days you’re willing to fly is an important way to get the cheapest rates, and booking plane tickets the right amount of time in advance is key. Typically between 3-4 weeks in advance of your trip is the optimal time to book, so for Thanksgiving, you’ll want to start looking in October.

Avoiding the most popular travel dates is equally crucial. The day before Thanksgiving is one of the busiest flight days. Thanksgiving itself, though, is comparatively cheaper. You may think traveling on Thanksgiving day would cut into your enjoyment of the holiday, but your feast and family time might be all the more enjoyable if you got a sweet deal on airfare. The same holds true with Christmas or other holidays. Keeping your itinerary flexible can result in major airfare savings.

If you need a hotel or rental car as well as a flight, bundling those bookings can save you serious money. Not all airlines or travel sites offer the same promotions, but for many, a package deal receives the same discounts as tour operators. Taking a few extra minutes to check out packages offered on different travel and airline sites can yield big savings.

Savings Accounts
One way to take the pain out of planning for holiday travel costs is to spread out the financing over several months. Around the time of the Great Depression, banks began to offer Christmas Club accounts, in which people would deposit small amounts of money throughout the year. The funds could only be accessed without penalty after the beginning of the holiday season. Christmas Club accounts are still available, most often through credit unions. You won’t get much (if any) return on your money, but interest rates aren’t the point. The benefit of a Christmas Club account is that once November rolls around, you’ll know you have a pile of cash squirreled away to pay for holiday travel.

If your financial institution doesn’t offer Christmas Club accounts, you still have other options. You can do the same thing with a regular savings account—you’ll just need the discipline not to access the set-aside funds without the deterrent of bank-enforced penalties. Or you can open a short-term CD. If you get a tax refund in March, put that money into a 6-month CD and the CD will mature in the fall, just in time to help you pay for plane tickets or car rentals.

Travel costs don’t have to take the joy out of the holiday season. With some patience and advance planning, you can skip the stress and get straight to sweet treats, time with the family, or that relaxing white sand beach.

Sara Collins is a writer for NerdWallet, a personal finance site that helps readers stay informed about subjects like understanding section 529 college savings plans

 

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