l a i c n a Fin e c n a r u s n I & e d i Gu
A SPECIAL SECTION OF THE DENISON BULLETIN AND DENISON REVIEW | Friday, February 20, 2015
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Financial & Insurance Guide
February 20, 2015
Explaining 401(k) fees Many men and women are aware of the importance of retirement planning, which leads many to enroll in employer-sponsored 401(k) programs. When reviewing their quarterly statements, men and women may notice they’re being charged certain fees, which can add up over time, prompting some investors to wonder just what they are paying for. Individual fees Individual fees may or may not be charged each quarter, as these fees are typically only instituted when the account holder initiates certain processes, such as taking out a loan on his or her 401(k). Such actions incur fees, and it’s impor-
tant that investors know just how much those fees are before taking any actions with regard to their accounts. Investment fees Investment fees, sometimes referred to as investment management fees, tend to be the most expensive fees. These are the fees you pay the company that handles your 401(k) and manages your funds. The fees typically are assessed as a percentage of assets invested; the more your 401(k) grows, the more you will pay in investment fees. These fees are automatically deducted from your investment returns. Administration fees Typically noted as plan administration fees on your quarterly statements, ad-
ministration fees are the costs associated with the day-to-day operation of your plan. Record keeping, accounting, legal and trustee services are all paid for under the umbrella of administration fees. Account holders now get more bang for the buck with regard to administration fees, which typically cover electronic access to plan information, daily valuation and online transactions, in addition
to the services that have been provided for years. When considering fees associated with 401(k) retirement plans, it’s important that investors are aware that these fees will escalate as their investment returns increase. Recognizing that and budgeting for such fees is an important part of retirement planning.
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February 20, 2015
Financial & Insurance Guide
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Recovering Legacy planning from identity theft insight for your family Instances of identity fraud, a situation in which someone’s personal information is used to access money, and identity theft have grown in recent years. The number of identity fraud victims jumped to 13.1 million in 2013, according to a report by Javelin Strategy & Research. Data breaches and hacker activity account for a growing number of identity theft cases. In addition, criminals have grown more adept at using information they obtain about others to take over consumers’ finances. How do those victimized by identity theft repair the damage and recover their good names? The process can be both time-consuming and frustrating. Following is a plan to help men and women recover from identity theft. w Do not panic if you learn of a data breach or even if your personal information has been compromised. In many instances, banks, retailers and other companies that store personal data have safeguards in effect to prevent widespread distribution or use of stolen information. A data breach may mean account numbers were stolen but not PIN codes. Get the facts first and then you
can go from there. w Americans victimized by identity theft can file an official report with a local law enforcement agency as well as the Federal Trade Commission. Keep a copy of the police report and the contact information of the fraud investigator who handled your case. Many creditors will require a police report when individuals try to resolve problems with them. w Contact one of the three major credit monitoring bureaus and ask to have a fraud alert placed on your credit report. After an alert is placed by one credit bureau, the others should follow suit. Give the police report number or any claim number to the credit bureau. Following are the numbers for the credit bureaus: • Equifax: 1-800-5256285 • Experian: 1-888-3973742 • TransUnion: 1-800680-7289
w Contact your credit card companies promptly and inform them of the identity breach. They can put notes on your account to verify purchases and also to go over any purchases made recently that may be suspect. Just to be safe, ask each of your creditors to issue new cards with a different account number. w Speak with a banking representative if you are a frequent user of an ATM card or debit card. Review your latest banking statement to see if any suspect transactions are listed. Request a new debit card be issued. In some instances, identity thieves change your address in order to facilitate additional crimes, such as the delivery of credit cards and fraudulently purchased merchandise. If you suspect that this has happened to you, notify your area’s postal inspector. If you suspect official documents and identification numbers, such as passports or licenses, have been compromised, you must contact those agencies directly and follow their guidelines. Even after you go through the process of restoring your identity, you will need to remain diligent and frequently monitor credit reports and statements to ensure your information is no longer being used illegally.
By Ann K. Slechta, Principal National and Principal Life Financial Representative, Princor Registered Representative and Investment Adviser Representative Naturally, as a farmer or rancher, you want to preserve the lifestyle that’s taken you a lifetime to create. I encourage you to ask yourself: Will you be able to retire? Would your operation be able to continue if you were no longer at the helm? Does your successor understand your intentions? When you’re gone, will your assets be distributed according to your wishes? Will your family be taken care of? You can take many steps now to help ensure a successful transfer of your operation’s management, and, ultimately, an effective transfer of your assets. Identify your successor. Will the next manager of your farm or ranch be someone in the family, an individual who currently works for you or a person you hire from outside your operation? Involve all stakeholders. Involving your family and employees in your plans can provide a sense of responsibility and ownership – and help ensure that your plan meets the needs of your successor. Know your role. Determine how involved you will be in the transition of your business, and how that involvement will be exercised. What are the milestones? How do you want to be compensated? How will the transfer be financed? Develop a solid plan. Your business is not like any other, so your succession plan won’t be, either. Carefully consider the steps you need to accomplish, and develop a thorough plan to ensure understanding, support and actionable progress. Review often. Your succession plan must be monitored to ensure it’s adequately in motion, progress is being
achieved and the process doesn’t need to be refined. Consult a professional. Solid estate planning and/or wealth transfer tactics can help minimize the impact of taxes and expenses while maximizing distributions to heirs or third parties. A financial professional with experience in estate planning can help identify the financial products that can best meet your needs. For more information about this and other financial topics, please contact me at (712) 775-2251 or email me at slechta. ann@princor.com. Ann K. Slechta is a financial representative of Principal National Life Insurance Company and Principal Life Insurance Company and a Registered Representative and Investment Adviser Representative of Princor Financial Services Corporation. Securities and advisory products offered through Princor Financial Services Corporation, 800/247-1737, member SIPC. Principal National (except in New York) and Principal Life are issuing insurance companies of the Principal Financial Group. Principal National, Principal Life and Princor® are members of the Principal Financial Group®, Des Moines, IA 50392. Ann can be reached at (712) 775-2251. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal, accounting or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements.
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©2012 Principal Financial Services, Inc. “The Principal,” “Principal Financial Group,” Edgedesign, design,“We’ll “We’llGive GiveYou Youan an Edge” Edge” and and the of Principal Financial Services, Inc. Insurance products ©2012 Principal Financial Services, Inc. “The Principal,” “Principal Financial Group,” thetheEdge the illustrated illustratedcharacter characterare areregistered registeredservice servicemarks marks of Principal Financial Services, Inc. Insurance products ® from the Principal Financial are issued by Principal National Insurance Company(except (exceptininNew NewYork) York)and andPrincipal Principal Life Life Insurance Insurance Company. offered through Princor Financial Services Corporation, ® from the Principal Financial GroupGroup are issued by Principal National LifeLife Insurance Company Company.Securities Securitiesand andadvisory advisoryproducts products offered through Princor Financial Services Corporation, ® 800/247-1737, member SIPC. Principal National, Principal Life, and Princor are members of the Principal Financial Group, Des Moines, IA 50392. AD2231 | t120127035c ® 800/247-1737, member SIPC. Principal National, Principal Life, and Princor are members of the Principal Financial Group, Des Moines, IA 50392. AD2231 | t120127035c
85-Financial(2015)MA
89-Financial(2015 4x5)PA
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Financial & Insurance Guide
February 20, 2015
Create a household budget Establishing a household budget is a great way for men and women to control their money and secure their financial futures. Without a carefully designed budget, families can easily overspend and eventually find themselves facing financial peril. Building a household budget can be intimidating. Men and women do not always enjoy facing their finances head-on, but creating a household budget does not have to be an unwelcomed experience. Discuss your goals Men and women working together to create their household budgets should use their goals as the foundation for their budgets. Recently married couples who want to one day start a family will have different financial priorities than couples who have no intention of having a family. In addition to goals regarding a potential family, discuss your goals about retirement. Distinguishing between short-term goals, such as eliminating credit card debt, and long-term goals, such as saving for retirement, is an important step in establishing a budget. Once your goals have been discussed and set, you can begin to formulate a budget that makes achieving those goals possible. Assess your financial situation After you have set your goals, examine your financial situation. Identify your net income and then make a list of your outstanding debts and monthly expenses.
When establishing your budget, prioritize eliminating your debts. Getting out of debt, especially consumer debt, should take precedence over saving for retirement. Once you have eliminated your debt, you can allocate more funds to saving for retirement.
An honest assessment of your financial situation should provide you with a solid understanding of how you’re spending your money, and in which areas, if any, you can spend less, in an effort to save more each month. Put your plan in motion Once you have identified your net in-
come and monthly expenses, you can put your plan in motion. If you have prioritized eliminating debt, then devote as much of your monthly budget to paying down your debt as possible. Resolve to pay at least ‘X’ amount of money to pay down debt each month, and pay more, if possible, until you are debt free. You may need to adjust this plan as unforeseen circumstances arise, but try to stick to your initial plan as closely as possible, especially if you find it’s working. Continue to monitor your spending An effective household budget should free up some of your funds, but it’s important that you continue to monitor your spending, even if your budget is affording you some financial freedom. Frivolous spending may have landed you in financial hot water to begin with, so don’t allow it to jeopardize your finances once again. As you monitor your spending, look for ways to spend less. Spending less now can make it easier to realize your longterm financial goals. Discuss your budget each month A household budget is a fluid thing, so together with your spouse or partner, examine your budget each month. Discuss what’s working, what’s not working and any potential changes you can make to increase the likelihood that you realize your financial goals. Make an effort to have this discussion each month. The longer you ignore your finances, the longer these issues will have to fester.
“Like a good neighbor, State Farm is there.� It’s not just a slogan, but a way of doing business at your local State Farm Agency in Denison. Trevis and his team will put your needs at the heart of every discussion. They encourage you to stop in, say hello, and let them put a plan together to make your dreams a reality.
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February 20, 2015
Financial & Insurance Guide
Shop locally Today’s consumers have more shopping options at their disposal than in the past. Though the Internet may put the world at one’s fingertips, more and more shoppers are discovering that buying locally makes for a superior shopping experience. Following are a few reasons why shoppers may want to look to their own communities when planning their next shopping trip. Keep money in the local economy. Locally-owned businesses often put a larger share of their revenue back into their communities. Small business owners employ local residents. Business owners may reach out and support community efforts, such as fundraising for charities and schools. By shopping at local stores, you have a hand in supporting these efforts. Save money. When factoring in time and fuel, shopping locally makes more sense than driving to a faraway mall. In addition, repeat customers may find that local business owners are more inclined to price match or work with loyal customers to find lower prices through suppliers. Diversify your home and lifestyle. Shoppers who prefer more unique styles may find local businesses cater to their needs better than large chain stores. Larger retailers offer the same products to customers regardless of location, but local shops tend to produce more unique items that are not available nationwide. Promote entrepreneurship. Small businesses are an essential element to the national, state and local economic growth. By shopping locally, consumers are showing their support for their local economy. Help establish local pride. Independent shops contribute to the fabric of a community and the factors that make it special and unique. Tourists and other visitors will be much more inclined to remember a local shop rather than a big chain. When travelers want to get a feel for a community, they seek out small, local stores. Attract other businesses. Private and public sector businesses tend to gravitate around anchor stores. Should a local store be successful, other businesses may move in. Shopping locally benefits consumers in many ways and contributes to a healthy local economy.
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New business aims for affordability Excel Tax and Consulting Services moved into its offices at 1324 1st Avenue North, in Denison, this past November and opened for business in mid-December. Owner Tanya Gaborit has lived in the Schleswig area for 15 years. She said she is looking to stay here for the long term. “We’re offering income tax preparation at affordable prices,” she said. “Our prices start at $30, and most individuals will pay no more than $120 to get their return.” Excel Tax and Consulting Services can also assist individuals who need to file for bankruptcy. “We can help you prepare the paperwork to save on attorney’s fees,” Gaborit said. “You just file it yourself at the bankruptcy courts.” Excel Tax and Consulting Services also offers payroll bookkeeping. Gaborit said she started Excel because she didn’t
Life Changes.
Protecting Your Family Shouldn’t. Making sure you have adequate life insurance coverage is an ongoing process. When your priorities change, so do your insurance needs. An insurance review from Edward Jones can ensure that: • You have the appropriate amount and type of coverage. • Your policies are performing as expected; your premiums are still competitive. • Ownership is structured properly and beneficiary designations are current. • Your policy is designed to fit your current situation. Edward Jones operates as an insurance producer in California, New Mexico, and Massachusetts through the following subsidiaries, respectively: Edward Jones Insurance Agency of California, L.L.C., Edward Jones Insurance Agency of New Mexico, L.L.C., and Edward Jones Insurance Agency of Massachusetts, L.L.C.
Call today for a complimentary review to help ensure your policies still meet your needs and those of your loved ones. Scott A Ferguson Financial Advisor .
1325 Broadway Denison, IA 51442 712-263-5636 www.edwardjones.com
like working for companies that charged by the form. She said she won’t charge extra to fill out forms to get individuals the tax credits for which they have qualified. Gaborit is an IRS-enrolled agent, which means she has taken all the necessary tests with the IRS. She said this allows her to handle tax audits in a much more affordable way for clients. Gaborit said the Affordable Care Act has made huge changes in tax preparation this year. “The new law is causing many different issues with everyone’s tax returns,” she said. “If you bought your health insurance through the exchange last year, you’re going to get a form 1095A. If you don’t put that on your tax return, they can hold your return for up to 60 days.” Gaborit said she has
Tanya Gaborit, left, and Hector Garibay, offer a wide range of services. Photo by Chelsey Phipps
worked with many individuals who have tried to do their taxes online and have found that some of the online software is not calculating the exceptions to the penalty.
Excel Tax and Consulting Services is ready to help. “We’re here to do accurate tax preparation for everyone at a price that’s affordable,” Gaborit said.
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Financial & Insurance Guide
Grow your savings easily One of the keys to successfully managing money is to save money. Conventional financial wisdom recommends men and women have between three and four month’s worth of earnings in their savings accounts to cover themselves in case of an emergency. But many people live paycheck to paycheck, while others are mired in debt. A 2013 survey from BankRate.com found roughly three-quarters of Americans have little emergency savings. Many working professionals find it hard to save any money once they have paid their monthly bills, including home expenses, child care and other common expenses. Financial analysts point to consumer trends among younger generations as one possible cause of the dwindling emphasis on saving money. Previous generations were taught the benefits of saving and being frugal, but today, many people struggle to distinguish between necessities and luxuries. More readily available access to credit and a more materialistic culture may also be contributing to fewer dollars being saved. While saving may seem like an uphill battle, a little saving can go a long way. Explore these relatively painless ways to cut back and save more money. Do it yourself. Make a list of all the service providers used, from manicurists to hair stylists to lawncare professionals,
and figure out where cuts can be made. Doing all or a portion of the work yourself can save a considerable amount of money. Do your own weeding and edging, only paying a landscaper to perform the more time-consuming task of mowing the lawn. Skip an in-salon coloring treatment for an at-home application. Spend a day preparing meals for the week and eliminate much of your dining out expenses or fast food excursions.
Review your shopping cart. Impulse buys can bust budgets. When grocery shopping, take some time before getting in line to review your potential purchases. Compare items against your list and figure out if any items can go back on the shelf. Do the same when shopping online. Before you proceed to checkout, review items in your cart. Chances are you can delete one or two from the list. Consider new stores. If you find yourself spend-
ing more than you feel is necessary when shopping, look for new stores. Smaller markets may offer produce and other items at a fraction of the cost of large chain stores. Instead of doing all of your shopping in one place, shop around and buy items where they are the least expensive. For example, you may find paper products are more affordable at a pharmacy than at the supermarket. Learn to coupon effectively. Although you need not go to extremes, use coupons when shopping and learn how to pair sales with coupons to earn even greater discounts. Many blogs and websites help make the process easier, telling you when and where to clip coupons. Sometimes you can print coupons directly online or load discounts to a shopper loyalty card. Scale back on certain services. Assess your lifestyle to determine which services you can live without. If you rarely watch television, you may be able to reduce your cable or satellite package. Figure out if bundling services really does save you money. Add up how many minutes you use on mobile phone plans as well as the amount of data. You might find that you do not need the biggest phone plan after all. Saving does not have to be challenging. Opportunities to save money present themselves at every turn. Master the little ways to shave expenses and grow your savings.
Are You Planning For Your Future? At Cornerstone Insurance Agency, LLC We are looking out for your best interest. We cover all of your insurance needs: • Auto • Business • Long Term Care • Crop Insurance
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February 20, 2015
Finding a financial advisor The financial industry has changed over the last half decade, and middle class men and women who want to grow their money have no doubt experienced that change firsthand. Unlike in the past, when large financial firms welcomed middle class investors with open arms, many firms now take no such approach, offering little to no incentives to their own brokers for accounts that are not in excess of half a million dollars or more. Much of this shift can be traced to heightened scrutiny of the financial industry in response to the economic downturn that began in 2008. More regulations and higher costs have made it less cost-effective for financial firms to cater to middle class investors, many of whom are in the dark about the best ways to grow their money. But even though the industry has changed, men and women can still find financial advisors who can help them plan their financial futures. Recommendations Arguably, the best way to find a financial advisor is to seek recommendations from family and friends, ideally those in similar financial shape. Though larger firms may prefer to ignore middle class investors, some firms make a point of catering to this oftunderserved market. When asking friends and family for recommendations, try to determine if any of the people you speak with have their own broker or simply speak with customer representatives when issues arises. Companies that provide you with your own broker may be easier to work with and more likely to listen to your concerns than those that do not assign you your own broker. Fees When on the lookout for a financial advisor, inquire about the fees you would have to pay if you chose a particular firm. Annual fees typically hover around one percent, but some firms willing to take smaller investors may charge nearly double that, knowing that middle class investors have few other options at their disposal. Determine the fees a firm will charge before making your final decision. When asking about fees, ask the representative to explain the details of each fee, and find out if the firm will earn a specific amount if they sell you a particular product. If they will, they may be incentivized to sell you a certain product even if that is not necessarily in your best interest. Services It’s also important to distinguish between the services each firm provides. Some will only sell you advice, while others offer comprehensive planning that can help you in various areas, including retirement, estate planning and tax planning. Choose the firm whose offerings best match your needs. Approach Many investors find it’s best to work with financial advisors whose approach to investing and financial planning matches their own. If you’re risk averse, then you likely won’t be comfortable working with a financial planner whose approach is aggressive. Likewise, if your goal is to make as much money as possible and you don’t mind taking risks, then a more conservative planner likely won’t be able to yield the types of results for which you’re looking. Identify your own approach to investing and planning, and then look for a planner who shares that philosophy. Upon looking for a financial advisor, smaller investors may no longer find an industry that’s waiting to welcome them with open arms. But there are ways for middle class investors to find financial planners who are willing and capable of managing their money.
February 20, 2015
Financial & Insurance Guide
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Mistakes to avoid when facing debt Many men and women who are trying to reduce their debt feel as though they are fighting an uphill battle. Until debt is eliminated, interest will continue to accrue, so even those consumers who make their monthly payments on time may feel as though they’re getting nowhere in restoring their financial standing. However, making monthly payments on time and paying more than the minimum is the best way to eliminate debt, even if this approach forces consumers to make certain sacrifices along the way. Men and women may be tempted to take certain shortcuts on the road to eliminating their debt, but shortcuts are not always what they seem. The following are a handful of mistakes men and women faced with significant consumer debt should avoid as they work to improve their financial situations. Use credit to pay off debt Many credit card companies offer cash advances to their cardholders, who can easily be tempted to accept such offers as they look to pay down balances on other cards. But using one credit line to pay off another can land you even deeper in debt, as cash advances and balance transfers also are subject to interest charges. That means you won’t really eliminate debt but are simply shifting it from one card to another, while being charged to make that switch. Pay only the minimum Credit card statements include both a minimum payment as well as how long it will take to pay off existing debt if you only make the minimum payment. When balances are considerable, it can take years to eliminate debt if you are only paying the minimum. Even if money is tight, find a
way to pay more than the minimum each month. If you don’t, your total balance likely won’t decrease by much and your credit rating, which takes your debt-tocredit ratio into account when calculating your credit score, will not benefit greatly, even though you are making your monthly payments on time. Continue using credit If you are currently mired in considerable debt, resist the temptation to use your credit cards. That will only compound the current problem. Use only debit cards or cash when making purchases so you know you are not spending money you don’t have. In addition, every time you use a credit card and don’t pay the balance in full when the bill is due, you will be forced to pay interest charges, which makes the items you buy more expensive than if you were to simply pay with cash or a debit card. Pay down the wrong debts first When faced with substantial debt, many people take a methodical approach to eliminate their debts, paying down one card and then moving on to another and so on. Though it can be motivating to methodically eliminate debt obligations, it’s best to pay down those debts with the highest interest rate before paying off smaller debts. As more interest accrues, the greater your debt becomes. Make a list of debts and their corresponding interest charges, and work to pay down the high-interest debts first, even if that means you won’t be eliminating balances as quickly as you might if you paid down smaller debts first. Debt can feel like an albatross over consumers’ heads. Avoiding certain mistakes when eliminating debt can make the process quicker and smoother.
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Leave a Legacy for your famiLy. Leave a Legacy for your famiLy. Leave a Legacy for your famiLy.
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contact me and let me help you plan for your future. impact of taxes and expenses on your family and protect the way of life you treasure. contact me and let me Ann help K. youSlechta plan for your future.
financial Services Representative Ann K. Slechta Ann Slechta Representative Princor Registered financial Representative Financial Services Services investment adviserRepresentative Representative Ann K. Slechta Princor Registered Representative Princor Registered Representative 504 n. clark St. Representative financial Services investment adviserRepresentative Representative Investment Advisor carroll, ia 51401 Princor Registered Representative 504 clark St. Representative 223 n. W. 5th Street (712) 775-2251 investment adviser carroll, ia51401 51401 Carroll, IA 504 n. clark St. slechta.ann@princor.com (712) 775-2251 carroll, ia 51401 (712) 775-2251 slechta.ann@princor.com (712) 775-2251 ann.slechta@princor.com
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slechta.ann@princor.com © 2011 Principal Financial Services, Inc. “The Principal,” “Principal Financial Group,” the Edge design, “We’ll Give You an Edge” and the illustrated character © 2011 Principal Financial Inc. Financial “The Principal,” “Principal Financial are registered service marks Services, of Principal Services, Inc. Insurance © 2011the Principal Financial Services, Inc.an®“The “Principal Financial Group,” Edge “We’ll Give You Edge” and the products from the design, Principal Financial Group are Principal,” issued byillustrated Principal character National Group,” the Edge design,marks “We’ll ofGive You anYork) Edge” the illustrated character are registered service Financial Services, Inc. Insurance Insurance Life Insurance Company (except inPrincipal New andandPrincipal Life are registered service of Principal Financial Services, Inc. Insurance products from the Principal Financial Group® are issued by Princor Principal National Company. Securities andmarks advisory products offered through Financial ® products from the Principal Financial Group are issued by Principal National Life Insurance Company (except in New York) and Principal Life Services Corporation, (800) 247-1737, member SIPC. Principal Insurance National, Life Insurance Company (except inproducts New York) andthrough PrincipalPrincor Life Insurance ® Company. and®advisory Financial Principal LifeSecurities and Princor are members of offered the Principal Financial Group , Company. Securities and advisory products offered through Princor Financial Services Corporation, (800) 247-1737, member SIPC. Principal National, Des Moines, IA 50392. AD2209 | t11111003e9 Services Corporation, (800) 247-1737, member SIPC. Principal National, ® ® Principal are members members of of the the Principal Principal Financial Financial Group Group®,, Principal Life Life and and Princor Princor® are Des Moines, IA 50392. AD2209 | t11111003e9 Des Moines, IA 50392. AD2209 | t11111003e9
we’LL give you an edge® we’LL give you an edge® ® we’LL give you an edge
89-Financial(2015 3x7.5)PA
Page 8
Financial & Insurance Guide
February 20, 2015
Mortgage terms to know Buying a home is simultaneously exciting and stressful. Owning a home is still a dream for many people, but first-time buyers often find that their unfamiliarity with the home-buying process is a source of stress. Part of that stress stems from the terminology associated with home mortgages. Many terms may raise an eyebrow among first-time buyers. Following are a few mortgage terms with which individuals can familiarize themselves to facilitate the process of buying homes. Closing costs: Buying a home is expensive, and part of that expense is the closing costs. Any time a real estate transaction occurs, that transaction is accompanied by certain expenses, which are known as the
closing costs. Closing costs may include attorney fees, loan origination fees, title insurance and escrow payments. Buyers can sometimes negotiate with the seller so the seller will agree to pay the closing costs, or the costs can be shared by the buyer and the seller. But buyers may also pay the closing costs in their entirety on their own. Escrow: Escrow is a bond, deed, document or money kept in the custody of a third party until a real estate transaction has been completed. In addition, escrow accounts are used to hold the property tax and insurance fees that are collected via your monthly mortgage payment. Fixed-rate mortgage: A fixed-rate mortgage, unlike an adjustable rate mortgage, is one in which the interest rate on the mortgage remains the same for the life of the
Cutting the costs of home ownership Home ownership is a dream for many people. But even the most affordable homes can create considerable expense. This is why many homeowners are on constant lookout for ways to cut the costs of home ownership. Men and women who have owned their homes for years may already know various ways they can save money each month. But first-time homeowners may not be so savvy, which can leave them scrambling for ways to save each month. Fortunately, homeowners can reduce the cost of owning their homes in a variety of ways. Refinance your mortgage The average homeowner would point to his or her mortgage payment as his or her biggest monthly expense. First-time homeowners may assume they have no leeway with regard to lowering that payment, but that’s not necessarily true. Interest rates fluctuate every day, and homeowners might be able to take advantage of that fluctuation by refinancing their mortgages to earn lower interest rates. Depending on the amount of the loan, a homeowner might be able to save hundreds of dollars per month and tens of thousands of dollars over the life of the loan after refinancing his or her mortgage. Research current interest rates to determine if refinancing is in your best interest. Reexamine your insurance policy When borrowing money to buy a home, borrowers need to have homeowner’s insurance. It’s easy to forget these policies and simply pay the premium each month. But homeowners who want to save money should periodically reexamine their policies and compare the existing policies to those they might be able to get from other providers. Comparison shopping can save homeowners substantial amounts of money. Homeowners willing to purchase their homeowners and auto insurance policies from the same provider also can save a considerable amount of money, sometimes as much as 15 percent, depending on the provider. Make safety upgrades Another way to cut the cost of home ownership is to upgrade your home’s safety features. Many insurance companies offer discounts to homeowners who install alarm systems, sprinklers or storm shutters. Homeowners should confirm their eligibility for such discounts before making any upgrades, as policies may differ depending on the provider. Purchase eco-friendly appliances for your home The appliances in your home at the time of purchase will inevitably wear out, and replacing these items can be expensive. Replacing older appliances with more eco-friendly alternatives can save money on the monthly utility bill. More and more appliances are now made with energy savings in mind. Cutting energy consumption leads to lower utility bills, and you may even be eligible for government rebates when buying products that meet certain energy-saving standards. The cost of home ownership is on the rise, but homeowners can take many steps to lower those costs.
loan. Buyers typically prefer a fixed-rate mortgage because they know exactly what they will be paying for their home each month. An adjustable rate mortgage, often referred to as an ARM loan, is one that typically comes with a lower interest rate than a fixed-rate mortgage, but that lower rate is usually only locked in for a relatively brief period of time, such as one year. Once that initial time period is over, the interest rate will then increase and may increase several times thereafter over the life of the loan. PMI: PMI, which stands for private mortgage insurance, must be purchased by home buyers who are financing more than 80 percent of their homes. The standard down payment when purchasing a home is 20 percent, but some buyers cannot af-
ford such a down payment. As a result, the lender then mandates that such buyers purchase PMI, which protects the lenders if the borrower defaults on the loan. The cost of PMI will be added to your mortgage payment, and once you have 20 percent equity in your home you can cancel PMI, at which time your monthly mortgage payment will decrease. Title insurance: Title insurance is a tool that protects both the buyer and the seller against legal issues that may arise as a result of the home’s title. Title insurance protects buyers and the lender from the possibility that the seller was not legally permitted to transfer ownership of the property to the buyer. Title insurance may also protect sellers from any issues that may arise that threaten his or her ability to sell the home.
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