Save Money on Your Mortgage
How Much Homeowner Insurance is Enough?
Don't Dip Into Home Equity for Luxury Items

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Save Money on Your Mortgage

There are several ways you might be able to save money on the next mortgage you secure. For starters, you might "assume" the existing mortgage on the house you're buying, if there is one. This is a good deal if the existing mortgage is at a lower rate than prevailing interest rates. To do this, you'll need to make sure the existing mortgage is "assumable" or transferable. And you'll have to come up with whatever difference there is between the purchase price and the outstanding debt. You might do this by tapping your nest egg, if it's large enough, or by taking out a second mortgage.

Another option is "seller financing." Here, you make your monthly payments to the seller, not to an institutional lender. The advantage is you can often arrange a lower interest rate — especially if the seller has had trouble selling — and avoid the many costly administrative fees involved with financial institutions. (If the seller has had trouble selling, though, find out why!) In addition, you avoid private mortgage insurance.

Why would a seller take on risk of this kind? It's actually not all that risky. The house is the collateral. Default on the loan, and the seller keeps the house — just like a bank would. Sellers might also appreciate getting regular checks from you over time, rather than a lump-sum payment — it'll be an additional income stream. And depending on the seller's circumstances, this arrangement might also save him or her some capital gains tax. One drawback: Sellers typically will want a shorter term than the traditional 30-year mortgage.

You might also save some money by playing with points and other elements of the mortgage. Perhaps you could pay more discount points and get a valuable lower rate. You might consider a 15-year mortgage rather than a 30-year one.

It's also effective to pay off your mortgage sooner than you're scheduled to. The more you pay, the less you owe. And, the less you owe, the less interest you'll pay.

Finally, remember that mortgage lenders want your business and will usually compete to get it. Don't be afraid to negotiate. Let one know what another is offering you. Don't assume that published rates are final. If your credit record is good, you'll be in a particularly strong position to negotiate. Knocking a quarter of a percent off a published interest rate is a reasonable goal.

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How Much Homeowner Insurance is Enough?

We're just a month away from the beginning of another hurricane season (June 1), and after the devastation wrought by Hurricane Katrina, plus the recent Spring storms in the Northeast, more and more Americans are worried about whether their homes are adequately protected in case a similar event occurs. So how do you know how much homeowner insurance is enough?

First and foremost, you should contact your insurance agent or company representative at least once a year to make sure your homeowner insurance is up to date. When you do, there are three questions you should ask your agent:

1. Do I have enough insurance to rebuild my home? Make sure your policy covers the cost of rebuilding — and don't confuse the real estate value of your home with what it would cost to rebuild it in case of damage. Remember, most standard policies, which usually cover disasters such as fire or hurricanes, do not include flood coverage. Consider buying coverage from the National Flood Insurance Program, or buy additional coverage from your carrier. Don't think that just because you are not in a flood zone that flooding couldn't happen to you. Millions of Americans learned this the hard way over the past decade when flooding occurred for the first time in their neighborhoods.

2. Do I have enough insurance to replace all of my possessions? If something happens to your home, the things inside aren't going to be in very good shape either. If you have insurance, most standard homeowners policies will cover personal possessions for approximately 50% to 70% of the amount of coverage you have on the home's structure. That may not be enough for you, so conduct a home inventory to detail everything you own. Determine the estimated cost of replacing all of these items. Then consider getting a cash-value policy to cover the cost of replacing your belongings minus the depreciation, or a replacement-cost policy, which would reimburse you for the full current cost of replacing your possessions.

3. Do I have enough insurance to protect my assets? Your homeowners insurance protects your house and belongings, but it's also there to protect you against lawsuits. If someone suffers an injury on your property and decides to sue, the liability insurance will cover your legal fees and any damages you may have to pay. You should make sure you have enough liability insurance to protect all your assets so you're not on your own in case you are on the losing end of a lawsuit.

A number of home and business owners hit by the recent massive spring storms in the Northeast are discovering yet another type of coverage they didn't know they needed — sewer-backup insurance.

As flood waters and runoff overwhelmed many sewer systems, sewage backed up in resident's bathrooms and basements. But some property owners are learning they aren't covered for backed-up sewage unless they have a special rider, which costs typically around $40 to $50 per year for $5,000 worth of coverage, added onto a typical homeowner policy.

The two assets you need to protect are your home equity and retirement savings. Don't tap into these for luxury items such as swimming pools, hot tubs, and add-ons that are more for personal pleasure than you'd ever expect to gain when it comes time to re-sell your home.

A pool or hot tub are nice, and you should have one as soon as you can afford it. Figure out how much it's going to cost, and then figure out how to pay for it. Target dates help make things happen; set one for the pool acquisition (if that's your goal).. but DON'T Tap into your home's equity for this. Luxury items should not be financed with debt.

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