Financing your college education.

A college education is fast becoming the new mortgage. Fifty to a hundred years ago mortgages were uncommon if not unheard of in some areas of the U.S. Today a mortgage is standard if you want to own your own home. The same is fast becoming true of college education. Your best financial weapon: research every option.

Assessing the cost and the need
You will need to pay for college: if not your own than someday your children. College costs are astronomical and projected to grow at a rate far exceeding inflation. Tuition and fees at public four-year colleges rose $344, or 6.3%, to an average of $5,836 for the 2006-2007 academic year, according to the College Board.

As if by some sinister collusion, the need for a college degree in order to obtain quality employment is also at an all-time high. If you are reading this, it is likely that your children - if not you yourself - will almost need a minimum of an associate's degree for even the most basic jobs. Half of all new jobs being created require a college degree (Consortium for Higher Education).

Between 1980 and 2004, earnings increased with education for all young adults ages 25-34 who worked full-time throughout the year. Young adults with at least a bachelor's degree consistently had higher median earnings than those with less education. Moreover, for the entire population and, in general, for each subgroup, the difference between the earnings of those with at least a bachelor's degree and their peers with less education grew during this period. For example, in 1980, males with a bachelor's or higher degree earned 19 percent more than male high school completers, while in 2004 they earned 67 percent more. (U.S. Department of Education, National Center for Education Statistics)

Options for financing college
There are only three ways to pay for college: saving, borrowing, and grants. The general rule is to determine whether you are able to earn returns on your existing savings that exceed the borrowing rate. In other words, if you can make more money investing your cash than the interest you are being charged to take out a loan, your are better off investing the money and taking the loan. The opposite also holds true. If you have no savings, your only option is to borrow.

For example, you have two options: borrow $100,000 at 5.0% or invest your (theoretical) $100,000 at 6.0%. Since you can earn more on the investment, you invest the money and use the proceeds to pay off your college loan. If your borrowing rate were 7.0%, you would want to pay off your tuition with savings instead of financing, if possible. This rule is the same for cars, mortgages, and any other loan you might be considering.

Financial aid is increasingly tougher to get
Need-based financial aid, grants, and other gifts are not reliable sources of funding a college education, and I will not be discussing them. Some, like small grants from the Society for Women Engineers, are reliable. However, you cannot count on performance-based grants and gifts because the competition for those sources of funding is intensive. The odds of getting funding for attending a top-tier school, such as Harvard, is comparable to the odds of winning the lottery. Remember, your kids are special and talented, but so are everyone else's, and they all want that money, too. According to a recent survey of 1,400 parents and 200 student financial aid administrators:

• 72% believe their children have "special or unique talents" that will earn them scholarship funds
• 87% percent of parents are counting on their children receiving scholarship and/or grant money
• 92% of aid administrators say parents overestimate the amount of scholarship and grant money their children will receive

Consider the Pell Grant, one of the most common forms of student aid. According to a recent Dow Jones press release, approximately $12.7 billion in Pell Grants was awarded for the 2005-2006 academic year, down 3% from $13.1 billion the previous year. The average grant per recipient fell to $2,354, from $2,474. The majority of the 5.4 million Pell Grant recipients are from families with annual incomes below $40,000.

That being said, getting some money in the form of grants or other financial aid is not out of the question. A full 62% of full-time undergraduates receive grant aid according to the College Board. Also, you cannot get aid if you don't apply, so pick up a book and do some hunting on grant options that may apply to you or your children, particularly if you are in a low-income group or minority where it may be easier to find aid. You are also more likely to get grants and funding if you are getting a degree in math or science due to high demand in those fields. This is actually quite convenient, since those areas can offer some of the highest-paying jobs.

Financing higher education: Savings
Spending your savings is typically the best option for paying for college. For the majority of people, a Coverdell or 529 Savings plan will be the best saving vehicle. Savings accounts, CDs, and other low-interest savings vehicles will not keep pace with college tuition inflation. Roth and Traditional IRAs are great savings vehicles until you need to draw down interest earned, which you will need to pay taxes on should you withdraw more than your principal to attend college.

Coverdells are tax-free savings accounts similar to Roth IRAs, but are for higher education expenses rather than retirement. You deposit use after-tax earnings which then grow tax-free. You can deposit a maximum of $2,000 per beneficiary, but if multiple people contribute for a single beneficiary and the deposit amount exceeds $2,000 penalties will be owed. Also, only contributors with modified adjusted gross income below $95,000 ($190,000 for couples) may open a Coverdell account. The beneficiary must be under 18 during the savings period. For more detailed information, visit SavingforCollege.com

Section 529 savings and prepaid plans are a great vehicle for middle- and upper-income investors. Low-income investors are better served by Coverdells, grants, and other aid opportunities. Section 529 plans are state-sponsored investment vehicles, and almost every state offers one. You can invest in any state plan, since some plans are definitely better than others.

529 plans are available to everyone, and contribution limits are high (typically in the $100,000 to $300,000 range or more). After-tax dollars are deposited and can be withdrawn tax-free to pay for qualified higher education expenses. Many states offer a tax deduction for contributions. The plans offer multiple portfolios of mutual funds for investing, but their age-based portfolios are the best option for most investors; the underlying investments adjust their risk profile as the beneficiary approaches college. 529s are not considered in the FAFSA calculation (which is a good thing). The plans are almost always superior to UGMA/UTMA accounts.

However, there is a large amount of research involved in selecting the right plan. Savings plans are generally better than prepaids because they allow for appreciation beyond the rate of college inflation. Fees vary widely from plan-to-plan, so check Savingforcollege.com. Morningstar also issues a list of top plans once per year and - while it excludes many great plans and might not include your state - is a reasonable starting place for most savers.

To check if your state offers a 529 savings or prepaid plan, visit: http://www.collegesavings.org . Another excellent source of information is the aforementioned Savingforcollege.com. The site owner, Joe Hurley, is a CPA and 529 plan genius.

Financing higher education: Borrowing
According to a recent study by AllianceBernstein, the median amount parents plan to save for their children's college education is likely to cover 23% of their children's undergraduate expenses, at best. The remaining costs will need to be covered by a combination of aid and debt. If you are going to get a government loan, you will probably still need to complete a FAFSA. You can borrow from:

The Department of Education: Direct Stafford Loan (grade dependant, subsidized loans are need-based), Direct Plus Loan
Banks: FFEL Stafford Loans (grade dependent, subsidized loans are need-based), FFEL PLUS Loans
Credit Unions: FFEL Stafford Loans (grade dependent, subsidized loans are need-based), FFEL PLUS Loans
Private Lender: FFEL Stafford Loans (grade dependent, subsidized loans are need-based), FFEL PLUS Loans
School of Attendance: Federal Perkins Loan (amount is capped and is need-based)

Direct Loans and FFEL Loans charge origination fees of up to 3%, so avoid them if possible. To find participating lenders in any or all of the above programs, call 1-800-433-3243. Make sure you have read the suggested materials below in "FAFSA" before inquiring. Also, contact multiple lenders to make sure you're getting the best deal available. You want to eliminate any charlatans, and the best way to do that is to contact multiple lenders.

In general, when evaluating loans (debt), you want to compute the present value of your future obligation. A brief discussion of this calculation is given in a prior blog entry.

The FAFSA!
The FAFSA (Free Application for Federal Student Aid) is required for all students considering applying for financial aid. The most comprehensive resource is avilable at the aforementioned link. Your search for help with Financial Aid should begin with this PDF and a visit to www.federalstudentaid.ed.gov. The guide talks througb Pell Grants, ACGs, National SMART Grants, and every other type of Federal aid currently available. Start here, because internet information is often out of date.

Refinancing
I saw an ad saying I could save money by refinancing, should I? Be careful, refinancing is a dangerous business. Often there are layers of hidden fees for the account application process, credit checks, and other administration work that goes into the refinancing. Refinancing may also extend the period of you loan.

Resources
http://studentaid.ed.gov
http://federalstudentaid.ed.gov
http://www.students.gov
http://www.savingforcollege.com

Your state will also have an agency dedicated to financial aid. You should absolutely contact the agency for help in financing you edcuation. Contact the State Treasurer's office if you are having difficulty finding the agency.

My qualifications: I received my MECP (Mobile Electronics Certified Professional) Installer certification in 1997, and retained it for four years during which I installed mobile electronics both professionally and competed in amateur USAC and db Drag Racing circuits, achieving a maximum SPL reading of 141.2db (that's loud).

What you want determines what you need
Premium car stereos - those with subwoofers, satellite radios, dedicated amplifiers, or just an aftermarket head unit - are a luxury. You do not need one. That being said, if you are considering an upgrade you need to take into account:

• Reason for the upgrade
• Who will install the part(s)
• The vehicle

Reasons
If something is broken, your reasons are easy: you need to replace something. Typically, this will mean swapping out your head unit and putting in a new one. I highly recommend purchasing from Crutchfield if you are buying a head unit: they include a full installation package including an in-dash kit, wiring harness, installation instructions with diagrams for your entire vehicle, and you'll have 800 support at any time you might need it. Don't underestimate the value of the installation instructions, they include the instructions for not just the head unit but the remaining speaker locations, as well.

If you want to improve your soundsystem, you need to decide how far you want to go. Just like home theater, there is a range of quality, and with higher quality comes increased complexity of installation and cost in both time and money. The vast majority of drivers are happy with a new head unit, replaced factory speakers, and occassionally a powered subwoofer.

If your aim is maximum volume, meaning bass, this is the easiest goal to attain. Replace your head unit with the cheapest model that has a subwoofer output, but two 12" subwoofers (10" subs cannot attain frequencies around 20hz), build a ported box to put them in, and but the largest mono-sub amplifier you can afford to power them with a matching amplifier installation kit.

If you're putting in a system to get chicks, you've been listening to too much L'Trimm. Women are not into car stereos, unless you count Alma Gates and the models that are paid to be at car shows. The rest of the girls are current girlfriends of competitors. A nice car stereo will not get you women. A pumping system is more likely to turn them off, despite Howard Stern propaganda.

Who will install the system
This should be based on your level of experience, the type of car, how ambitious you are, the time of year (not a good idea to do this in the snow, after all), and the complexity of the installation. In general, car stereos are not tough to install. However, newer cars are more complex, with internal computers that may be affected by your new stereo. More worrying is if you have a new car, in which case you should check the warranty prior to installation.

If you hire a professional, make sure that they are a licensed MECP installer in good standing at a minimum. Better, check their installation history to make sure they have done a fair number of similar installs. If you have one available near you, visit Boomer McLoud and Tweeter, who generally require their installers be certified.

If you DIY (do-it-yourself), do some extensive research online at Crutchfield, SoundDomain, Onlinecarstereo, and the MECP web site. Parts Express also has a couple tips. You can kill yourself (or worse, your car!) with the electrical current from your car, so be careful and make sure you know exactly what disconnecting and connecting those wires will mean, and in what order those connections need to be made.

Budgeting
When deciding how much you should spend on any given component, consider whether or not you will need to return the item. If you are inexperienced, you should go with an established retailer with excellent customer service. You'll pay a premium, but you'll be grateful when something goes wrong (and something WILL go wrong if you've never done this before). Otherwise, Onlinecarstereo.com and Woofersetc.com are generally the most reliable and inexpensive sources of equipment.

Allocate your budget in the following order:

1. Head Unit
2. Wiring (this is crucial and necessary)
3. Front Speakers
4. Amplifier(s)
5. Subwoofer(s)
6. Rear Speakers

Selecting Equipment - Understanding Product Lines
You know what you need, but how do you select an amplifier or subwoofer from the hundreds of different brands? And how do you tell the Coby's from the Sony's?

Complicating issues are the full product lines that each manufacturer offers. Rockford Fosgate - who owns Lightning Audio, by the way - has cheaper components that make up their entry-level of Punch products. Their step-up products are in the Power line. Alpine, the largest aftermarket producer of car audio products, offers their entry-level E-line, step-up S-line, quality R-line and top-tier X-line of subwoofers. Kicker, Sony, Pioneer, Soundstream, Memphis, MA Audio, and just about every other manufacturer does the same.

As a general rule, find out what that middle-tier is and buy that. If you were to buy JL Audio subwoofers, this means buying the W3 line of subs (they have W1, W3, W6, and W7). There are generally only two types of amplifiers: good and bad. JBL has their CS line of entry-level amps and their GTO series of quality amplifiers. Always choose the GTO series. The same thing with JL Audio, who offers the Slash and A-Series of amplifiers: go with the Slash series. You will pay a markedly higher cost in amplifiers due to the costs of solid-state components, but you'll be glad you did in the long run.

Expect to pay half the cost of the amplifiers or more in wiring costs. Worry less about brand and cable quality and more about gauge (a measure of the wiring size). Smaller gauges mean larger diameter wires, and larger means it is more capable of handling power demands. If you're going to skimp on cables, do it in the RCAs, where there is a lot of voodoo concerning cables shielding and connection quality. Buy your cables from Parts Express, their Dayton cables are reliable, and Sound King speaker wire is great for 99.99% of listeners.

Buy a quality head unit with options to expand. Your head unit is the brains of the system, so buy a smart one. Even if you don't need 3 sets of preamp outputs or 4V of output, buy them. If you decide you want another amplifier, having the option already available due to your superior head unit will make this process a lot easier.

Subwoofers are hard to buy only beacause there is an excessive amount of choice for a fairly straightforward item. In general, buy a 12" sub or two that can handle 300 watts RMS or more. Smaller sizes will not reproduce frequencies below 28-32Hz, but the human ear can hear down to 20Hz. So go 12" if you're getting a dedicated sub. Dual Voice Coil subs give you more wiring flexibility, but will not necessarily sound any better than single coil subs. Also, you must buy the amp and sub together, and matching them is important. In general, you want an amplifier that puts out MORE power than the sub is rated for. This will give you more dynamic headroom for sound, and will add presence to the sound at normal volumes. When setting your amplifier, be careful to follow the instructions for setting the GAIN control carefully. It is NOT a volume control.

If you have a truck or small space, you will need to go with smaller sub. Make sure you get a sub with a long "throw" or excursion, a measure of its Y-axis movement. Subs need to move air to produce low frequencies and volume, so more movement equals more volume. Pick an amp that can fit in an equally small space: Blaupunkt and Alpine used to offer c.l.a.s.s.-T amplifiers that were perfect for this purpose, but I do not believe they offer them anymore. Typically, size is an indicator of power, but you'll need less power with smaller subs.

Some Recommendations
One recommendation on head units: the Panasonic MXE CQ-C9801U. This is the choice IF you are not going to use a dedicated amplifier for your front and rear speakers. The internal amplifier is c.l.a.s.s.-T; completely digital switching makes it highly efficient and offers more power than any other head unit on the market. I use separate amps personally, but for those that don't this head unit is the only choice in my book.

My personal picks for each component:
Head Units: Pioneer, Kenwood, Nakamichi, Panasonic (in some cases, see above)
Amplifiers: Alpine V-Power Series, JL Audio Slash Series, Polk Momo, Kicker, Soundstream, Memphis, Rockford Power Series, MTX Thunder (NOT Road Thunder), JBL GTO
Speakers: Alpine Type-R, Infinity Reference, Kappa, or Perfect (all great), Kicker SS (good luck affording these), Boston Acoustics; there are many more I cannot think of off the top of my head, but most everyone will be happy with the aforementioned
Subwoofers: Alpine Type-R, Infinity Perfect, Kicker Comp VR, JL Series W3 or greater, JBL GTOs, Cerwin Vega, (lots of others, same as above)
Wiring: Go to Parts Express and pick what you need, buy an amp kit from a local specialist, or call Crutchfield and buy what they recommend.

Industry Nuances
Some companies own multiple subsidiaries, and the technology will transfer between them. One great example is Harmon Kardon, Infinity, and JBL. Infinity and JBL both use the same speaker technology, though only Infinity uses CMMD (ceramic) cones (Infinity makes really, really good speakers, and their Infinity Perfect series nearly live up to their name). If you're on a budget, JBL speakers sound pretty darn close. Rockford Fosgate and Lightning Audio are another good example.

Nothing is better for a marriage than saving your wife's corrupt save game file

*Spoilers* The Sky Cannon Glitch *Spoilers*

My wife encountered the Sky Cannon glitch yesterday (April Fools day, of all days), and what ensued highlighted both the benefits and drawbacks of the internet.

Let me explain: There is a point in the Wii game TLoZ:TTP (Twilight Princess) where, if you save and turn off the game in a certain room, you are unable to proceed in the game. This was after about 30-40 hours of playtime or more. As a result, my wife was a bit upset when she happened to save her game and quit in the exact room and situation where this happens. She said it was just a convenient time to quit, since she fully expected the next dungeon to be after that room. We had lunch. It was tasty.

The Internet confounds us!
Enter: The Internet. After a few searches it appears that there might be a solution to the problem. Some of the suggestions:

1) Go to where the character is supposed to be and talk to him (the model does not load, hence the glitch)
2) Kill yourself with bombs and restart earlier.
3) Warp out as the wolf

After several tries, none of this works. One Youtube video later we realized it was because there is no way around this problem.

Solution!
You can download a save file from just before the sky cannon error/glitch/bug in Twilight Princess from Gamefaqs (thank you!):
Step 1: Download save file from Gamefaqs
Step 2: Load save file onto SD card
Step 3: Copy save file onto the Wii
*We had to stop here. It turns out you cannot copy the new save file onto the Wii until you delete the old one. In fact, the Wii won't even recognize the Zelda save file on the SD card until you delete the old file.*
Step 4: Remove downloaded save file from SD card
Step 5: Copy existing save files from Wii to SD card
Step 6: Backup file to PC is a special folder for Zelda backup files
Step 7: Copy the downloaded file from Gamefaqs back onto the SD card
Step 8: Delete the Zelda save file from Wii system memory
Step 9: Copy the downloaded file from the SD card onto the Wii
Step 10: Turn on Wii, open Zelda, load file 2 called, "Link"

Whomever uploaded their pre-Cannon file to Gamefaqs did not complete several side-quests that my wife did, but those were minor compared to restarting the game. It made us grateful we owned Zelda on the Wii rather than the Gamecube, where we would have been unable to load the file from the Internet to the Wii. In fact, we should all be grateful of the interconnectedness that allows us to sidestep a problem like this.

Official Response from Nintendo
There is none. Surprised? So were my wife and I. We are very disappointed that Nintendo has not addressed this issue.

Applying the "time value of money" to real life
When a $2,300 LCD TV costs $1,600 with no-interest financing and sales

I have never used no interest financing on a consumer purchase. No interest financing is generally a scam to get buyers signed up for a store-line of credit. The consumer forgets to pay a bill or - much worse - forgets to make their payments by the date that the store begins charging interest, resulting in huge profits for the seller and inflated payments for the consumer.

However, a recent flyer from Circuit City caught my attention. In this case I have had my eye on the Sharp Aquos 42" LCD television (LC-42D62U) . Sharp was the first manufacturer of LCDs , and they have by far the clearest, brightest, and enjoyable LCD panels. It's also has a 1080p native resolution, so it will display full-HD, works well as a PC monitor, and is future-proof (well, as future-proof as you can get in consumer electronics).

 

 Circuit City's advertised price was $1,889.99, a $410 sale off the normal price of $2,299.99, and they were running a $150 coupon on TVs over $1,500, bringing the cost down to $1,739.99. Not only that, they were offering no interest financing until 2010. Of course, that comes with a massive section of small print.

So, if we make minimum payments until December 2009 and them pay off the TV, what would be the actual cost in today's dollars? Circuit City requires 1% or $10 minimum monthly payments, so we'll say $17.40 minimum per month. There would be 32 months before the December 31 payment of $1,183.19 was due (Total Cost=$1,739.99-($17.40*32)). While the current 30 day T-Bill, or risk-free rate (RFR) of return, is over 5%, a 30-day CD at the local bank is 3.6%, so I will use that as the discount rate, or our risk-free rate of return. This is the return you could earn on that money each month if you invested it risk free.

So we have the following:

N=32 months
RFR= 3.6%/12 (divide by 12 to convert to annual)
PMT= $17.40/mo
FV= $1,183.19

As a result of their no interest financing, the cost of the TV in today's dollars is actually $1,605.19. No interest financing saved us about $100 off the sale price. Our final total is more than 30% off the full retail price. If I buy it in NH instead of MA, I will also save the 5% sales tax charged by "Taxachusetts".

If you are diligent and able to pay off the total prior to 2010, it is a deal sweetener. If you fail to pay it off, though, the interest on the outstanding balance will quickly nullify your savings. The moral? Pay off your balance, and if you cannot, skip the financing.

Why Circuit City?
Circuit City's prices are almost always competitive with other large brick-and-mortar resellers, and their return policy outstrips every other electronics retailer I know. There is no restocking fee on big screen TVs, and you can return for any reason within 30 days (it must be tough at Super Bowl time). As a result, I tend to go there for large electronics purchases when they have the model I'm looking for rather than gambling on a cheaper internet-only provider. I don't want dead or stuck pixels on my new LCD and no place to exchange it.

I am in no way paid or compensated for my endorsement of Circuit City. I am a former employee (nine years ago). I also shop at Tweeter, Best Buy, and online depending on the item and the deal.

Angie's List is a web site that helps homeowners pre-screen contractors such as plumbers, masons, painters, and other tradesmen. The site helped me find a mason (though we have not signed him, yet). So why do I hate Angie's List so very, very much?

First: Angie's List charges users to subscribe to their services. I cannot stand having to pay for information on the internet. A majority of the foundation of the internet was conceived on the idea that it would help facilitate the exchange of knowledge without cost.

This is what Angie's List has to say about their fee:

Consumer support means it's honest: Companies don't pay to be on Angie's List. Only Angie's List members report on the companies they've hired. View the list of services rated in your area. Additionally, members make sure the ratings are clean and honest by supporting Angie's List. They pay a MEMBERSHIP FEE because we work for them (not the contractors) to keep the list growing with the most accurate information about the companies in their area.

There is little alternative to Angie's List for me in the Boston area, so I ponied up the $5.95 to join on a monthly basis. Then I found out there's a $10 joining fee. I paid that, too. In the end, the list provided me with a list of the most impressive masons in the Boston area for a large, pending job I have on my home.

So, I got over my first gripe. Insert gripe two.

Second: I am paying for the recommendations of other users who are themselves paying to populate a database that is owned by Angie's List. What this means is that subscribers are effectively paying Angie's List to create content for Angie's List which then resells it (genius on the part of Angie's List). The writer is paying Angie's List to take their work! If there is one thing that infuriates me, it is doing someone's work for them.

But I can learn to accept that.



Third, the web site is poorly implemented. I can find the information I want, but feedback tools are few and far between. If another user has submitted a questionable post, it is difficult to contact Angie's list staff. I submitted correction requests for some obviously incorrect entries, and received only a cookie-cutter response.

Not a big deal, I'm not paying for support, I'm paying for the opinions of other Boston citizens.

Which brings me to my final gripe: I am limited to the Boston area. My brother-in-law asked me if I could find a painter for him in New Jersey. I cannot. While I understand that Angie's list does not want any single account to be opened and abused for nationwide use, the restriction is just another downside that compounds my dissatisfaction with the service.

So I'm paying a fee for great content via a poorly implemented service that asks me to do all the work. I think I will be visiting web sites that are more customer-friendly. I will update after the work on my house is completed.

How to file taxes

Step 1) Buy Turbotax or Taxcut
Step 2) Install your choice of program onto your PC, following included instructions
Step 3) Follow on-screen instructions to create your return
Step 4) Print and mail return

Filing taxes is cheap and easy with these software programs. With a mortgage that was refinanced once in the same year, rental payments, numerous investments in taxable and tax-free savings accounts, and two sources of income, my wife and I still had no problem with Turbotax.

Print your return! You are still charged a fee for E-filing and until that fee is lifted, it's cheaper to print out a copy and mail it yourself!

 

 Unless you are uber-wealthy, you do not need a tax advisor. Tax advisors will always charge you more than the programs do, and you generally receive only a minor benefit. Both programs also have advisors available in case of emergency, so there is no excuse left.

My pick for the past three years has been Turbotax . My wife and I tried Taxcut one year and were fine, but we didn't appreciate the number of advertisements that popped up asking us to contact and H&R Block rep for help.

Get filing, the official deadline in April 16!

Selecting a mortgage

Selecting a mortgage is one of the most important decisions a person makes during their lifetime. While I typically encourage people to never, ever take on debt, a mortgage is the only reasonable way the average individual can afford to own their own home. In addition, mortgage interest is federal tax deductible, adding considerable tax benefits that often offset the burden of such an enormous debt.

An increase in the number of defaults in sub-prime mortgages - the riskiest borrowers - has made borrowing for individuals with modest and poor credit backgrounds considerably more difficult. As such, the best thing you can do for your mortgage search is to ensure a strong credit score.

 

 Types of mortgages
You want to know what kind of mortgage you need BEFORE meeting with a lender. While the lender will provide you with advice on the appropriate loan for you, the lender is acting in their own best interest, not yours. In general, you want the best loan you can afford, not necessarily the least expensive. If you have poor credit, you may want to reconsider purchasing a home until you can improve your existing finances. The following types of mortgages are available:

Fixed loan (15- or 30-year): Fixed loans are fantastic, they are the most stable type of loan, offer predictable fixed payments, and are a mature product. As your earnings (wages/salary/etc.) increase, your payments stay fixed, with the payments easier to make as time goes on. Fixed loans sometimes have higher rates than ARMs or alternative loans, but are the simplest type of loan with the least potential for something going wrong. Changes in market rates will have no impact on the loan. It's a regular, predictable payment. More than the phone or cable bill, because it will never change unless you refinance.

ARMs (Adjustable Rate Mortgages): Adjustable-rate mortgages offer a low interest rate for a span of 3, 5, or seven years after which the rate changes to reflect market rates. If rates are higher, you will have to pay more, although the opposite is also true. There are typically restrictions and/or penalties on refinancing these types of mortgages, so be careful. Typically, ARMs entice investors with lower rates before nailing them on the back end. Still, ARMs are appropriate for investors who want a house now and expect to be earning significantly more cash in a short span of years (such as a recent college graduate). In general, I do not like ARMs. There is a significant risk that once the loan reaches its "cliff", rates may be higher. Many individuals use ARMs because they are unable to afford fixed-rate loans or lack the credit, so a steep change in rates may force them from their homes. ARMs are also the primary loans responsible for a large volume of sub-prime defaults recently (March 2007).

Interest Only: Some investors cannot afford the payments of a fixed-rate, jumbo, or adjustable-rate mortgage. Those investors are typically forced to use interest-only loans or not buy a house. However, when you use an interest-only loan, you are not buying a house. You are basically renting the property from the bank, detracting from your net worth and lining the pockets of the lender. The house is no longer your asset, it is merely a place that you live while you make payments to the bank that will never stop. They may seduce buyers with an option down the road to pay down principal or talk about the tax benefits of interest-only loans, but in the meantime you are out a large volume of money in the form of that interest that you pay. Think credit card debt. Avoid interest-only loans at all costs. I cannot emphasize this enough.

 

 How much should I put down as a downpayment?
As much as possible up to 20%; if you need to sell securities - retirement savings does not count, do not touch that - do so to pay up the 20%. You will get a much better rate and be that much closer to paying off the house. Otherwise you may get hit with PMI (a cost you do not want to pay).

Rate locks
Don't do it. The rate might be locked, but then so are you. Lock only when you are ready to buy, and you shouldn't have to pay for the lock.

Selecting a mortgage
If you selected a good real estate agent, they will likely know several lenders - the firms that offer the mortgage - you might want to consider. If you live in MA,VT, NH, ME, CT, RI, or Florida use Poli Mortgage Group (Peter Brock if you're within an hour of Boston). Poli was fantastic for us (I am in no way affiliated with Poli and received no compensation for this endorsement).

The large bank lenders such as Bank of America, Wells Fargo, and HSBC will leave the liability of up-front costs for closing such as legal fees and application fees on you, and they may charge you points. You don not want to pay points; you can Google it if you want, paying more up front is almost always to your detriment.

Mortgage brokers like Poli that specialize in matching lenders with buyers will typically cover the closing fees, legal fees, and every other fee except the down payment. In exchange, you may need to pay a higher APR. This is okay; the higher APR - for mortgages but not for many things - will generally cost less in today's dollars than total dollars. In other words, your money will be worth less in the future due to inflation, so that higher fixed payment (on a fixed mortgage, which I hope you select) will cost you less as time goes on because you have been investing the money you have saved - by not paying closing costs, etc. - and making money.

Maybe this sounds confusing, because it is. Investing in a home is very, very complicated and your lender should be patient and explain every line item to you (several times, if necessary, as it was with us). Select a lender you are comfortable with because when you sign your mortgage and hand over the down payment it makes you liable for a very large monetary stream for a long, long time.

More information
One of the best sites I found was from Fidelity, which in no way benefits from use of this particular tool . In addition to some solid professional commentary on the various types of mortgages, the site offers some strong opinions on good and bad mortgages.

Secondarily, lender Fannie Mae has a wealth of basic information on buying a home, having it inspected, getting a lender, legal pitfalls, legal rights, and more. You should not miss out on some of their best resources, like the Getting a Mortgage checklist and mortgage definitions .

 

 Extra: Types of homes to consider
In the majority of situations, owning a home is more financially sound than renting a property. When purchasing a home, the first question you should ask is who else might want to buy it (if and) when you go to sell the property. Quirky homes, duplexes, condominiums, and any house that puts you at the mercy of your neighbors will have a more difficult time selling than a property that affords privacy. Houses with a bathroom upstairs and downstairs will sell better than homes with a single bathroom. Off-street parking or a garage is preferable to on-street parking to buyers.

Free-standing, single-family homes are always, always preferable to other property. Strongly consider a single-family home even if you are a single buyer. Get a good inspector. Get a third party to estimate repair costs if the inspector is concerned about any problems with the property. Get a good real estate agent that has seen a lot of houses. Get a good book to help you with selecting a home. Once the house is picked and you're happy, it's on to a mortgage.

Please note: I am not a mortgage expert. The aforementioned is what I have gleaned over the course of my own personal purchase of a home in the state of Massachusetts. Please notify me if you find errors in this document. Different situations and residential areas require different approaches when purchasing a home. As such, you should use a licensed real estate agent in good standing to advise you throughout the home purchasing process if you have not already been through it, or have some other competent individual to help guide you through the process. Also, pick up a good book on the topic. The mortgage is second in importance only to the home inspection.

Best of luck!

A man without a cent to his name, missing his front teeth, and reeking of Listerine (the choice of penniless drunks everywhere) once told me the following after I had struck out with a girl I wanted to date:

"You want some advice on women? You just gotta keep trying. Look at me, I'm not much to look at, but I get laid all the time. You know why? I just keep trying. I get turned down all the time - I know it's hard to believe - but I just get back in there and talk to someone else. Stop whining about getting turned down and just go talk to someone else. There's always someone else."

This is a true story. I worked at a campground in the summers in high school, and this drunk used to visit the store and talk for awhile every few days. He was highly personable and I wondered why a man who preached persistence did not have a decent job - or any job for that matter. He said:

"I'm just lazy. I work hard for what I want, but I don't want much."

So you have to read between the lines. He said a lot of idiotic things as well. The man got picked up by the cops a few days later for assaulting someone in the campground while he was intoxicated; not exactly a model citizen or a great example of success.

But some of the aforementioned still rings true: When you fail at something that is worth the spoils you need to keep trying. Sometimes you need to accept failure, and other times you need to remain persistent. In life, love, marriage, kids, buying a home, winning the race; in every trial there is the possibility of failure. However, how you deal with that failure determines your success more than the outcome itself.

Next time: Finding a mortgage

I love credit cards, but I despise debit cards.

Debit cards were created to take advantage of customers that are unable or unwilling to use credit cards. Whereas credit cards offer a short-term source for a cash loan without the hassle of having to qualify, debit cards draw down on existing assets, limiting growth. Paying for things today is always worse than paying for things later at the same price, as money devalues over time (inflation eats away at the value of the dollar). Credit cards allow consumers to delay their payment for up to one month. That is one additional month of interest that you do not get with debit cards.

Proponents of debit cards say that they never need to worry about spending more money than they have. This is ridiculous; the money is taken instantly out of your checking account. If you overdraft there is a fee. If you pay for overdraft protection, there is a fee.

There are more fees associated with debit cards than credit cards. Besides overdraft costs, debit cards typically charge a fee to the cardholder every time they have to enter their PIN for a transaction. Sometimes this fee is 25 cents per transaction, sometimes it is $1 to $2 dollars per month. Either way, there is an additional cost to using debit cards.



Other costs are more innocuous. The buyer has less protection with debit card. If the card is lost or stolen and money is withdrawn or used for purchase, the cardholder does not get their money back until the dispute is resolved. The credit-card holder is never missing any assets, even when the charges are in dispute. Further, credit card liability is only $50 by law; the same protection is not extended to debit cards. In fact, your debit card liability could be $500 up to the full amount of the liability, if you notify the bank more than 48 hours after you learn of the problem or even up to all the money in your checking account plus your maximum overdraft line of credit if you fail to notify the bank within 60 days. It depends on the bank.

There is also an opportunity cost: Rewards programs are generally lackluster for debit cards relative to credit cards. Dow Jones publication SmartMoney agrees.

Finally, there can be major problems with using a debit card to do things like hold a hotel room. Merchants may put a hold on the money, making it unavailable to the cardholder until the hold is cleared.

In summary, use credit cards whenever possible and control your spending. Never spend more money than you have.

Does an apology matter if it has to be prompted? Examples are numerous. The politics are not the issue, the issue is the sincerity of the apology.

The case of Chris Hecker
Game developer Chris Hecker - who is working on the game Spore - called the Nintendo Wii a P.O.S. in a long, long rant at the GDC (Game Developer's Conference) on March 7. "It's not clear to me that Nintendo gives a s*** about games as an art form," he said, "(Nintendo needs to) make a console that doesn't suck ass."

The next day he issued a statement withdrawing his prior comments as follows, "I do not think the Wii is a P.O.S. Nintendo needs to be applauded for trying to interface on the controller front, the user interface front, on making games accessible, on making a console that you don't need to mortgage your house to afford."

What are the odds he meant a single word in his apology? Not very high. The odds his employer gave him a tongue-lashing for misrepresenting the firm? High.



The case of Harvard President Summers
The president of Harvard University Lawrence H. Summers caused a furor in January 2005 when he made remarks that innate differences between men and women might be one reason fewer women succeed in science and math careers. The faculty of Harvard had a problem with his statements, and he issued an apology in response. His written retraction included, "I deeply regret the impact of my comments and apologize for not having weighed them more carefully. Despite reports to the contrary, I did not say, and I do not believe, that girls are intellectually less able than boys, or that women lack the ability to succeed at the highest levels of science."

Was he sincere in his apology? Did he feel it in his heart and regret what he had stated? His apology might have had more validity if his initial response to the media uproar had been something other than what the Boston Globe reported:

Summers said he was only putting forward hypotheses based on the scholarly work assembled for the conference, not expressing his own judgments -- in fact, he said, more research needs to be done on these issues. The organizer of the conference at the National Bureau of Economic Research said Summers was asked to be provocative, and that he was invited as a top economist, not as a Harvard official.

Indeed, if he felt remorse, would not his initial response have been something more like, "I didn't mean it that way." instead of, "based on scholarly work assembled for the conference?" Summers stepped down as Harvard President in 2006.



The case of General Pace
The top military commander of the United States marine General Peter Pace stated in the Chicago Tribune on Monday that, "I believe homosexual acts between two individuals are immoral and that we should not condone immoral acts." He issued a follow-up statement the next day stating that, "I should have focused more on my support of the policy and less on my personal moral views." While Gen Pace did not apologize for his views, the statement was an obvious response to political pressure. There is no doubt that he would not have issued the statement of his own accord. If Gen Pace did not initiate the response, than is it sincere and does it matter at all?



The case of Kim Jong Il
North Korean leader Kim Jong Il apologized for a nuclear detonation in October 2006. It is difficult to believe that the leader is sincere in his regret when it took thousands of man hours to develop and detonate the nuclear device. There was sufficient time prior to the detonation to realize, "Hey, we're detonating a nuclear device."

The detonation was premeditated and intentional to agitate the world and garner attention. On October 10th the US urged for severe trade emargoes on North Korea. If Kim Jong Il regrets the detonation of the nuclear device, I would be shocked.



I would say no, apologies only matter when they are unprompted and there are no benefits to apologizing for the one responsible for the wrongdoing.

Finally, take the following extreme scenario: A murderer confesses to his crime knowing he might have gotten away with it? Sincere. A murderer confesses to reduce his sentence? Insincere.