Coffee to Car Payments

How Do You Know Whether You Got a Fair Deal On Your Mortgage?

 I've seen a lot of shady stuff go on in the mortgage business, but one prospect in particular really stood out.  He was a nice guy, going through a divorce, and refinancing to get cash out to get on with his life.  He was very honest with me and told me that he was shopping around.  I told him that I'd give him the most fair deal I could right up front and if someone else offered him a better deal, I'd be happy to review their offer to make sure it was better than what I could do.  Sure enough, another broker offered him a loan and he was beating me by 1/10^th of a point.  This was a $200,000 loan and 1/10^th of a point comes to $8.39/month difference in the payment.  I asked him to fax me the Good Faith Estimate from the other broker so I could compare the fees.  He asked "What's that?".  Well, it's required by law to be sent to a borrower within 3 days of the application but, I gave the other guy the benefit of the doubt.  Maybe our borrower just missed it in the mail.  I told him to go ahead and close the other loan but to get me the Settlement Statement within his 3-day rescission period and I would show him how the other guy beat me.  He could then rescind the loan and go with me.  I didn't hear from him until about two months later.  He said "I finally closed on that loan.  What's your fax number?"  He faxed over the settlement statement and "Oh My God!".  The other broker had charged him a total of $9,000 to do the loan.  My total fees were $2,000.  So, at $8.39/month, what is the break-even point on $7,000?  It's sixty-nine and a half years!  If there is one silver lining to the current economic crisis, it's that these jerks who do five or six loans a year and rip people's heads off via ridiculous fees will be looking for another line of work in a diminishing pool of jobs.

So, how do you know you got a good deal?  I just met someone who has started "Loanzen — the community-driven mortgage information site".  I think it's a great resource because your getting your questions answered by people whose sole motivation is transparency in the mortgage business.

Quit Smoking Your Nest Egg!!!

Been looking for a silver bullet or magic pill?  Try the Sticker Shock Method of quitting.  Thanks to my girlfriend, Sheri, for taking my crude spreadsheet and turning it into the lovely calculator you see here.  All you have to do is enter the amount you paid for your first pack and your age then, your age now and current cost and how many packs per day.  The calculator will tell you how much you will spend on your habit between now and retirement age of 65 based on an annual price increase calculated from your inputs.  You know how it goes.  Every time the state passes a new cigarette tax increase, you scream "That's it!!  I'm quitting."  Maybe you do but then you bum one from a friend.  Then you bum another.  Then you're embarrassed for bumming so you buy a pack.  The tax increase wasn't that big of deal after all.  No matter how ridiculous the results look on here, remember they are based on what has already happened to you. 

What age did you start smoking?
How much did you pay for your first pack?	$
How old are you now?
What do you pay per pack today?	$
How many packs/day do you smoke?
Annual Price increase:
Years projected into the future:
By the time you retire at age 65, a pack will cost you:	$
for a total annual cost of:	$
By that time you will have spent a total of:	$
which, had you invested earning 7% would be:	$

Not a bad nest egg.  Is it?  Well, that's the real cost of your next cigarette.  The spread sheet I referenced above was one that I put together for myself based on my own addiction.   The cost of my next cigarette is $178,238.93 and if invested means close to half a million bucks for me in retirement.  After calculating it for myself, I wanted to provide the same resource for other people who may be trying to kick the habit and could be motivated by money. 

Are You a Rancher or a Dairy Farmer?

If you answered "vegan", go ahead a read this anyway.  I'm just trying to make a point.

Yesterday I attended a meeting of the Cash Flow Investors Group here in Des Moines.  It is a great group of individuals who meet to share ideas and learn together how to become financially independent.  The "lead learner", Jeff, was presenting ideas on cash flow and introduced an analogy I found very intriguing.  He was comparing how differently a rancher and a dairy farmer make use of the exact same asset, a cow, to produce different results.

A rancher raises cattle for the sole purpose of selling them for their meat.  A rancher will spend anywhere from 3 to 5 years feeding them, keeping them healthy, and fattening them up for the big payday.  The primary motivation is capital gains.  The herd is all about numbers.

A dairy farmer, on the other hand, takes care of the herd, pampers them, and makes sure they are comfortable and happy so they they will produce milk regularly for 7 to 9 years.  During this time, the dairy farmer is generating income from the milk.  But guess what.  25% of all the beef consumed comes from dairy cows.  So, just like the rancher, the dairy farmer still has their big payday too when they take the cows to market that are no longer producing milk.  Their primary motivation is cash flow and producing income but they still get the capital gains and held on to the asset nearly twice as long.

Focusing solely on capital gains is a "rancher" mentality.  It makes a lot more sense to me to look at your money as a vehicle that will get you where you want to go.  Look at it like a dairy farmer looks at a cow.  How can you make your money produce an income stream for you and still have an asset that you can sell later on for even more profit.  Treat your money with respect and protect it and it will take care of you.

Dairy farmers click here to contact me.

Static to Dynamic: What's a Sweep Account?

What normally happens when you get your paycheck?  If you're like a lot of people, it gets deposited into your checking account.  From there, you manage all of your spending.  You first make sure that you meet all of your monthly obligations (credit).  These are static obligations.  Then, you probably have a pre-determined amount that you allocate to savings for vacation, college, and unforeseen expenses.  Then there's the long-term investments that you don't plan to touch until retirement.  The money that's left is what you spend on groceries, coffee, dining out, and clothing.  This money is your everyday spending.  You've been doing it for so long that it's practically automatic.  You've got it figured out.  It's called a budget.

What if there were an easier way to make your money work harder for you?  Check this out. This chart shows you how businesses and higher-net-worth individuals manage their cash flow using sweep accounts.

What does this mean to you?  Well, your home is likely the biggest investment you'll ever make, and the Home Ownership Accelerator is a sweep account linked to your mortgage.  It works for ordinary people with ordinary income, generally positive cash flow, and equity in their home.  It makes the money that would have gone to interest go to principal instead.   The result is a significant interest savings over the life of the loan, and more rapid equity buildup in your home.   The last and most important benefit is your mortgage is  "cheap money".   You can also systematically divert a portion of the equity you are rapidly accumulating to outside investments and still watch your mortgage shrink and your supplemental nest egg grow.

You've done it by switching your biggest investment from a static obligation to a dynamic tool to manage your money more effectively without any extra effort or change to your spending and lifestyle.