You may have noticed a substantial increase in the number of advertisements in print and on television soliciting retirement-aged homeowners to inquire about reverse mortgages. But exactly what are they?
Until the concept of the reverse mortgage was born, there were two main ways to get spendable cash from your home: either (1.) you could sell your home, or (2.) you could borrow against your home. The obvious problem with selling your home is that you would have to move, which can be an expensive, frustrating, and unwanted consequence, especially if you enjoy your current home and neighborhood. Of course, the problem with a traditional loan is that you would have to make regular, monthly payments to repay the loan. In addition, to be approved for the loan, you would need to pass a credit check and have adequate income to pay back the loan. The lack of income is the very reason to apply for a reverse mortgage, so this is clearly an obstacle to using the traditional mortgage route. Reverse mortgages solve these issues, so the homeowner can remain in the home while not having the financial burden of another monthly payment.
Simply put, a reverse mortgage is a loan product that allows home owners, who are 62 years old and older, an opportunity to convert the built-up equity in their primary residence into income that they can use for everyday expenses in their retirement years. Proceeds can be used for anything that the homeowner needs or desires, including for example: medical expenses, home repairs, property taxes, daily expenses, or entertainment and travel. They can receive money through a reverse mortgage program, so they do not have to sell their home, give up title to their property, or even make monthly payments. As opposed to a normal mortgage, there are no income or credit qualifications; rather, a reverse mortgage is based on three main factors, including: the age of the homeowner(s), value of the home, and the current interest rates.
There are a variety of ways a homeowner can receive these monies, such as:
*Equal monthly payments for as long as at least one borrower lives in the home;
*Equal but typically larger monthly payments for a fixed number of months selected;
*As a line of credit, which is available for use whenever needed;
*A lump sum cash payment; or,
*A combination of a monthly income and line of credit option, as shown above.
There are many reasons for a reverse mortgage, but chief among them is that elderly homeowners do not want to burden their children with the costs of their ongoing medical care, home repairs, or other living expenses, so a reverse mortgage works well in this situation, as the illiquid equity in their home can be converted into cash.
Although the concept has been around since at least 1961 when the first reverse mortgage was funded, not many homeowners have taken advantage of the opportunity until recently. In fact, only about 55,000 of these unique loans were made by 1999 (since the early-60's), yet this figure had rapidly increased to surpass 150,000 by 2005.
This increase can be attributed to increased consumer protections and education, yet still many older Americans do not fully understand exactly what a reverse mortgage is -- and is not - so, they may be reluctant to inquire. Complicating the matter, they may have only heard "half truths" about these loans or things that are completely untrue.
One common misconception is that the borrower will have to sign the title to their home over to the bank, so the financial institution will own their home. This is not true because a reverse mortgage is considered a loan, despite the fact that repayment does not have to occur until you or your estate sells the home, all of the homeowners die, or all homeowners reside outside the home for more than one year (such as in a nursing home facility). Lenders can also require repayment at any time if you fail to pay your property taxes, maintain and repair your home, fail to keep your home insured, or declare bankruptcy, but these are all fairly standard conditions of default on any mortgage, whether it is a reverse or traditional mortgage loan.
Another misunderstood aspect is that when the equity in the borrower's home "runs out" that the bank will force the owners out of their home or force them to sell the home. Again, this is not true, as the mortgage does not become due until the last surviving borrower dies, permanently leaves the home, or sells the property.
Similar to the fear of running out of equity is that some homeowners fear that they will be put in a situation where they owe more than their home is worth; however, this is unfounded because under reverse mortgage programs, they will never owe more than the value of the home. Since there is never more owed than the home is worth, no debt will be passed on to the homeowner's heirs. When the home is sold or no longer used as the homeowner's primary residence, the homeowner or his/her estate will repay the cash received from the reverse mortgage, along with interest and any other fees to the lender. Any remaining equity in the home belongs to the homeowner or their heirs (if the homeowner has died). If the borrower or their heirs prefer to keep the home, they can simply pay off the reverse mortgage by obtaining a normal mortgage on the property or by using other assets they may have available.
But what are the costs? Most reverse mortgages have an application fee, origination fee, closing costs, insurance, and a monthly servicing fee. These fees can typically be paid by the proceeds from the reverse mortgage, so there are no out-of-pocket expenses to the homeowner.
For additional information, please see the following website:
U.S. Department of Housing and Urban Development:
http://www.hud.gov/offices/hsg/sfh/hecm/...
Tuesday, October 30, 2007
Friday, October 26, 2007
A 1910 Letter From Linton to Congress
In 1910, The Mayor and City Councilmen of Linton wrote a letter to Congress. It is an interesting read from yesteryear, and it is reprinted in its entirety as follows:
Linton, Indiana, March, 8th, 1910.
To The Sixty-Fifth Congress Of The United States Of America, Washington, D. C.
Gentlemen:-
We, the Mayor and the City Council, of the City of Linton, Indiana, submit to your Honorable Body, the following report, relative to our commercial interests, in support of a bill now before you, for an appropriation of One-Hundred- Thousand-Dollars for the erection of a Federal building in the City of Linton, Indiana.
The reports submitted herewith are conservative, having been gathered from those in a position to know the valuations of the several enterprises here-in-after enumerated, and are statistical facts which will convey more accurate impressions of importance of the City as a commercial center, than could be otherwise given.
Coal Mining Industry;
The chief and basic industry of this City is Coal Mining, though since the development of the mining fields, other enterprises which naturally follow the fuel centers, have come until there is a diversity of interests which make Linton, not a mining camp, nor an overgrown town of unsubstantial buildings and temporary residences, but a modern thriving commercial City, where hundred of thousands of dollars have been and are being invested.
There are, within a radius of three miles of the City of Linton, sixteen coal mining properties in operation, representing an investment of One and One-Half Million dollars, employing twenty-five-hundred men, with a tonnage capacity of twenty-thousand tons per day and an average semi-monthly payroll of Seventy-Thousand dollars.
Coal mined in the Linton field is bituminous and it is said by coal dealers and consumers, that a better quality is not to be found.
Coke Industry;
Thirty-Five-Thousand dollars have just been expanded in the erection of Coke ovens for the purpose of testing the coke producing qualities of the coal in this field and the reports thus far are gratifying.
Arrangements have just been completed, and miners trains are now in service for the purpose of conveying miners from this City to practically all the mines within a radius of ten miles, the miners living at or near these mines having signified their desire to live in our City, if transportation to and from the mines could be had.
Rail Road Facilities;
Five rail roads enter our City, namely; Indianapolis Southern, from Indianapolis, Indiana, to Effingham, Ill., a part of the Illinois Central System, giving direct connection with through service to New Orleans, La. That part of the road between Linton and Indianapolis, Indiana, was completed three years ago, giving an outlet at Indianapolis, for the East and North by way of the several great railway systems entering that City.
The Monon, Bedford and Bloomfield Division, coming into the City over the Indianapolis, Southern tracks, having an outlet to the main line of the Chicago and Louisville Division at Bedford, Indiana.
Southern Indiana, from Seymour to Terre Haute, Indiana, giving direct connection with through service over the Chicago Southern, to Chicago, Ill. and giving an outlet at Terre Haute, North, West and South by way of the Frisco System and East and West by way of the Pennsylvania and Big Four Systems, with outlet at Seymour, for the North, East and South by way of the Baltimore and Ohio Southwestern and the Pennsylvania System.
Vandalia, branch from the Indianapolis and Vincennes Division, extending into the Linton Coal Fields, doing a coal shipping and a local freight business.
Monon, leaving the Chicago and Louisville Division at Quincy, Indiana, and extending into the Linton coal field. This road completed two years ago.
Receipts at the local offices of the five rail roads entering our City, for the year just closed, were, Nine-Hundred-Eighty-Four-Thousand Dollars.
Local Industries;-
Rolling Mill with One-hundred-fifty ton capacity, employing One-hundred-sixty men. Investment, One-hundred-thousand Dollars.
Water Works System, with twelve miles of maines, Seventy Fire hydrants, with an unlimited supply of water for both City and Commercial purposes. Investment One-hundred-seventy-five-thousand dollars.
Gas Plant, capacity 250,000 cubic feet per day with holder capacity of Fifty-millions cubic feet per year, using 13-½ miles of maines and fifty miles of service pipe. Gas is made from the Coal from our local mines, the by-product selling at the highest market prices. Investment One-hundred-twenty-five-thousand dollars.
Ice and Cold Storage Plant, tonnage capacity of thirty five tons per day. Investment, Ten-Thousand dollars.
Flouring Mill doing a One-hundred-thousand dollar business per year. $50,000 investment.
Three Printing establishments with three weekly papers and two Daily Papers, employing twenty-five men. Investments, Twenty-five-thousand dollars.
Other enterprises of smaller note representing several hundred thousand dollars in investments, as; Machine Shops, Lumber Yards, Planing Mills, Cigar Factories etc.
Banks, Two, State and National.
Trust Companies, One.
Churches;
Seven, three of which have real estate investments of One-hundred-fifty-thousand-dollars. Four having real estate investments to the amount of Ten-thousand dollars.
Fifteen-thousand dollar Carnegie Library.
City Schools;
Enumeration, Nineteen-hundred-twenty-six.
Enrollment, Fourteen-hundred-ninety-eight.
Pay-roll last year, $14,377.64.
Pay-roll this year will be, $18.574.56.
Five School Buildings; One High School and four Ward Buildings, employing 32 teachers.
Value of the School buildings and Apparatuses, $78.000.
In addition to the regular grade work, of which there are eight, and the regular high school work, music and art are taught.
Commissioned High School with a nine months term.
The City owns the Electric Lighting System, which is conservatively estimated at $50.000.
City Improvements;
Brick Streets, Two miles
Macadam Streets, Three miles.
Cement Sidewalks, Sixty miles.
Sanitary Sewage system, completed, June, 1908, with 14 miles maines, at a cost of $75.000.
Farming Industry;
To say Linton is fortunate is a modest statement of the facts. Not only is the City and vicinity fortunate in possessing the great fields of coal, but in other things as well. No section of the country within the Great fertile valley of the Mississippi, can justly lay claims to better land adapted to agriculture.
Time and progress have also wrought changes in this respect. The drainage of swamps and the reclamation of marshes have added thousands of fertile fruitful acres to the territory. That were of but comparatively recent years bogs and thickets, covered with shrubbery and marsh grasses, are new vast fields of cereal.
Plethoric barns and granaries have taken the place of modest log stables and pens, and the spirit of progress and prosperity have superceded squalor and discontent.
In pace with these changes, the building of gravel and macadam roads has also been carried on without a burdensome taxation and a system of gravel and macadam roads not equaled by any locality south of Indianapolis, has been constructed.
We, the Mayor, and the City Council, of the City of Linton, Indiana, verify the foregoing statement.
/s/ Granville Riley, Mayor
/s/ Curt Dittimore, Councilman
/s/ Benj. Holcher, Councilman
/s/ Seph Inman, Councilman
/s/ Enoch Murphy, Councilman
/s/ Joseph Hurt, Councilman
Linton, Indiana, March, 8th, 1910.
To The Sixty-Fifth Congress Of The United States Of America, Washington, D. C.
Gentlemen:-
We, the Mayor and the City Council, of the City of Linton, Indiana, submit to your Honorable Body, the following report, relative to our commercial interests, in support of a bill now before you, for an appropriation of One-Hundred- Thousand-Dollars for the erection of a Federal building in the City of Linton, Indiana.
The reports submitted herewith are conservative, having been gathered from those in a position to know the valuations of the several enterprises here-in-after enumerated, and are statistical facts which will convey more accurate impressions of importance of the City as a commercial center, than could be otherwise given.
Coal Mining Industry;
The chief and basic industry of this City is Coal Mining, though since the development of the mining fields, other enterprises which naturally follow the fuel centers, have come until there is a diversity of interests which make Linton, not a mining camp, nor an overgrown town of unsubstantial buildings and temporary residences, but a modern thriving commercial City, where hundred of thousands of dollars have been and are being invested.
There are, within a radius of three miles of the City of Linton, sixteen coal mining properties in operation, representing an investment of One and One-Half Million dollars, employing twenty-five-hundred men, with a tonnage capacity of twenty-thousand tons per day and an average semi-monthly payroll of Seventy-Thousand dollars.
Coal mined in the Linton field is bituminous and it is said by coal dealers and consumers, that a better quality is not to be found.
Coke Industry;
Thirty-Five-Thousand dollars have just been expanded in the erection of Coke ovens for the purpose of testing the coke producing qualities of the coal in this field and the reports thus far are gratifying.
Arrangements have just been completed, and miners trains are now in service for the purpose of conveying miners from this City to practically all the mines within a radius of ten miles, the miners living at or near these mines having signified their desire to live in our City, if transportation to and from the mines could be had.
Rail Road Facilities;
Five rail roads enter our City, namely; Indianapolis Southern, from Indianapolis, Indiana, to Effingham, Ill., a part of the Illinois Central System, giving direct connection with through service to New Orleans, La. That part of the road between Linton and Indianapolis, Indiana, was completed three years ago, giving an outlet at Indianapolis, for the East and North by way of the several great railway systems entering that City.
The Monon, Bedford and Bloomfield Division, coming into the City over the Indianapolis, Southern tracks, having an outlet to the main line of the Chicago and Louisville Division at Bedford, Indiana.
Southern Indiana, from Seymour to Terre Haute, Indiana, giving direct connection with through service over the Chicago Southern, to Chicago, Ill. and giving an outlet at Terre Haute, North, West and South by way of the Frisco System and East and West by way of the Pennsylvania and Big Four Systems, with outlet at Seymour, for the North, East and South by way of the Baltimore and Ohio Southwestern and the Pennsylvania System.
Vandalia, branch from the Indianapolis and Vincennes Division, extending into the Linton Coal Fields, doing a coal shipping and a local freight business.
Monon, leaving the Chicago and Louisville Division at Quincy, Indiana, and extending into the Linton coal field. This road completed two years ago.
Receipts at the local offices of the five rail roads entering our City, for the year just closed, were, Nine-Hundred-Eighty-Four-Thousand Dollars.
Local Industries;-
Rolling Mill with One-hundred-fifty ton capacity, employing One-hundred-sixty men. Investment, One-hundred-thousand Dollars.
Water Works System, with twelve miles of maines, Seventy Fire hydrants, with an unlimited supply of water for both City and Commercial purposes. Investment One-hundred-seventy-five-thousand dollars.
Gas Plant, capacity 250,000 cubic feet per day with holder capacity of Fifty-millions cubic feet per year, using 13-½ miles of maines and fifty miles of service pipe. Gas is made from the Coal from our local mines, the by-product selling at the highest market prices. Investment One-hundred-twenty-five-thousand dollars.
Ice and Cold Storage Plant, tonnage capacity of thirty five tons per day. Investment, Ten-Thousand dollars.
Flouring Mill doing a One-hundred-thousand dollar business per year. $50,000 investment.
Three Printing establishments with three weekly papers and two Daily Papers, employing twenty-five men. Investments, Twenty-five-thousand dollars.
Other enterprises of smaller note representing several hundred thousand dollars in investments, as; Machine Shops, Lumber Yards, Planing Mills, Cigar Factories etc.
Banks, Two, State and National.
Trust Companies, One.
Churches;
Seven, three of which have real estate investments of One-hundred-fifty-thousand-dollars. Four having real estate investments to the amount of Ten-thousand dollars.
Fifteen-thousand dollar Carnegie Library.
City Schools;
Enumeration, Nineteen-hundred-twenty-six.
Enrollment, Fourteen-hundred-ninety-eight.
Pay-roll last year, $14,377.64.
Pay-roll this year will be, $18.574.56.
Five School Buildings; One High School and four Ward Buildings, employing 32 teachers.
Value of the School buildings and Apparatuses, $78.000.
In addition to the regular grade work, of which there are eight, and the regular high school work, music and art are taught.
Commissioned High School with a nine months term.
The City owns the Electric Lighting System, which is conservatively estimated at $50.000.
City Improvements;
Brick Streets, Two miles
Macadam Streets, Three miles.
Cement Sidewalks, Sixty miles.
Sanitary Sewage system, completed, June, 1908, with 14 miles maines, at a cost of $75.000.
Farming Industry;
To say Linton is fortunate is a modest statement of the facts. Not only is the City and vicinity fortunate in possessing the great fields of coal, but in other things as well. No section of the country within the Great fertile valley of the Mississippi, can justly lay claims to better land adapted to agriculture.
Time and progress have also wrought changes in this respect. The drainage of swamps and the reclamation of marshes have added thousands of fertile fruitful acres to the territory. That were of but comparatively recent years bogs and thickets, covered with shrubbery and marsh grasses, are new vast fields of cereal.
Plethoric barns and granaries have taken the place of modest log stables and pens, and the spirit of progress and prosperity have superceded squalor and discontent.
In pace with these changes, the building of gravel and macadam roads has also been carried on without a burdensome taxation and a system of gravel and macadam roads not equaled by any locality south of Indianapolis, has been constructed.
We, the Mayor, and the City Council, of the City of Linton, Indiana, verify the foregoing statement.
/s/ Granville Riley, Mayor
/s/ Curt Dittimore, Councilman
/s/ Benj. Holcher, Councilman
/s/ Seph Inman, Councilman
/s/ Enoch Murphy, Councilman
/s/ Joseph Hurt, Councilman
Friday, October 19, 2007
What It Costs to Live in Greene County: Part III
From Parts I & II, we calculated annual 'take home' pay for an average household in Greene County was $31,288.52 or $2,607.38 per month.
In Part III, we'll look at 'average' monthly expenses, which are certainly the most interesting -- and subjective -- part of the series. To take out as much subjectivity as possible, we'll use general rules-of-thumb or 'supposed to' amounts first. If none were found or exist, we'll use national averages. If no national averages are found, we'll use 'guess-timates'.
First, let's deduct $260.74 per month for tithing and charity. Now, some argue that this figure should be 10% of gross income, while others say 10% of take-home pay. Still others say that 10% should go to your church, and various charities are on top of that amount. Of course, some do not attend a church nor give to charity at all, so they have no expenditures in this category. All arguments aside, we'll use 10% of take-home pay for church and charities.
Second, let's deduct $8,000 per year or $666.7 per month for IRA contributions for this 'average' couple. This fits under the 'supposed to' category, as many do not do this, but we're all supposed to be. After all, if you're not looking out for your own retirement, who is?
Third, we'll deduct $180 per month for a home phone, internet access, satellite or cable subscription, and a cell phone plan. This is based on $60 for phone and internet, $60 for cable or satellite, and $60 for a cellular plan. Sure, some plans and subscriptions are cheaper, some are more expensive. In any event, there are a number of access fees and charges, as well as various taxes, on each, so we shouldn't forget those. (Remember buying that cellular plan that was supposed to be $39.99 a month, but your first bill was more like $60 with all the extra fees and charges? Funny how that works, isn't it?) While this $180 is not completely necessary -- people do actually live without these conveniences -- we'll include them.
Fourth, we have to eat. This one falls under 'subjective' and a 'guess-timate' because no rules-of-thumb were found. It all depends on your appetite, likes and dislikes, where you shop, etc., etc. For groceries, let's plug in $300 per month. Dining out, while not necessary, we will still include an occasional trip to a casual dining restaurant or some fast food along the way by using $100 per month. For those not spending time in a restaurant, chalk this expense up as for entertainment too, say, a movie out or the like.
Fifth, we need a roof over our heads. In fact, that probably should have come closer to first in the list, but we did't forget nonetheless. Sure, you can rent, but in Greene County there's a very high percentage of home ownership. Looking at the 2000 U.S. census data and a recent housing assessment completed in 2005, we note that the median home value in Linton is approximately $50,000. Typically, a bank will loan 80% loan-to-value against that home, so our mortgage will be about $40,000. Current rates on a 30-year loan are 6.5% or so. So, based on this data, our mortgage payment each month will be almost $260.
Utilities to heat and cool the home, as well as provide light, water, sewage, and trash pick up will be estimated at $175 per month on average. Of course, winter and summer bills tend to be the highest, but we'll just use an average among all months.
Along with home ownership comes the pleasure of paying property taxes, casualty insurance, and maintenance. Since this is our primary residence and we have a mortgage, though, we can apply for a homestead exemption and a mortgage exemption at the Courthouse. Both will cut our property tax bill significantly, which by my calculations will be $434 per year or $36.14 per month. This is based on the new rate in the City of Linton of 3.6140%. Insurance against fire, tornado, and other disasters is estimated at $400 per year or $33.33 per month. Again, this depends on a lot of circumstances, including the age and condition of the home, the credit score of the homeowner, the amount of the deductible, etc. Along with routine maintenance, which we will estimate costing $500 per year, we’ll need to replace some more costly aspects too. For example, although it's far from a daily expense, we will eventually need to replace the roof, exterior siding or paint, floor coverings, the furnace & air conditioning, and various other miscellaneous items. We'll estimate the costs of replacing these, as well as their useful lives, as follows:
Roof - $4,000 - 20years
Exterior - $2,500 - 25 years
Floor Coverings - $2,000 - 12 years
HVAC unit - $3,000 - 20 years
Misc. - $1,000 - 20 years
True, all of these items can have widely varying prices and useful lives, but these are the assumptions. Combined with our estimate of $500 for maintenance per year, these will all total $1,166.67 per year or $97.22 per month.
Sixth, we need to get to work. So, we need to look at vehicle loans. Although the 'sky is the limit' on prices paid for a set of wheels, we'll use a fairly conservative amount, such as $13,500 as a loan amount. This may buy a smaller car or a larger one with a decent down payment. Based on a 6% interest rate and a 60 month loan term, our payment will be about $260. (There's just something about having a car payment higher than a mortgage payment; hence, they're equal here.) Insurance is of course required by law, but again depending on the company, coverage, deductible, and credit score of the applicant, prices can vary widely. We'll use $500 per year, which is $41.67 per month. License plates figure into the mix, too, and these are estimated at $250 per year (20.83 per month). Lastly, we need to put gasoline in the tank. According to national data, the average person puts about $1,000 into their tank each year.
Most of us in Greene County observe Christmas, although national studies indicate a wide range of what we spend during the holidays. National Public Radio reported a figure of only $466, while other studies said $700 to $1,000. At the risk of being called Scrooge, we will use the NPR figure because we're running out of money quickly. Using the $466 per year, that equates to $38.83 being set aside each month.
Seventh, we consume a lot of things that will be simply thrown away, but necessary nonetheless. Such items include toilet paper, paper towels, floss, tooth paste, soap and shampoo, etc. Having not a clue what all this stuff costs the average couple, we'll use $25 per month, so at least we acknowledged it.
Eighth, we'll put a measly 1% of our income into savings each month, which is $34.60.
There. We did it! We have $1.97 left each month to our name! Not a whole lot of room for having kids, is it?
But wait! The average consumer has $10,000 of credit card debt. At a typical 2% of the balance minimum required payment ($200), we're now $198.03 in the hole every month.
How can this be?
Stay tuned. In Part IV, we'll discuss some likely scenarios of how this can be and what assumptions we may have gotten all wrong.
In Part III, we'll look at 'average' monthly expenses, which are certainly the most interesting -- and subjective -- part of the series. To take out as much subjectivity as possible, we'll use general rules-of-thumb or 'supposed to' amounts first. If none were found or exist, we'll use national averages. If no national averages are found, we'll use 'guess-timates'.
First, let's deduct $260.74 per month for tithing and charity. Now, some argue that this figure should be 10% of gross income, while others say 10% of take-home pay. Still others say that 10% should go to your church, and various charities are on top of that amount. Of course, some do not attend a church nor give to charity at all, so they have no expenditures in this category. All arguments aside, we'll use 10% of take-home pay for church and charities.
Second, let's deduct $8,000 per year or $666.7 per month for IRA contributions for this 'average' couple. This fits under the 'supposed to' category, as many do not do this, but we're all supposed to be. After all, if you're not looking out for your own retirement, who is?
Third, we'll deduct $180 per month for a home phone, internet access, satellite or cable subscription, and a cell phone plan. This is based on $60 for phone and internet, $60 for cable or satellite, and $60 for a cellular plan. Sure, some plans and subscriptions are cheaper, some are more expensive. In any event, there are a number of access fees and charges, as well as various taxes, on each, so we shouldn't forget those. (Remember buying that cellular plan that was supposed to be $39.99 a month, but your first bill was more like $60 with all the extra fees and charges? Funny how that works, isn't it?) While this $180 is not completely necessary -- people do actually live without these conveniences -- we'll include them.
Fourth, we have to eat. This one falls under 'subjective' and a 'guess-timate' because no rules-of-thumb were found. It all depends on your appetite, likes and dislikes, where you shop, etc., etc. For groceries, let's plug in $300 per month. Dining out, while not necessary, we will still include an occasional trip to a casual dining restaurant or some fast food along the way by using $100 per month. For those not spending time in a restaurant, chalk this expense up as for entertainment too, say, a movie out or the like.
Fifth, we need a roof over our heads. In fact, that probably should have come closer to first in the list, but we did't forget nonetheless. Sure, you can rent, but in Greene County there's a very high percentage of home ownership. Looking at the 2000 U.S. census data and a recent housing assessment completed in 2005, we note that the median home value in Linton is approximately $50,000. Typically, a bank will loan 80% loan-to-value against that home, so our mortgage will be about $40,000. Current rates on a 30-year loan are 6.5% or so. So, based on this data, our mortgage payment each month will be almost $260.
Utilities to heat and cool the home, as well as provide light, water, sewage, and trash pick up will be estimated at $175 per month on average. Of course, winter and summer bills tend to be the highest, but we'll just use an average among all months.
Along with home ownership comes the pleasure of paying property taxes, casualty insurance, and maintenance. Since this is our primary residence and we have a mortgage, though, we can apply for a homestead exemption and a mortgage exemption at the Courthouse. Both will cut our property tax bill significantly, which by my calculations will be $434 per year or $36.14 per month. This is based on the new rate in the City of Linton of 3.6140%. Insurance against fire, tornado, and other disasters is estimated at $400 per year or $33.33 per month. Again, this depends on a lot of circumstances, including the age and condition of the home, the credit score of the homeowner, the amount of the deductible, etc. Along with routine maintenance, which we will estimate costing $500 per year, we’ll need to replace some more costly aspects too. For example, although it's far from a daily expense, we will eventually need to replace the roof, exterior siding or paint, floor coverings, the furnace & air conditioning, and various other miscellaneous items. We'll estimate the costs of replacing these, as well as their useful lives, as follows:
Roof - $4,000 - 20years
Exterior - $2,500 - 25 years
Floor Coverings - $2,000 - 12 years
HVAC unit - $3,000 - 20 years
Misc. - $1,000 - 20 years
True, all of these items can have widely varying prices and useful lives, but these are the assumptions. Combined with our estimate of $500 for maintenance per year, these will all total $1,166.67 per year or $97.22 per month.
Sixth, we need to get to work. So, we need to look at vehicle loans. Although the 'sky is the limit' on prices paid for a set of wheels, we'll use a fairly conservative amount, such as $13,500 as a loan amount. This may buy a smaller car or a larger one with a decent down payment. Based on a 6% interest rate and a 60 month loan term, our payment will be about $260. (There's just something about having a car payment higher than a mortgage payment; hence, they're equal here.) Insurance is of course required by law, but again depending on the company, coverage, deductible, and credit score of the applicant, prices can vary widely. We'll use $500 per year, which is $41.67 per month. License plates figure into the mix, too, and these are estimated at $250 per year (20.83 per month). Lastly, we need to put gasoline in the tank. According to national data, the average person puts about $1,000 into their tank each year.
Most of us in Greene County observe Christmas, although national studies indicate a wide range of what we spend during the holidays. National Public Radio reported a figure of only $466, while other studies said $700 to $1,000. At the risk of being called Scrooge, we will use the NPR figure because we're running out of money quickly. Using the $466 per year, that equates to $38.83 being set aside each month.
Seventh, we consume a lot of things that will be simply thrown away, but necessary nonetheless. Such items include toilet paper, paper towels, floss, tooth paste, soap and shampoo, etc. Having not a clue what all this stuff costs the average couple, we'll use $25 per month, so at least we acknowledged it.
Eighth, we'll put a measly 1% of our income into savings each month, which is $34.60.
There. We did it! We have $1.97 left each month to our name! Not a whole lot of room for having kids, is it?
But wait! The average consumer has $10,000 of credit card debt. At a typical 2% of the balance minimum required payment ($200), we're now $198.03 in the hole every month.
How can this be?
Stay tuned. In Part IV, we'll discuss some likely scenarios of how this can be and what assumptions we may have gotten all wrong.
Thursday, October 18, 2007
Tax Abatement: An Economic Development Tool
From what was being said during certain political ads in the primaries of at least one out-of-county race, there appears to be general misunderstanding about the economic development tool called 'property tax abatement' and misinformation about what it means to area economic development, local government, and fellow property tax payers in the community.
Property tax abatement in Indiana is authorized under state law in the form of deductions from assessed valuation; however, a better way of phrasing this would be that it is a tool that allows the increase in property taxes to be 'phased-in' over a period of time, say, ten years. (There is abatement available for such personal property as new machinery, too, but we will tackle only the real estate aspect.)
A property owner who makes improvements to real estate may apply to the local governmental body for property tax abatement. The local governing body could be the City Council, County Council, or the development or redevelopment commission having jurisdiction over the area.
It is important to understand that only the increase in the assessed valuation, which occurs as a result of the additional investment, is eligible for tax abatement. So, no tax money is lost from the existing improvements or structures on the property. The property taxes cannot be lower than the prior year's taxes.
Essentially, local government uses tax abatement to encourage investment in the area, while also ultimately increasing the tax base of the community and the taxes collected from the particular property that has been improved. While this provides an incentive to companies to invest and expand their businesses in the area, the local government has not sacrificed any taxes it currently is collecting, as commonly misunderstood.
The government has only given up a percentage of the 'theoretical' taxes that could have been assessed on the improvements or additions to a property, if the abatement was not given. This is referred to as 'theoretical' because the improvement may have never been brought into reality in the first place without the abatement incentive. In fact, businesses may look elsewhere to other communities willing to offer such abatements. In that scenario, if a community does not offer abatement, they have not only lost the increased tax base, but they may have lost any additional jobs that would have come along with that expansion or relocation to the area too.
As you can see, tax abatement does not put a community in any tax jeopardy. Rather, it is an effective negotiating tool when it comes to promoting economic development. Not using economic development tools because of misunderstanding and misinformation, however, can lead to businesses looking to expand or relocate elsewhere where they are understood.
Property tax abatement in Indiana is authorized under state law in the form of deductions from assessed valuation; however, a better way of phrasing this would be that it is a tool that allows the increase in property taxes to be 'phased-in' over a period of time, say, ten years. (There is abatement available for such personal property as new machinery, too, but we will tackle only the real estate aspect.)
A property owner who makes improvements to real estate may apply to the local governmental body for property tax abatement. The local governing body could be the City Council, County Council, or the development or redevelopment commission having jurisdiction over the area.
It is important to understand that only the increase in the assessed valuation, which occurs as a result of the additional investment, is eligible for tax abatement. So, no tax money is lost from the existing improvements or structures on the property. The property taxes cannot be lower than the prior year's taxes.
Essentially, local government uses tax abatement to encourage investment in the area, while also ultimately increasing the tax base of the community and the taxes collected from the particular property that has been improved. While this provides an incentive to companies to invest and expand their businesses in the area, the local government has not sacrificed any taxes it currently is collecting, as commonly misunderstood.
The government has only given up a percentage of the 'theoretical' taxes that could have been assessed on the improvements or additions to a property, if the abatement was not given. This is referred to as 'theoretical' because the improvement may have never been brought into reality in the first place without the abatement incentive. In fact, businesses may look elsewhere to other communities willing to offer such abatements. In that scenario, if a community does not offer abatement, they have not only lost the increased tax base, but they may have lost any additional jobs that would have come along with that expansion or relocation to the area too.
As you can see, tax abatement does not put a community in any tax jeopardy. Rather, it is an effective negotiating tool when it comes to promoting economic development. Not using economic development tools because of misunderstanding and misinformation, however, can lead to businesses looking to expand or relocate elsewhere where they are understood.
Thursday, October 11, 2007
Paying Off Debt -- Fast!
Do you want to save big bucks? How would you like to pay off all your debts in record time?
A little organization and a "game plan" can help you do both! Here's how:
First, list and prioritize your mortgage debt, credit cards, auto loans, etc. with the highest interest rate first and the lowest rate last. Second, pay the minimum payments due on all but the highest interest rate debt. (Yes, you heard me right: pay the minimums on all but the highest rate!) Third, apply an additional amount, say, an extra $100 per month on the highest interest rate debt. Once this debt is paid off, you apply that payment plus your extra $100 to the second highest interest rate debt until it's paid off. Repeat the process for the third, fourth, fifth, etc. until you're debt-free.
Let's look at an example:
Joe has $100,000 of debt. It is broken down as follows:
Debt: Balance: Payment: Rate:
Car Loan - $20,000 - $387 - 6.0%
Home Mortgage - $55,000 - $348 - 6.5%
Credit Card A - $7,500 - $150 - 18.0%
Credit Card B - $2,500 - $75 - 12.0%
Student Loan - $15,000 - $145 - 3.0%
If we simply prioritized the debts to pay off by the highest interest rate charged, we would list them like this:
Priority: Debt: Balance: Payment: Rate:
#1 - Credit Card A - $7,500 - $150 - 18.0%
#2 - Credit Card B - $2,500 - $75 - 12.0%
#3 - Home Mortgage - $55,000 - $348 - 6.5%
#4 - Car Loan - $20,000 - $387 - 6.0%
#5 - Student Loan - $15,000 - $145 - 3.0%
If Joe pays only the minimum payment required on these debts each month, he will spend a total of $82,476 in interest over the next 30 years that it will take to pay off these debts.
Alternatively, if Joe were to prioritize these debts with the highest interest rate as first to pay off and the lowest rate as the last to pay off, and he applies $100 extra dollars to the highest rate debt until it is paid off, he would save lots of money and time. In fact, the time to pay off everything would be reduced to only 9 years and 2 months (compared with 30 years!), and the interest savings he would enjoy would be over $50,500!
So, instead of paying just the minimums or paying a little extra on each debt each month, you should consider putting together your own game plan. Simply list and prioritize your debts and routinely apply a little extra to the highest interest rate debt you have while just paying the minimums on the rest. Once the first debt is paid off, you apply that payment plus your extra $100 to the second-highest rate debt until it's paid off.
You'll be debt-free in less time than you think!
A little organization and a "game plan" can help you do both! Here's how:
First, list and prioritize your mortgage debt, credit cards, auto loans, etc. with the highest interest rate first and the lowest rate last. Second, pay the minimum payments due on all but the highest interest rate debt. (Yes, you heard me right: pay the minimums on all but the highest rate!) Third, apply an additional amount, say, an extra $100 per month on the highest interest rate debt. Once this debt is paid off, you apply that payment plus your extra $100 to the second highest interest rate debt until it's paid off. Repeat the process for the third, fourth, fifth, etc. until you're debt-free.
Let's look at an example:
Joe has $100,000 of debt. It is broken down as follows:
Debt: Balance: Payment: Rate:
Car Loan - $20,000 - $387 - 6.0%
Home Mortgage - $55,000 - $348 - 6.5%
Credit Card A - $7,500 - $150 - 18.0%
Credit Card B - $2,500 - $75 - 12.0%
Student Loan - $15,000 - $145 - 3.0%
If we simply prioritized the debts to pay off by the highest interest rate charged, we would list them like this:
Priority: Debt: Balance: Payment: Rate:
#1 - Credit Card A - $7,500 - $150 - 18.0%
#2 - Credit Card B - $2,500 - $75 - 12.0%
#3 - Home Mortgage - $55,000 - $348 - 6.5%
#4 - Car Loan - $20,000 - $387 - 6.0%
#5 - Student Loan - $15,000 - $145 - 3.0%
If Joe pays only the minimum payment required on these debts each month, he will spend a total of $82,476 in interest over the next 30 years that it will take to pay off these debts.
Alternatively, if Joe were to prioritize these debts with the highest interest rate as first to pay off and the lowest rate as the last to pay off, and he applies $100 extra dollars to the highest rate debt until it is paid off, he would save lots of money and time. In fact, the time to pay off everything would be reduced to only 9 years and 2 months (compared with 30 years!), and the interest savings he would enjoy would be over $50,500!
So, instead of paying just the minimums or paying a little extra on each debt each month, you should consider putting together your own game plan. Simply list and prioritize your debts and routinely apply a little extra to the highest interest rate debt you have while just paying the minimums on the rest. Once the first debt is paid off, you apply that payment plus your extra $100 to the second-highest rate debt until it's paid off.
You'll be debt-free in less time than you think!
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