Understanding Your Mortgage Payments

Whether you’re in the process of applying for your first mortgage, or you’ve owned your home for a while now, it’s important to have an understanding of the components that make up a typical mortgage payment.

 

Principal:

A portion of each mortgage payment is dedicated to repayment of the principal balance. The principal is the dollar amount of the loan you received from your bank or lender to purchase the home. This amount does not reflect interest or fees. As you make your mortgage payments over the years, the principal on your statement will lessen as a portion of your payment is applied to it.

Loans are structured so the amount of your payment applied to the principal balance starts low and increases with each payment. You’ll pay less toward the principal each month at the beginning of the mortgage and more toward the principal at the end of the mortgage term.

 

Interest:

The interest portion of your monthly mortgage payment is the fee from the lender for borrowing money to purchase your home. The interest rate on a mortgage directly impacts the dollar amount of the mortgage payment. A higher interest rate means higher mortgage payments, the best time to buy a home is when interest rates are low. If you have a fixed-rate mortgage, your interest will stay the same during the life of your loan, and an adjustable-rate mortgage (ARM) will increase or decrease over time.

 

Taxes:

In addition to principal and interest, monthly mortgage payments may include an added amount for property taxes. Your home’s property taxes are determined by the local government based on the value of your property, and that number is affected by factors including the size and condition of your home as well as your property’s location.

These taxes fund public services such as public schools and road maintenance. Taxes are calculated by the government on an annual basis and can be divided up and paid as part of your monthly mortgage payment. Your lender will collect the payments and hold them in an escrow account  until the taxes are due.

 

Insurance:

Similar to real estate taxes, insurance payments are made with each mortgage payment and held in escrow until the bill is due. There are two types of insurance coverage that may be included in a mortgage payment, Property Insurance and Private Mortgage Insurance (PMI).

• Property insurance is required on most mortgages, which protects your home and its contents in the event of a fire, theft, and other disasters. The amount you owe for homeowner’s insurance coverage is determined by the policy you selected. 
• PMI is mandatory for homebuyers who put down less than 20% of the purchase price of the home at closing. This type of insurance protects the lender in the event the borrower is unable to repay the loan and/ or defaults on the mortgage. PMI costs can vary and can be dropped once the borrower has at least 20% equity in the home. 

We hope this brief overview helps you gain a better understanding of where and how the funds from your monthly mortgage payments are applied. This info may even help you find ways to pay off your loan and potentially save yourself some money in the long run.

AFFCU has been helping members purchase or refinance homes with a variety of loan options including fixed and adjustable rates, FHA, and VA loans – all with competitive rates and closing costs to allow you to make the most of your budget. 

If you’d like to save for your child’s future higher education expenses while also reducing your tax liability, consider opening a 529 plan. They come in two basic varieties: the college savings plan and the prepaid tuition program. Both are easy to set up and offer the same tax advantages.

College Savings Plan:

Every state has at least one 529 savings plan available. You may use whichever state’s plan you like, and can use the money you save and invest at any accredited college or university in the United States.

Each state’s college savings program offers several different investment choices, so shop around for the plan that best meets your financial and educational needs. For example, some begin with aggressive investments and gradually become more conservative. Others offer a “guaranteed option” which protects your principal, but also provides for some investment growth.

 

Prepaid Tuition Plan:

Prepaid tuition plans allow you to buy all or part of a public in-state education at today’s prices. The value of the investment is guaranteed to at least meet college tuition inflation. This can give you a lot of peace of mind. The plans offer a better rate of return than savings accounts and certificates of deposit, involve no risk to principal, and often are guaranteed or backed by the state.

Pre-paid tuition plans are offered by individual states (although not every state has one). The tuition guarantee is based on an enrollment-weighted average of that state’s public college tuition rates. Therefore, if your child does go to an in-state public college, the plan will cover his tuition and fees. However, if he attends a private or another state’s public college, the plan will pay the average of the in-state public college tuition. In other words, you won’t lose the money, but there may not be enough to cover the new institution’s cost. In that case, you’ll have to come up with the difference.

 

Tax Advantages – and Drawbacks Plan:

With both college savings and prepaid tuition plans, as long as you use the investment for qualified education expenses, you won’t have to pay income tax on the earnings. For the savings plans, qualified expenses include tuition, books, supplies, and room and board if the student is enrolled at least half time. In contrast, the prepaid programs typically just cover tuition and room and board. If you use your own state’s plan you may also qualify for a state tax deduction. Your contributions, however, are not deductible on your federal tax return.

If you take any money out for non-educational purposes, the earnings portion of the “non-qualified” withdrawal will be subject to income tax, and you’ll have to pay a 10 percent penalty tax. Some states even add an additional 10 percent penalty for early withdrawal.

 

If Your Child Doesn’t Need or Use the Money:

If your child does not end up going to college, you can change the beneficiary to another qualifying family member who will go. Doing so will enable you to avoid the expensive penalties for non-qualified withdrawals. Also, if your child receives a scholarship and doesn’t need all or some of the funds that you saved in the plan, you won’t be penalized for the remainder of the money you withdraw.

Be aware that if the person for whom the account was originally intended dies or becomes disabled (and you don’t transfer the account to someone else), you will not be charged the penalties when you terminate the account and withdraw the funds.

 

Who Can Use 529 Plans:

Everyone is eligible to take advantage of a 529 plan. There are no income limitations or age restrictions. While most people use these plans to save for their children, you may use them for anyone, including yourself.

 

529 Plan Management:

One of the advantages of a 529 plan is that you don’t have to do much to manage the account. Either the state treasurer’s office or an investment company that is hired as the program manager does that for you. All these professionals come with a price though: management and fund fees can be high, and in some cases even outweigh the plan’s benefits. Also, several plans charge one-time enrollment fees, which range from $10 to $90.

 

How to open a 529 plan:

To know what each state is offering and to compare and contrast plans, visit the College Savings Plans Network’s website: www.collegesavings.org, or Savingforcollege.com at www.savingforcollege.com. Many financial institutions offer information about 529 plans, and the option to enroll in the plan with them as well.

After you decide which 529 plan to use, you just need to complete a simple form and make your first contribution – which can be as low as $25. Be sure to sign up for automatic deposits to make savings easy.

Saving for college with tax-advantaged investment vehicles makes good financial sense. Higher education can be a major expense, and saving and investing early will help you achieve this goal efficiently.

Get the money you need to help make higher education happen. Student loans from AFFCU in partnership with Sallie Mae® could help!

Finding financing:

Due to the high cost of college tuition many families are unable to pay for college with savings alone. Traditionally, student loans have provided an important avenue in allowing students to be able to go to college. Even though paying for school may seem like a daunting task, there are several steps you can take to find financing:

• Talk to your school’s financial aid office. Employees at financial aid offices are trained to help people find financing for school and have dealt with many others in the same situation as you. Ask them what options are available for your financial circumstances.
• Look for scholarships and grants. It is a good idea to look for scholarships and grants regardless of how easy it is for you to find student loans. Why borrow when you do not need to? High school guidance counselors and college financial aid offices usually have information on available scholarships and grants. Information is also available at www.finaid.org.
• Consider a home equity line of credit or loan. For parents with a significant amount of equity in their homes this may be a good way to help finance college. Interest rates are usually fairly low, and the interest is tax deductible as well. However, it is important for those considering this option to remember that home equity lines and loans are secured debt. You could lose your home if you do not make payments.
• Stay informed. It seems that the laws surrounding student loans change every few years. Watching or reading relevant stories in the media will help you to be better aware of what your options are and what new opportunities are created.

 

Preparing for the future:

For parents, the current student loan crunch demonstrates why it is a good idea to save for college. Even if student loans are readily available when your children go to college, saving allows them to rely less on loans, which they will need to pay back after they graduate. If you are saving for college take advantage of available tax-saving vehicles.

For example, 529 Plans, Coverdell Education Savings Accounts, and Series EE Savings Bonds (issued by the Department of the Treasury) allow you to invest savings for college and not pay taxes on earnings, as long as the funds are used for qualified education expenses.

College tuition is high, and paying for college is often not an easy task. However, there are several options for funding available, and being well informed can help you prepare for and manage this cost.

Get the money you need to help make higher education happen. Student loans from AFFCU in partnership with Sallie Mae® could help!

Home Improvement Hacks

With the season changing, you may think that your home needs a facelift, but are dreading the costs. You don’t have to spend a fortune to give your house a great new look. We’ve put together a list of home improvement ideas that can save you some money.

Update your fixtures

Whether you have a newly built home or own a pre-existing home, your lighting and plumbing features could use a modern look. Visit your local home improvement store to see their selection of fixtures that fit your price range. You can easily replace an outdated facet or light to give your house a better look without breaking a sweat or the bank.

Pop of Color

Your interior walls may need a fresh coat or your high traffic rooms could benefit from an accent wall. All you need is some paint, brushes or rollers, painter’s tape, and some covers to keep paint off of anything that isn’t the wall.

Transform your cabinets

Don’t feel like you need to drop a lot of money to replace your cabinets. You can sand, stain, and paint the cabinets to look completely new. You could also switch out the knobs and hinges for a modernized look for a fraction of the cost. 

Go Green

Improving your home’s energy efficiency can give your house a stylish look and save you money down the line. Eliminate drafty doors and windows with some strips of insulation. Seal cracks around light switches and electrical sockets to prevent energy losses.

Change your Countertops

Changing your countertops can make a big difference, but they’re also incredibly pricey. Instead of shelling out big bucks, try covering them with contact paper. These DIY dupes let you easily add a chic look to your house. 

Add Backsplash

Take your kitchen and bathroom walls up a level by adding some peel and stick backsplash. These tiles come in beautiful patterns and colors to eliminate the time-consuming design process. You can pick up the self-adhesive tiles and caulk from Home Depot or Lowes.

These hacks can help you give your home a beautiful upgrade for a small amount of money. If you’re considering some major home improvements with a higher price tag AFFCU can help! We offer Home Equity Loans with low rates and flexible terms to help you renovate for less. You can find more home improvement hacks and inspiration on Lowes, Home Depot and HGTV YouTube channels.

Dealing with Medical Bills

When you or your loved ones are sick or injured, your top priority should be your health, but more often than not you’re more worried about the cost you’ll incur. Even if you have health insurance, you may receive a hefty medical bill that can make you feel like an ominous cloud is hanging over your head. 

We’ve put together some advice on how to manage, dispute, and pay your medical bills.

Check the bill

Carefully go over your bills for errors to ensure you’re not getting billed for a treatment you haven’t actually received. If you suspect an error, you may want to ask your provider for an itemized bill for a detailed breakdown of all the costs charged to you.

Review your coverage

Your health insurance provider will present you with an Explanation of Benefits (EOB) along with the bill of the remaining amount. The EOB will tell you what charges you’re responsible for paying. Make sure to go over this document to confirm that your insurance company paid for everything covered in your plan. 

Dispute errors

If your medical provider billed you incorrectly or your insurance did not pay for a procedure or treatment that is covered under your plan, call the company’s billing department to speak to a representative about the discrepancy. 

When you make the call, be sure to have your bill in front of you and keep a careful record of who you spoke to, when you called, and the contents of the conversation. Be prepared to make multiple phone calls until you reach a party that can actually effect change. 

Negotiate the balance

After you’ve reviewed and corrected any errors of the bill, the amount you owe can still be unmanageable. There’s no need to panic because you still have some options. Ask about a discounted rate if you offer to pay the whole amount up front or in a short time period. You may be offered or could ask for a payment plan that allows you to spread out the total bill in installments over several months or years to make the total cost more manageable.

Figure out funding

Once you’ve received your final bill amount, it’s important to pay your balance. We recommend avoiding putting the cost on a high-interest credit card so you don’t max out your available credit. You also don’t want to forget or ignore the bill because The debt caused by medical bills can have a major impact on your credit. While the bills can seem intimidating, remember there are many things you can do to get a hold of and manage these expenses.

Some of your payment options include; using your Flexible Spending Account (FSA) or Health Savings Account (HSA) funds to cover the costs, looking over your budget and finding funds you can set aside to make payments toward your bill, or taking out a loan to take advantage of low-interest rates and flexible terms. AFFCU offers a Lifestyle Loan that can help you cover medical costs that insurance may not cover and we’ll send the funds directly to the provider.

Refinancing is the process of paying off an existing loan with the proceeds from a new loan, and using the same property as collateral. Usually, the interest rate on the new mortgage will be less than the old, the loan will cost less and you will save money. However, refinancing isn’t appropriate for every homeowner. To know if it’s right for you, understand how these arrangements work.

The Benefits

Many people choose to refinance because the reduced interest rate decreases their monthly mortgage payment, freeing up cash for other expenses. Every percentage point makes a difference. For example, if you refinanced a $200,000, seven-percent interest loan to a loan with six-percent interest, you’d have about $130 more in your pocket each month.

Another reason to refinance is to repay your mortgage faster, which is done by switching a long-term loan for one with a shorter term. With it, your mortgage payment would be higher, but you’d pay much less in interest over the life of the loan while building equity more quickly.

Cash-out refinancing is yet another attractive option. With this type of loan you’d refinance your current mortgage plus take out some cash from the equity you’ve built up. The benefit? Interest rates on the cashed-out portion are often lower than a home equity line of credit, home equity loan, or second mortgage.

The Costs

To determine if refinancing will work in your favor, you’ve got to weigh the savings in interest against the fees associated with refinancing. A new loan means you’ll have to pay most of the same costs you paid the first time around. These may include points, appraisals, attorney’s fees (in Attorney states), settlement costs (such as fees for the loan application, title search, appraisal, loan origination, and credit check), recording fees or transfer taxes, and sometimes a pre-payment penalty. All totaled, these costs can be high, and some lenders require at least a portion of them be paid at the time of application.

Much of the loan’s price depends on points. One point equals one percent of a loan, and to get you the lowest rate, most lenders will charge several points. The total cost can run between three to six percent of the whole amount you borrow. Therefore, on a $100,000 mortgage, the lender might charge between $3,000 and $6,000.

Some lenders do offer zero points, but the loan will have a higher interest rate. So while a “no points loan” may indeed reduce your initial outlay, your monthly payment will be higher.

To know what combination of rate and points is best for you, compare the amount you can pay up front with the amount you can pay monthly. The less time you keep the loan, the more expensive points (and other refinancing costs) become. For example, if your refinancing costs are $3,000 and your payments are $125 lower each month, it will take you 24 months just to break even.

 

The Tax Effect

One of the primary advantages of homeownership is the savings you receive on your income taxes—all that interest (up to a million dollars for the first loan, and $100,00 for the second) is tax deductible, after all. Yet if you refinance the loan with a lower interest rate, you’ll have less interest to deduct. The effect may increase your tax payments and decrease the total savings you might obtain from a new, lower-interest mortgage.

If, however, you are in the final years of your mortgage, your payments probably consist of more principal and less interest. In that case, refinancing your mortgage with a longer-term loan will mean you’ll again pay more in interest—and increase your tax deduction.

 

The Best Deal

So where do you find the best refinancing deal? The best arrangement may be with your current lender, since some offer original mortgage customers the lowest rates and cut-rate closing costs. Before deciding, though, shop around by calling several lending institutions and ask each one what interest and fees they charge. If you have Internet access, research rates before speaking to a lender, so you’ll be armed with the knowledge of what is out there.

 

Consumer Protection

If the idea of refinancing fills you with as much fear as it does excitement, you have reason. This is a major financial decision, and one not to be taken lightly. Thankfully, some powerful consumer laws protect you against lending abuses.

When you refinance, your lender must provide a written statement (the Loan Estimate) of the costs and terms of the financing before you become legally obligated for the loan. Review this statement carefully. If you refinance with a different lender, or if you borrow beyond your unpaid balance with your current lender, you also must be given the right to cancel within three business days following settlement, receipt of your disclosures, or receipt of your cancellation notice, whichever occurs last.

If your lender charges an application processing fee, ask how much it is and under what circumstances it is refundable. Some lenders do not offer refunds if you are not approved for the loan or if you decide against taking it.

So is it time to refinance your mortgage? If you will come out ahead financially, then it is definitely worth considering. However, if the difference is minimal or nil, then save yourself the time and trouble. Refinancing is not the answer for everyone.

If you’re ready to refinance your home, AFFCU can help you lower your payments. 

View Our Mortgage Options

Did you know one-third of Americans create and maintain a budget?

A budget can help you stay on top of your finances by helping you plan where your money will go instead of wondering where it went. Try these steps if you’re looking to create a budget or looking to update your current one.

1. Tally up your income: You may know what your annual salary is, but once taxes, benefits, and retirement contributions have been deducted, the amount of money that is deposited in your account may be lower than what you anticipated. Look over the digital or physical paycheck stubs for all the wage earners in your family to determine what your take-home pay or net income is.
2. Identify expenses: Now, we need to determine how much of your net income is being accounted for by your current expenses. Divide your spending into two categories — fixed and variable. Fixed expenses are the things you pay the same amount for every month, such as phone bills and auto loan payments. Variable expenses change month to month and include groceries and utility bills. 
3. Get the Calculator Out: Next, you’ll do some simple math to figure out the difference between your income and your expenses. Ideally, you want your take-home pay to be more than your total expenses. If your expenses exceed your income, don’t panic. The next steps will help you find areas in your budget to help you save. Whether you’re over or under budget, it’s still important to make financial improvements.
4. Set Goals: Motivate yourself by making note of monetary goals you’d like to achieve. They can be short-term goals like paying for a new appliance or long-term goals such as saving for retirement.
5. Crunch the numbers: With your fixed and variable expenses identified you’ll be able to see areas in your budget you can do better in. Fixed costs are difficult to alter, but if you take a look at your variable costs you may be able to see ways to lower or eliminate those dollar amounts. Maybe you can be more energy efficient at home to lower your light bill or take your lunch to work to stop eating out as much. Use your goals to help you decide what expenses you  need and which ones you want. Living without some wants can help you save more money to pursue those goals.
6. Create Guidelines: Decide how much of your income you’d like to go towards your fixed and variable expenses as a guide you can use to improve your financial habits. Try to avoid making these guidelines too rigid and unattainable to ensure your budget goals aren’t impossible to reach. A good rule of thumb is that 50% of your budget should go toward fixed expenses, 30% toward variable or flexible spending items, and 20% toward your goals. 
7. Review: Get in the habit of checking in with your budget to track your progress and make adjustments as needed depending on changes to income or when debt is paid off. As time goes on, you’ll find new and better ways to make the most of your money.

We hope you learned more about how to calculate and track the expenses that are best for your needs. At AFFCU, we’re committed to helping you achieve your financial goals. Learn more about the perks of AFFCU Membership.

Teaching Kids to Save Money

Did you know kids as young as three years old can understand basic money concepts? So it’s never too early to start teaching your child about money. This critical start can help them grow into financially responsible adults in the future. 

In honor of National Credit Union Youth Month, we’ve put together some helpful ideas to teach and encourage your little one to develop positive money habits.

Consider an Allowance

If you decide you’d like to reward your child for good grades, behavior, or helping out around the house, an allowance is a great tool. Showing your child that they are responsible for their earning power fosters their independence. Many parents find themselves wondering how much money they should give to their children. We advise families to make the decision based on their family’s income and the age of their child.

Talk About Choices

While it’s great that your kiddo is actively making responsible choices to earn and save money, it’s also important to teach them about expenses. Explain the decision-making process when it comes to paying for expenses to your child. You can point out the differences between needs versus wants and what to do if they don’t have enough money to spend on a snack or clothes.

Lead by Example

Young children are constantly observing — and absorbing — our behavior. Keep in mind that your kids will follow your example. If your child sees you stressing about finances or overspending, that could be setting the wrong example for your child. Try talking to your family about your budget, shop together and discuss the prices of items or create a strategy together to save for an emergency.

Allow Mistakes

We’ve all made a purchase we later regret and so will your child. Since the stakes are low, let them make impulse buys. Once your child realizes this was not the best decision with their money, talk to them about what they’ve learned and how they can do better. Hopefully, they’ll spend a little smarter the next time around.

Encourage Giving

Remind your child that their money can make a positive impact in the world through a donation to a charitable organization. Let your child set aside a portion of their savings to give to causes important to your family. This hands-on method is a great way to share your family’s values and show the importance of giving back to the community and saving.

Make it Fun

This teaching experience doesn’t have to be lengthy math lectures. You can find age-appropriate apps, board games, activities, and toys online to help you engage with your child about money. These interactive methods can make learning about money fun and can help them visualize bigger concepts like saving and spending.

Stay Consistent

Like many things with kids, consistency is key. This learning lesson is going to take time and effort on your part. Make time to check in with your child’s savings goal and continuously communicate a clear message about money. 

Move your child’s savings from a piggy bank to a bank account. Help your child become a Super Saver by opening an AFFCU Youth Savings Account and encourage them to start saving today.

Tips for Buying an RV

Take to the roads this summer for your next family vacation. RVs come in a wide range of sizes and styles, and can include a restroom, beds, and a kitchen, allowing more time to explore the great outdoors without sacrificing comfort. Consider these tips when evaluating if an RV purchase is right for you:

Do your research

Before you apply for an RV loan, it’s helpful to do some online research to see what class type you prefer and can afford. There are three classes of RVs: Class A, Class B, and Class C. Class A are typically the biggest and most comfortable, while Class B RVs are scaled-down camper vans and the Class C is a compromise between the Class A and the Class B.  You may also want to consider similar and more affordable options, like camper trailers, pop-ups, and fifth-wheel tow-behind campers.

Set a budget

After you’ve done your homework and decided on the style of RV that fits your needs, it’s time to determine what you can afford. RV prices can range from a few thousand dollars for a pop-up camper to over a million dollars for a high-end motorhome. Take a look at your budget and decide how much you can afford to spend. Don’t let the sticker price intimidate you either, dealers will offer promotional sales and you can even negotiate your price too. On top of the cost of the RV itself, you should also prepare for additional costs, such as insurance, storage, maintenance and fuel.

Shop around for financing

Once you set a budget you can start exploring your RV financing options to find the best deal on your RV loan. Don’t assume the dealer will offer you the best rate. Get pre-approved for an RV loan from AFFCU. We offer 100% financing on new and used RVs up to 10 years old, competitive interest rates, and flexible payment terms up to 144 months.

Protect your investment

Before you head out on the road, make sure you have the right insurance coverage for your new home on wheels. Contact your auto insurance provider to learn more about their RV coverage options and cost.

Ready to hit the road? Whether you’re a first-time buyer or looking to upgrade, AFFCU can make your open road dreams a reality with a great rate on an RV loan. Our RV loans feature a low rate and flexible terms to save you money for more memorable weekend adventures.

You may find yourself at a crossroads while at the checkout line deciding whether or not you should spend your hard-earned cash on a new appliance or purse. It can be difficult to decide if making a large purchase is a good financial decision for you.

Here are a few things to consider before making your next BIG purchase.

Do I Really Need This Item?

There is a big difference between wanting and/or needing something. You may be shopping online or in-person and see an item you have to have, but take a few moments to contemplate if you definitely need to make this purchase. By determining if the purchase is a want or a need can help you prioritize it accordingly in your budget and spare you unnecessary debt.

How Will I Pay For This Expense?

Life happens and sometimes a big purchase may be less of a luxury and more of a necessity. If you don’t have the cash to cover the cost at that moment, personal loans and credit cards may be appealing but keep in mind that the interest associated with those lending options could end up costing you more in the long run than the original price tag. 

Have I Done My Research?

Try to shop for used items in good condition, read reviews, and shop for deals. No one likes getting homework, but taking a moment to do some detective work can save you some dough and a headache. Some second-hand retailers offer great deals that are a fraction of what your total could be and may offer their customers a warranty on an item. Reading reviews can help you get a better idea of the features that come with your big-ticket purchase and ensure you’re spending money on something that is right for you.

Should I Investment In A Higher-Quality Product?

While spending a large chunk of your money may be less than ideal, it may be better, in the long run, to splurge on a top-of-the-line product. This high-end item could end up saving you more in the long run rather than purchasing the same poor quality product every couple of years.  

From Personal Loans and Credit Cards to Checking and Savings accounts, AFFCU has a great selection of banking products that can help you reach your financial goals.