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?

Are You Waiting on Your Finances to Change?

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New years’ is just around the corner.  And along with it, a flood of new years’ resolutions about finances.  People around the world will make resolutions to make more money, save more money, and just improve their finances in general.  Something like 45% will fail within 6 weeks.  Within 6 months, a majority will have failed.  They’ll have failed because they’ve given up.  They’ll have given up because they didn’t take action (or enough action) to make the change that they were seeking.

In short, they are waiting on their finances to change.  Somethings are worth waiting for.  Red lights, for instance will change if you only wait long enough.  The weather, if you wait long enough is likely to change as well.  But, your finances aren’t going to change if you only wait on them to.  If you want them to change, you’ve got to make a directed effort to change them.

new years fireworks

If you’re planning on making a resolution this year, and it doesn’t have to be directly related to finances, make one additional resolution.  The resolution to make an effort to fulfill your resolutions!  Make changes, learn about the steps you need to take to get things moving in the direction you want them to go.  Stop sitting around and waiting on your finances to change for you.  You change them!

Sites like this one are chock full of information on improving your finances.  For most sites, you can easily subscribe to email updates.  Here, you can simply enter your email address in the box under “Subscribe” in the top of the sidebar and click on the “Subscribe” button.

Here’s a few posts to get you started.  (hint: you don’t have to wait until new years to start making changes to change your finances)

Got debt?  Get the debt repayment moving with a Debt Avalanche!

Once you get the debt repayment moving, you’ve got to stay gazelle intense!

Debt gone?  First, congratulations!  Now, get your money working for you.  Perhaps investing in something like a Lending Club account?

Whatever you decide to change this year, make your resolution a true resolution and keep going with it.  If you’re still going strong on it at 6 months, you’ve already done better than the majority of your resolution-making peers!

Will you be making resolutions this year?  Have you in the past?  And did you stick with them?

What Christmas Expectations Are You Setting for Your Children?

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What are your children’s expectations for Christmas presents?  Do they expect many Christmas presents under the tree and their every wish to be met?  Do they expect a modest Christmas?

Believe it or not, the answer to this question doesn’t really depend on your kids; it depends on you.  From the time your children are small, you set their expectations, and what you set by example is what they come to know as “normal” (until they get married and find that their partner has a different “normal” than they do, but that is another post).

If you have small children, think carefully about what expectations you want to give your children.  Yes, retailers would prefer that you shop ’til you drop and give your credit card a work out, but it doesn’t have to be that way.  Here are what some people do who have chosen to have a different Christmas celebration than retailers would prefer you have:

1.  Give some new gifts, some used, and some homemade.

Amy Dacyczyn, the original Frugal Zealot and author of The Tightwad Gazette had six children to buy for.  Each child got one new gift.  Then, they got a few gifts that were used items that she had purchased at garage sales and thrift stores.  She also made her children a few gifts.  If I remember correctly, she spent $50 or under for each child.  (Of course, this was 20 years ago, so accounting for inflation, she spent no more than $82 for each child in 2012 dollars.

While you might balk at the idea of giving garage sale gifts for presents, I can tell you that I followed Dacyczyn’s practices when I had my own kids, and some of our kids’ presents are nice finds that we got at garage sales.  My oldest is 8, and he has yet to complain about it because it is what he expects.  He still does get new presents, but there are used ones in the mix.  (I like the term recycled better, though.)

2.  Give a charitable donation instead of gifts.

Ann Voskamp, the blogger behind A Holy Experience, recounts that one Christmas Eve 10 years ago, her son asked her, “Why don’t we give up things so we can give to Jesus for his birthday?”  The question radically changed Voskamp’s way of thinking, and from that year on, her family has foregone giving Christmas gifts to one another.  Instead, each day during Advent they make a charitable donation using the money they would have spent on gifts.

This is a radical idea, to be sure, but it is the norm now for her family.

3.  Only give 3 gifts.

Another idea based in Christian roots is to only give your children three gifts.  Some do this because the Wise Men brought Jesus 3 gifts.  Others take a spin on this and give their children three gifts–something they want, something they need, and something they can experience.

4.  Meet needs as gifts.

Gifts don’t have to be all luxuries and things you want.  When I was growing up, my parents’ money was extremely tight.  I got some new clothes during the back to school season, but my winter clothes and sometimes even my uniform clothing or new backpack were all given as Christmas presents.  I was always excited to get these things and never felt deprived.  My mom told me a few years ago that she had to give gifts this way because money was so tight, but I never knew.  This practice was normal for me.

Christmas gift giving was not always the extravaganza it is now.  As an adult, I reread the Little House in the Prairie books, and I was struck by how happy Laura was to get her very own handmade tin cup and an orange for Christmas one year.

If you are a parent of small children, you can start your Christmas gift giving traditions now, and they don’t have to involve credit card debt you can’t pay off until March or April.

What is your favorite way to give gifts at Christmas?

img credit: South Granville Live on Flickr