Your Questions About Save Loan Program

Ruth asks…

Should I take a loan and save?

I’m 23 and almost done with my CPA exam (taking the last one hopefully in a week) however, one of the requirements is having 150 credits. After undergrad I started a 2 summer MSA program. I completed the first half last summer and now this summer I have the second half. Currently I have about 25k in loans and I am living at home to save money. My question is should I keep saving the money to buy a condo/house etc in two years when I move out (I’d rather not rent and pay someone else’s mortgage) or should I pay the $8,000 of school this summer.

The reason I ask is that my loan rates are not that high, ranging 4-8% and the monthly payments are $290, and with my budget including all my expenses I’m still saving over 1000 a month. secondly, I get the tax deduction for the interest payments so I wonder if it makes more sense to put in the bank for a downpayment and pay the additional $8,000 loan over the next 10 years?

Thanks for your help!

John answers:

I am in a similar situation, but just a little ahead of you. I am 25 and have finished grad school. I graduated with about 30k in loans around 5%. I am saving as much as I can for the down payment on a house, which I would love to buy right now because the market is so good, but I don’t have the money yet and so I am not going to do it.

I would suggest that you save the money for your down payment and accept the loans for school; student loans are the cheapest money you can borrow. However there is one big exception, if you are getting private student loans (not from the government) that don’t do it and pay for school your self. Private student loans are one of the worst types of loans out there because the rates are bad, the terms can change, and they can not be discharged through bankruptcy (not that I am wishing bankruptcy on you or anyone else, but its something to think about)

I am saving money for a house and paying off my student loans at the minimum, because I can actually get a better return on my savings that it cost me for the loan. So far it is working out well for me.

Best of luck in school.

David asks…

Mortgage obligation/rights to deed with boyfriend/girlfriend on VA loan?

Hi,
My boyfriend and I have decided to purchase a home together. We are both residents of the state of Wyoming. There was a program put out a few weeks ago that had a 2.5% interest rate, but the income cap was 63K/year, and with both of our incomes, that put us over the limit. Also, we wanted to use his VA eligibility, but the VA would not let me on the mortgage because I am not his spouse and do not have VA rights of my own. We made the decision to get the Spirit of Wyoming! loan program and use the VA loan to save the extra interest and not have a down-payment required. Now, we’re in a bit of a dilemma ~

My stance: I am 100% okay with being financially obligated to the house. Originally, we had planned to mortgage the house together, and the only reason we did not was because we saved thousands using the special Wyoming program (About 15K the first five years alone!)and the VA loan. I have said, however, that since I am paying equally into the mortgage, I want to make sure that I have rights to the property, rights to the equity if/when we re-sell the house. We’re talking about a lot of money, here, and I don’t want to have some unforeseen falling out (I don’t anticipate it, but you never know), and then have to walk away with nothing, and have invested years into this property and have no return. If I wanted to just throw my money away and invest for someone else’s benefit, I’d rent.

His stance: He is hesitant to put me on the deed after closing because he does not want me to be able to have 50% claim to the house if it is sold but no real legal financial obligation to the property since I am not on the mortgage. I have offered to sign a lease, but a lease is not the same as the 30-year obligation he is tied to with the mortgage. Again, he doesn’t see us breaking up, but with this kind of money on the line, I think we would both sleep easier knowing there were safeguards in place.

So ~
Does anyone have a solution to how I can have rights to the property, and he can have the assurance that I am going to be held accountable for paying my share of things? I know it’s no big deal to put me on the title, but we have no idea how or what kind of papers to get drawn up to say that I will be financially liable. The only option I would see would be to re-finance, but I’m NOT loosing this amazing mortgage rate. There were only a limited # of mortgages available through this program, and we were very lucky to get one of them (there were roughly 100 mortgages available at this rate and they were practically gone by the end of week 2 of the program being started).

The big problem is that it’s a VA loan, and I know they get weird about renting or having an agreement that entitles me to equity since that would be like ‘selling’ the VA loan to a non-veteran.

Help!!!
~ Per the VA website, you can add a name to the deed.
~ Per the VA website, you can rent out a VA mortgaged property.

John answers:

You can not legally have what you want. Even if you could, there is all that loan fraud and defrauding the state government to contend with.

He can not give you a lease because of the VA, and it would not entitle you to squat anyway.

The only way to entitle you to 50% is to put you on the deed. But, the VA will hear about that and call the loan due. I do not know if your state has any kind of lien because of that deal (they do if he has a time limit to sell), but if they do they will be informed as well that there are now 2 owners, not just one.

There is no way to make you financially responsible for the property unless you are on the mortgage itself.

William asks…

How Long Will It Take Me To Save Money To Move To London?

I live in Canada and I am finishing my last year of high school… I am planning on moving to London in a couple years, after college. I am going to college next year for Radio Broadcasting and that is a 2 year program!! I have to pay for student loans and save up for moving with my first, post college job… how long should it take for me to save enough money to move! I am also living at home during college!

John answers:

I did research in college on moving from the US to the UK, and it is very expensive.

I am not sure what differences may exist between there and Canada, though. Here’s a great place that I found for info:

http://www.americanexpats.co.uk/

I bet that you can find something similar for Canadians.

Good luck!

Michael asks…

Isn’t it great how Obama’s student loan reform is helping students and the economy?

…while saving taxpayers money?

“This reform of the federal student loan programs will save taxpayers $68 billion over the next decade,” Obama said in his weekly radio and Internet address.

“And with this legislation, we’re putting that money to use achieving a goal I set for America: by the end of this decade, we will once again have the highest proportion of college graduates in the world.”

Read more: http://www.miamiherald.com/2010/03/27/1549919/obama-new-law-will-help-students.html#ixzz0jPHz7H17

http://www1.voanews.com/english/news/american-life/Obama-Student-Loan-Reform-Helps-Students-Economy-89321952.html

http://www.google.com/hostednews/ap/article/ALeqM5j1ynxPOOTBmfOwpdAWnrlfYxVrpwD9EMTEEO4

John answers:

We have a president who believes in consumer protections—a refreshing change! The elimination of the greed-driven deregulated-by-the-GOP banking industry as a middle-man figure for student loans is part of the “Fix It” changes bill that contains the Mark-Up results from Committee for the health and insurance reforms President Obama signed into law last Tuesday. He is scheduled to sign this new section into law this week, and that makes the direct-lending provision law. This proposal is meant to, among other goals, lower higher education costs significantly, which will indirectly lead to reduced health care costs because doctors have claimed a need for higher salaries just to pay off college loans taken out to become a doctor. The increase in Pell Grant amounts is significant, too. Yes, the Student Loan Reform voted upon by Democrats with not one single Republican “yea” is a great achievement that will indeed help students and our nation’s economy!

Ken asks…

Enrolling to an Equity Accelerator program ?

My mom is considering equity accelerator through her mortgage loan. Is it really necessary to enroll into this program to pay bi weekly? There’s also a fee of $9.00 a month which is not much but I was wondering if it would be waived if she just pay bi weekly on her own without enrolling. And there’s an addition one time payment of $49 for enrolling….I’m sure this program would save her money but not sure if enrollment is necessary. Thanks.

John answers:

No, it’s not necessary to enroll into a program such as you describe. The simplest way simply is to add an additional amount to the principal payment, and so indicate on each month’s payment coupon. It costs nothing, and gives your mom control over how much she pays down every month.

The fee is too much. Way too much. You’re paying someone $108 a year to provide a service that your mom can do on her own for free. Over the course of a mortgage that’s roughly $2,000. Plus, of course, that $49.

No, I’m not sure that program would save her money. Depending where she is in her mortgage, the interest rate she’s paying, and a variety of other factors, it might pay off a 30 year mortgage in, maybe, 23 years. So, if she stays in the house for 23 years, she’ll have a paid-off mortgage. But she hasn’t “saved” that much money, because for 23 years she’ll have made extra principle payments.

True, she’ll have saved some interest. But, remember, interest can be (and usually is) tax deductible. So, depending on your mom’s income tax bracket, she may have “saved” about 30% less than she thinks…because she’ll have gotten the income tax deduction from that interest she paid.

Then, on top of that, there’s the lost opportunity cost of the additional principle payments. Let’s say she can pay an extra $50 a month to principle…or put that $50 into a savings account. Or, if she’s still working, she can put it into an IRA or Keogh plan. If she uses it to pay off the principle, it’s gone…until either she sells the property or pays off the mortgage (in which case it’s really still gone). Meanwhile, let’s say her mortgage is 6%. That’s the same as “saving” at a 6% rate.

I’m not an accountant, so check with an accountant for financial advice. However….

On the other hand, let’s say she puts it into an IRA or Keogh that yields 8% long-term. There are plenty of those. First. She may be able to deduct the $50 a month ($600 a year) from her taxable income. That’ll save her maybe $200 a year. Then the $600 grows tax free. And if she’s earning 8% on her investment, that’s a better “rate of return” than paying off a 6% mortgage.

Most of these equity accelerator programs are lousy ideas. First, you’re paying a pretty hefty fee for something you could do yourself. And second, it often doesn’t even make sense financially.

Hope that helps.

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4 Responses to Your Questions About Save Loan Program

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