Beating Broke

Personal Finance from the Broke Perspective

Mortgage Insurance; Annoyance or Helper?

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One of the things that I’ve learned a little bit about since we bought our house, was something that I didn’t have a clue about when we first started looking.  Heck, I didn’t even have a clue about it after we bought out house.  Mortgage insurance was just something that the mortgage officer told us we had to have, so it got added.

For a long time, I just thought it was an annoying little fee that they (the lenders) added on to the mortgage payment to squeeze a few extra dollars out of me.  In some ways, that’s correct.  Much like any other insurance, it’s really only there in the case of a real need for it.  If you don’t ever need it, it feels like you’re paying a bunch of money to someone for something you don’t need.  If you do end up needing your insurance, though, it can truly be a lifesaver.

Unlike some of the other insurances you’ll buy, mortgage insurance doesn’t really protect you.  With car insurance, or health insurance, the direct beneficiary is you.  If you get into a car accident, your car insurance will help pay for repairs, and your health insurance will help pay for medical bills. With mortgage insurance, if you need it, it’s really the lender that will benefit.  The way it works is much like any other insurance.  But, when an accident happens, and you default on your mortgage, the insurance pays off the mortgage to the lender.  It’s protection for the lender against default.

Generally, you only have to carry mortgage insurance until your loan-to-value is below 80%.  Come up with 20% down payment, and you won’t even see it.  Some lenders will automatically take it off of the mortgage once you fall below that 80% LTV, others won’t, so you need to keep an eye on the loan and make sure that it’s being removed when it should.  Most first time home-buyers will have some form of mortgage insurance on their loan.

Is mortgage insurance an annoyance or a helper?  I think it’s a little bit of both.  You’re buying insurance which only benefits you in that it may allow you to pay a lower down payment than normal.  It’ll mean that you don’t get the mortgage paid off as quickly as well since you’ll not only start with a larger loan, but have a chunk of your monthly payment siphoned off.  It also helps in that it does help you get a loan with a lower down payment because it assures the lender that the mortgage will be made good should you default.

Do you have mortgage insurance on your mortgage?  Do you think it’s more of an annoyance or a helper?

Using Youtube for DIY

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When you think about DIY, it’s not very likely that the video site, Youtube comes to mind right away.  If you’re thinking anything video related, you’re probably thinking about television stations like HGTV or the aptly named DIY Network.  Youtube, however, can be the best friend you’ve got when it comes to DIY.

This new age we’re entering where information is super duper easy to disseminate means that we can hop on the internet and find just about whatever information we need.  And that includes how-to videos on just about any DIY project you can imagine.

When I was working at a computer repair shop last winter and spring, one of the things that I did on a regular basis is search on Youtube for the steps to replace a part on a computer.  Each computer manufacturer makes their machines a little bit differently.  It’s very evident in their laptop models, so often, what will take one apart will break another.  Faced with a new model, the easiest way to figure out what you’re doing before you end up replacing it for a customer is to do a quick search for a repair video.  Just about every time, you’ll find a video of a technician doing the exact same repair that you’re about to do.

Armed with that knowledge and experience, one of the first things that popped into my head when our clothes dryer stopped heating up two weeks ago was to see just how hard it would be to replace the heating element.  A couple of videos later, I was reasonably confident that I had the skills necessary to make the repair myself.  I ordered a new heating element and a new non-resettable fuse (just in case that was the problem and not the element) from Amazon.  The parts totaled less than $40.

Once the parts arrived, I was able to make the repair to the dryer in about 45 minutes.  Probably a bit longer than a technician that repairs appliances all the time, but for me, a pretty reasonable amount of time.  Once the new parts were in place, and the dryer was put back together, I hooked it back up to the vent and the electrical and gave it a test spin.  And it heated up!  I win!  😉  For less than $40, and about an hour of my time (if you include the time spent watching the repair video), I was able to successfully make the repair.

I don’t know how much it would have cost to have the local technician come and repair the dryer, but I can guess that the part alone would have cost almost twice what it did for me to order it.  Even if I guess conservatively, the labor would probably cost me about $50.  All told, it could have cost me about $100-$150 to repair the thing.  We bought it used, for about $200, so that wouldn’t have been a very smart thing to do.  And, if it had come down to having someone repair it, you can bet I would have looked at the cost of a new, to-us, used dryer first.

It’s not the first time that I’ve used a Youtube video to learn how to repair something.  Remember when I repaired my iPad myself?  Guess how I learned how to do that!

Have you ever used a Youtube video to learn how to DIY something?

3 Ways Young Homeowners Can Save $3745 (at least) Each Year

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If you recently bought your first home let me congratulate you. This is possibly the very best time to buy real estate that you’ll ever see in your lifetime. You made a smart move. And because you are a smart real estate investor, I know you’ll be interested in taking advantage of the following 3 ways young homeowners can save even more “moolah”.

1. Home Warranty

I owned a home warranty program for years and it was a waste of money. Of course it felt great not to have to worry about running into major unexpected expenses, but the cost just didn’t justify it. First of all, you are stuck with any repair person the home protection company sends out. Next, the deductible you have to pay is often pretty close to the amount you’d have to pay to a contractor of your own choosing. Last, when you do have a major repair, you are stuck (again) with whoever the company sends out unless you are willing to go through a great deal of red tape.

You’re always responsible for upgrades, code changes and any problems associated with misuse or poor maintenance. I cancelled my home protection plan several years ago and it turned out to be a fantastic decision. If you follow my lead on this, you’ll save at least $600 a year.

2. Life Insurance

If you are a young homeowner you might have a young family or plan on having one. As a result, you definitely need life insurance. But when it comes to term life vs. whole life – play it smart. Term life is your best friend. It’s cheap and it does the job. It’s true that at some point (20 or 30 years down the road) your term insurance will expire. But by that time, you may not need life insurance anyway. Term life is so much cheaper than whole life that you can take that savings and invest it. This way probably you’ll have much more than the whole life promises.

One of the biggest problems with whole life (and I feel it’s criminal) is that agents sell you the whole life you can afford because it pays them a whole lot more commission. (Maybe that’s why they call it “whole” life.) And because it buys a great deal less insurance than term, people end up dangerously under-insured. You could save several thousands of dollars each year and have better coverage just by having term instead of whole life insurance. Look into this ASAP.

3. Good Credit Score

Because you are a young homeowner, you’ll be using your credit for a very long time. And you might have to lean on that plastic a lot right now to pay for all that new furniture and appliances. If you able to get even a slightly better credit score, you might end up savings a bundle every month. That’s because a higher credit score will help you get lower interest rates on credit cards and mortgages.

Find out what your score is and make sure there are no errors. If there are mistakes, fix them. You can easily do most of this without paying a cent. You can even get your credit score for free and sign up for services that provide updates whenever there is a change to your rating. This has helped me a great deal.

As a young homeowner you might be facing some pretty hefty expenses and that can be daunting. Take these 3 steps. Dump the home protection plan. Get rid of your whole life insurance and buy term instead. Finally make sure your credit score is as high as possible.

Will you save $3745? I don’t know. You could save a lot more. You’ll never know until you start taking action.

What are the biggest expenses you face as a young homeowner? What have you done to reduce those costs?

This was a guest post written by Neal Frankle. He is a Certified Financial Planner ® and owns Wealth Pilgrim – a great personal finance blog. He writes extensively about ways to help people make smart financial decisions. One of his most in-depth posts was his review of CIT Bank.