Reverse Mortgages

by Stacy Francis, CFP®, CDFA

I had lunch with a friend today, who works with mortgages. She said that while for obvious reasons, not that many people are signing up for conventional house loans at this time, many are inquiring about so-called reverse mortgages. For those of you not familiar with these, I thought I should share.

If you are a senior who own your home and need more income, some people will suggest that you take out a reverse mortgage. A prerequisite is that you have paid off a good portion – if not all – of your home. You can then get a deal where the bank “pays” you a certain sum of money each month, and your mortgage grows accordingly. In a way, these “payments” are the opposites of amortizations, where you own more of your house each month, and the bank owns less.

After you pass on, the bank owns whatever portion of your house that you have mortgaged. For obvious reasons, the bank will not let you lend more than your house is worth. They use complex calculations to make sure that the monthly sum they “pay” you is small enough that your total mortgage will not go beyond the value of the house during your life expectancy.

While reverse mortgages can be the only way out of a desperate situation sometimes, be very wary of fees if you are getting one for yourself (or someone in your family). Many times the fees are so huge compared to the amount of money you can take out; you are better off seeking an alternative money source.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

The Gas Issue

by Stacy Francis, CFP®, CDFA

I paid over four dollars per gallon at the pump today! While this may not impress Europeans, who have paid such prices for ages, the cost of oil certainly isn’t helping the US economy right now. Herds of people are making the switch from large SUVs to compacts – even hybrids. But in dollar terms, how much of a difference does it make what kind of car you drive?

Though the numbers vary slightly, the main consensus seems to be that the average American commutes 33 miles per day, between home and work. Nine out of ten drive a car. So say that your commute is 33 miles per day, and that you work 5 days per week, fifty weeks per year (gotta have a few days off). This adds up to 8,250 miles per year.

Now let’s look at cars. On one side of the spectrum, we have small Japanese hybrids such as Honda Insight, Toyota Prius, and Honda Civic Hybrid. These cars will get you 66, 57, and 47 highway miles per gallon, respectively. The other extreme is sports cars, or huge SUVs. A Hummer will get you 10 highway miles per gallon, a Dodge Ram 12, and a Lamborghini Murcelago 13.

So if you’re driving a Honda Insight 8,250 miles per year, at $4 per gallon gas, this will cost you $500. If you on the other hand go for the Hummer, and drive the same number of miles, your price tag will be $3,300. The difference is $2,800.

So while your car is likely to land you somewhere in the middle, with several thousand dollars per year in potential savings, it is not hard to see why to many Americans, bigger is no longer better.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

The Commuting Issue

by Stacy Francis, CFP®, CDFA

This morning, I was stuck in my apartment elevator for 30 minutes. I spent this time, of course, thinking about commuting and happy that my commute is normally only 10 minutes and involves no cars, buses, trains or subways. I moved my apartment next to my office so that I could spend maximum time with my family and friends. I am one of the lucky few who enjoys the trip to and from work.

However, commuting is just one of those things almost all Americans deal with . . . yet few take an in-depth look at the true effects of commuting on their lives. Because not only can commuting be a hassle, a nuisance and a time consuming endeavor -- it can be expensive as well. Breaking it down into commuting cost and salary, you may find that your current situation is far from ideal.

Commuting costs are things like gas, car insurance and maintenance, train or subway passes or tickets – whatever applies in your specific situation. You may need to add another car to your household solely to handle the commute. Add to this the time you spend getting to and from work, and you should have a rough estimate of how much your time on the road costs you.

Then consider your salary. How much is left after you have paid taxes and commuting expenses? Could you get a similar job closer to home and save money? And if that is not an option, could you move closer to work and save money that way?

It is important to keep in mind, though, that these aren’t the only factors to consider. Where you choose to live and work is about much more than just money. When adding to the pot your children’s school and spouse’s commute, plus personal factors such as the fact that you happen to love your job and the community you live in, things get even complicated.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

Renting vs. owning your home

by Stacy Francis, CFP®, CDFA

My cousin had his house appraised today, and he was not happy. Of course, he’s far from the only one feeling this way. With the US real estate markets free falling like rocks dumped from skyscrapers, an increasing number of people are growing wary. Very wary.

For years, everyone I’d meet would urge me to buy, buy, buy. Few investments were performing better, and what could possibly beat an investment that you can live in and enjoy while it makes you money?

Today, it’s a different picture altogether. In San Diego county, for example, the median house price dropped from right below $500,000 to the current $390,000 (more than 20%), in only a year. We are all familiar with the market in Detroit (my husband and I just purchased two houses there for a total of $30,000), and overall it is not hard to see why people are nervous. Still, while a nightmare for many, this market presents excellent opportunities for those who have been waiting to buy. But apart from timing and prices, what factors should be considered when faced with this decision?

First of all, there is the issue of fixed vs. variable expenses. While many landlords insist on one-year leases, some will go month to month as well. This is a good option if your income situation is shaky, or if you may be relocating shortly. If, on the other hand, you have a steady income and are set on staying where you are, it might be more beneficial to invest in a house rather than dumping a considerable amount of money into rent each month. After all, the real estate markets are going to turn around sooner or later, and when they do, your investment will start to pay off.

It is also worth mentioning that houses are some of the most marginable investments out there. If you are a knowledgeable investor and tend to score high returns on your investments, it might work to your advantage to buy a house, get a mortgage, and invest the money. As long as the yield from your chosen investment is higher than the 5-6-7% you pay for the mortgage, you can walk away with the difference -- and a sunny smile. 

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.