Archives For October 2012

How amortized mortgages work

Do you think they use an amortized mortgage??

Mortgage loans are good because they provide us the opportunity to purchase a home before we have all of the cash saved up, but do you know how amortized mortgages loans really work?  They definitely come at a price and you should try to pay it off before the loan term (easy for me to say, right?).

Most mortgage loans are amortized loans, which means each month your payment goes towards the interest and the principal until it’s all paid off. While I was researching the ins and outs of amortized loans, I found this interesting little tidbit from about.com:

This is referred to as ‘amortizing’ a debt, a term that takes it’s roots from the French term ‘ amortir’, which is the act of providing death to something.

I like amortized loans even less after learning the root word’s meaning! As long as I put death to it before the other way around…

How is your amortized mortgage payment calculated?

The payment is calculated in an amortized loan by adding the total loan amount (principal) to the total interest that will be paid over the life of the loan and then dividing by the total months (30 years x 12 = 360 months). Let’s use the following example: $150,000 mortgage loan, 5% interest, 30 year term.

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Why is it we’re so afraid to ask how much something costs, or even harder, ask for a better price? Is it pride or are we just afraid of looking like we don’t have the money as Benjamin Franklin said.

“A man being sometimes more generous when he has but a little money than when he has plenty, perhaps thro’ Fear of being thought to have but little.”

In some countries such as India, prices are sometimes set at a slightly higher level because it’s understood they’ll be negotiated down. Don’t get me wrong, there are many instances where I have no problem asking how much something costs, and I often negotiate prices as well, but other times I don’t.

The most common time I don’t ask how much something costs is when I’m at the doctor’s office. Since I had some recent experience with a broken hand and ruptured Achilles, it’s still fresh on my mind! I also used to be reluctant to talks costs at the vet, but after spending boatloads of money on our allergic-to-everything dog, I’ve overcome that fear!

With the doctor’s office, there are some strong psychological powers at play. First, when it comes to our health, we feel questioning a procedure is a form of abuse to ourselves because our bodies need it. In addition, we fall victim to the doctor as a total authority figure. As Robert Cialdini explains in his book, Influence: The Psychology of Persuasion, we’re trained to unquestionably follow authority from an early age.

Conforming to the dictates of authority figures has always had genuine practical advantages for us. Early on, these people (parents, teachers, etc) knew more than we did, and we found that taking their advice proved beneficial – partly because of their greater wisdom and partly because they controlled our rewards and punishments. As adults, the same benefits persist for the same reasons, though the authority figures now appear as employers, judges, and government leaders. Because their positions speak of superior access to information and power, it makes great sense to comply with wishes of properly constituted authorities. It makes so much sense, in fact, that we often do so when it makes no sense at all.

We feel like we shouldn’t question procedures or costs just because they know so much. This held true in my procedures and cost me extra money!

For example, for my Achilles surgery, the doctor preferred a non-hospital location because it’s more convenient and his staff assured me the cost would be the same because they’d lower the price to match in-network. One big problem, I had a separate, $1,500 deductible for out of network that wasn’t yet reached!

They didn’t inform me of the separate deductible, and I didn’t think about it. Nothing angers me more than leaving money on the table, and I do wish the hospital stuff would’ve alerted me of this. However, when I was in the situation and the surgery was an emergency, I didn’t even think about the cost. This is one of the reasons our health care costs are spiraling out of control.

There are some decent articles on how to negotiate medical costs you can check out, but in the end it’s up to you and me to ask the questions. I don’t think doctors cost us more on purpose, they just have so much other stuff going on that they aren’t able to think about our personal financial decisions. Maybe I need to go back and review the five things formal education doesn’t teach us and read the authority part!

Are there any situations where you’re afraid to ask the costs of things?

Are You a Loaner?

October 15, 2012 — Leave a comment

Ever since our school days when we were taught to stand in line, we’ve become accustomed to getting ranked.  Well, now it’s time for your “loaner” ranking – not personality wise of course – but your appetite for debt!

The loaner ranking is a snapshot in time and can change for the better or worse.  I used to be a big time loaner when I went $50k in debt, but I paid that off!  That’s the best part:  you can change.

The worst part is that it’s really easy to take on new loans and debt for nearly everything.  A new house, car, furniture, electronics, vacations, medical procedures, and even pets can get you a loan!  Businesses want to make it as easy as possible because loans allow us to “buy” more even if we don’t have the money.

So, the question is, how much of a loaner are you?  Take this short quiz to find out.  You can either take it based off of what debt you have now, or you can take it forward looking on where you’d like to be.

If you do/would have a loan for the following, add up the points next to it:

1.  Mortgage (1)

2.  Student loans (1)

3.  Car/Auto (2)

4.  Credit Card Debt (3)

5.  Line of credit (4)

6.  Furniture, electronics, home goods (5)

7.  Vacation (5)

8.  RVs, boats, ATVs, etc (5)

9.  Pets (10!)

Now add up the scores.  For example, if you have a mortgage, car loan, and ongoing credit card debt, your total score would be 6 (1 + 2 + 3).

 

 

Well, you may not like it, but at least now you know where you stand.  My wife and I are currently a “Slight Loaner” with 1 point – woo hoo!  We’re eyeing you mortgage loan… you’re definitely next!

Do you need to subtract some numbers from your loaner score?  If so, check out how I took control of my money and knocked out my debt.   Where do you stand?

This post will be mostly pictures because it is too hard to even attempt to detail out our whole Route 66 road trip. In the end, we touched 8 states over 8 days and drove a total of 2,300 miles! Here’s a map to show our approximate trip:

 Route 66 Map

We didn’t start in Chicago where Route 66 starts, but instead started in Oklahoma – my home state. We stayed that night in Oklahoma City and left early in morning with the final destination of Albuquerque, NM.  Even on the highway it was a 10 hour drive, so factor in Route 66 back roads and stop, and we were sure to have a late night.

Our first stop was at the Indian Trading Post in Calumet, OK right off Route 66. Very cool place for souvenirs, and I also wrestled a buffalo there.

 Wrestling a buffalo on Route 66

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