Millions of Americans faced pay cuts as the coronavirus pandemic affected industries. While many workers were laid off, some were furloughed, and others kept their jobs but at lower salaries as businesses struggled to stay afloat. Some workers are reexamining their budgets to cut some of their expenses until they get another job or their […]
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Marnie and Tom live in a nice suburb in the Midwest with their two young children. Marnie’s mother, Elaine, lives about an hour away.
When the kids were babies, Marnie's mother used to drive to Marnie and Tom's every day to see her grandkids and help out. But lately, Marnie's mother's health has been declining, so she can’t drive over anymore.
One day Marnie gets an idea: What if she and Tom sell their house and move closer to her mother? Then the kids would be able to see their grandmother more often. Plus, Marnie would be able to keep a closer eye on her mother in case her health gets worse. Seems like a perfect solution.
There’s only one problem—Tom doesn’t want to move. Tom likes the neighborhood they’re in. He thinks he and Marnie paid too much for their house, but other than that he’s very comfortable.
Tom says no.
Tough decisions and zero-sum situations
Faced with big decisions like this, a couple will ordinarily try to compromise. But in this case, there’s really no half-way. Economists call this kind of thing a zero-sum situation. Someone’s going to win, and someone’s going to lose.
For over thirty years, I’ve watched couples struggle with zero-sum problems. Some more successfully, and some less so.
Some classic zero-sum problems for couples involve whether or not to move—often for one partner’s career—and whether or not to have another child. But there are lots of others.
For thirty years, I’ve watched couples struggle with zero-sum problems. Some more successfully, and some less so. Today, we’re going to talk about what works, and what doesn’t, when you’re faced with one of these situations.
Three ways not to make tough decisions as a couple
First, let’s talk first about what doesn’t work. There are three main approaches that don’t work. Unfortunately, most couples try all three:
Mistake #1 – Trying to convince your partner they'll be better off
The first mistake is to try to convince your partner that they’ll be much happier if they do things your way. In Marnie’s case, this might involve demonstrating to Tom all the wonderful things about the neighborhood she'd like to move to. Wouldn't Tom be better off there?
No one likes to be told they’ll be happier if they just do things your way.
Here’s the problem: No one likes to be told they’ll be happier if they just do things your way. It's better to assume each person has good reasons for feeling the way they do. And that those reasons aren’t likely to change. In couples therapy, we call this "staying in your own lane."
Mistake #2 – Suggesting there's something wrong with your parnter for disagreeing
The second thing that doesn’t work is to suggest there’s something wrong with your partner. Otherwise, they'd see it your way. If only they were less anxious, less obsessive-compulsive, less oppositional, less stuck in their ways, or less damaged by unresolved childhood trauma. Then they’d surely agree with you!
A lot of people get sent to my office for therapy by their spouses for just this reason. Believe me when I tell you, it doesn’t work.
A lot of people get sent to my office for therapy by their spouses for just this reason. Believe me when I tell you, it doesn’t work. It usually just leads to a lot of bad feeling.
Mistake #3 – Appealing to your partner's love
The third thing that doesn’t work is to appeal to your partner’s love and insist that if they really love you as much as they say they do, they’ll give you what you want. Almost every couple tries this.
Marnie is no exception.
“Tom,” she says, one night as they're getting ready for bed, “Don’t you see how I can’t sleep at night worrying about my mother? I can't stop thinking about how she’s missing out on so much of our kids’ lives. Can’t you see what this is doing to me? Don’t you love me?”
“The answer’s still no,” says Tom. “And it has nothing to do with whether I love you or not.”
I'd be inclined to agree. Just because you love someone, that doesn't mean you're responsible for giving them everything they want.
A better way to make tough decisions as a couple
The good news is there’s a much better method. There are three steps involved.
Step One: Let’s make a deal
In business, this would be a no-brainer, right? You’d never ask someone to give you something you want for free. Instead, you’d find out what their price is.
In marriage, it’s the same thing. The main question is: What’s going to motivate the other person to do a deal?
Let’s see what happens when Marnie tries this approach.
One night in bed, just before they turn off the lights, Marnie turns over to face Tom.
“Tom, what can I give you to make you agree to move?” she asks.
Tom is silent.
“A promise to never complain ever again about you watching TV?”
Tom smiles. “It’s going to cost a lot more than that,” he says.
Marnie thinks some more. “How about if I agree to spend every Thanksgiving and Christmas with your family?”
Tom shakes his head. But now Marnie has the idea. She’s not asking for favors anymore. She just wants to do this deal.
“I'll do all the cooking and cleanup three times a week,” she says. "And we spend Thanksgiving and Christmas with your family."
Tom raises an eyebrow. Now he knows she's serious. "Let me think about it,” he says, and turns off the light.
Time for Step Two.
Step Two: The $64,000 Question
The following night, Tom is sitting at his laptop paying bills. Suddenly it hits him. “Marnie,” he says, “I think I see a way to do this. If we’re going to move, let’s get a smaller house and start saving money again. What do you think?” Marnie’s actually been hoping for a bigger house. It’s painful to hear that this is what Tom wants. But hey, now he’s named his price. That means he’s in the game.
To me, this looks promising. Marnie gets something she wants very much. And she pays for it, fair and square. Same thing on Tom’s side.
Marnie thinks for a minute.
“Let’s see what we can find,” she says.
Step Three: The Price is Right
Now comes the fun part.
The following Sunday, Marnie and Tom drop the kids off with her mother and start house-hunting in earnest. After a few weekends, they find a house they both like well enough. It breaks Marnie’s heart to be downsizing, but it was the only way to make things work. And it helps that once they find a place Tom likes, Marnie gets him to agree to new cabinets and closets.
Decision making builds strong relationships
A good deal will have both of your dreams in it. That’s important, because it means you’re both fully in. You never know how a move like this is going to work out. If it goes well, you both share the satisfaction. If not, you share the blame.
A good deal will have both of your dreams in it.
One sign of a good deal is that in the end, neither of you got everything you wanted. The final result didn’t look exactly like what either of you originally had in mind.
But hey, isn’t that the case with anything creative? Eventually you have to face reality. And in a couple’s relationship, reality often takes the form of the person next to you in bed.
Sometimes life brings you to a fork in the road, where no compromise is possible. When that happens, assume you’ll need to do some serious deal-making—as if your relationship depended on it. Which in fact, it will.
Eventually, you have to face reality. And in a couple’s relationship, reality often takes the form of the person next to you in bed.
As Yogi Berra famously said, “When you come to a fork in the road, take it!”
In the long run, how you settle the issue may matter more than which fork you take.
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When you're ready to buy a home, choosing the best lender and type of mortgage can seem daunting because there are many choices. Since no two real estate transactions or home buyers are alike, it's essential to get familiar with different mortgage products and programs.
Let's take a look at the two main types of mortgages and several popular home loan programs. Choosing the right one for your situation is the key to buying a home you can afford.
What is a mortgage?
First, here's a quick mortgage explainer. A mortgage is a loan used to buy real estate, such as a new or existing primary residence or vacation home. It states that your property is collateral for the debt, and if you don't make timely payments, the lender can take back the property to recover their losses.
In general, a mortgage doesn't pay for 100% of a home's purchase price.
In general, a mortgage doesn't pay for 100% of a home's purchase price. You typically must make a down payment, which could range from 3% to 10% or more, depending on the type of loan you qualify for.
For example, if you agree to pay $300,000 for a home and have $15,000 to put down, you need a mortgage for the difference, or $285,000 ($300,000 – $15,000). In addition to a down payment, lenders charge a variety of processing fees that you either pay upfront or roll into your loan, which increases your debt.
At your real estate closing, the lender wires funds to the closing agent or attorney. After you sign a stack of mortgage and closing documents, your down payment and mortgage money go to the seller and various parties, such as a real estate broker, title company, inspector, surveyor, and insurance company. You leave the closing as a proud new homeowner and begin making mortgage payments the next month.
What is a fixed-rate mortgage?
The structure of your loan and payments depends on whether your interest rate is fixed or adjustable. So, understanding how these two main types of mortgage products work is essential.
A fixed-rate mortgage has an interest rate that never changes, no matter what happens in the economy.
A fixed-rate mortgage has an interest rate that never changes, no matter what happens in the economy. The most common fixed-rate mortgage terms are 15- and 30-years. But you can also find 10-, 20-, 40-, and even 50-year fixed-rate mortgages.
Getting a shorter mortgage means you pay it off faster and at a lower interest rate than with a longer-term option. For example, as of December 2020, the going rate for a 15-year fixed mortgage is 2.4%, and a 30-year is 2.8% APR.
The downside is that shorter loans come with higher monthly payments. Many people opt for longer mortgages to pay as little as possible each month and make their home more affordable.
Here are some situations when getting a fixed-rate mortgage makes sense:
You see low or rising interest rates. Locking in a low rate for the life of your mortgage protects you against inflation.
You want financial stability. Having the same mortgage payment for decades allows you to easily budget and avoid financial surprises.
You don't plan to move for a while. Keeping a fixed-rate mortgage over the long term gives you the potential to save the most in interest, especially if interest rates go up.
What is an adjustable-rate mortgage (ARM)?
The second primary type of home loan is an adjustable-rate mortgage or ARM. Your interest rate and monthly payment can go up or down according to predetermined terms based on a financial index, such as the T-bill rate or LIBOR.
Most ARMs are a hybrid of a fixed and adjustable product. They begin with a fixed-rate period and convert to an adjustable rate later on. The first number in the name of an ARM product is how many years are fixed for the introductory rate, and the second number is how often the rate could change after that.
For instance, a 5/1 ARM gives you five years with a fixed rate and then can adjust, or reset, every year starting in the sixth year. A 3/1 ARM has a fixed rate for three years with a potential rate adjustment every year, beginning in the fourth year.
When shopping for an ARM, be sure you understand how often the rate could change and how high your payments could go.
ARMs are typically 30-year products, but they can be shorter. With a 5/6 ARM, you pay the same rate for the first five years. Then the rate could change every six months for the remaining 25 years.
ARMs come with built-in caps for how much the interest rate can climb from one adjustment period to the next and the potential increase over the loan's life. When shopping for an ARM, be sure you understand how often the rate could change and how high your payments could go. In other words, you should be comfortable with the worst-case ARM scenario before getting one.
In general, the introductory interest rate for a 30-year ARM is lower than a 30-year fixed mortgage. But that hasn't been the case recently because rates are at historic lows. The idea is that rates are so low they likely have nowhere to go but up, making an ARM less attractive.
I mentioned that the going rate for a 30-year fixed mortgage is 2.8%. Compare that to a 30-year 5/6 ARM, which is also 2.8% APR. When ARM rates are the same or higher than fixed rates, they don't give borrowers any upsides for taking a risk that their payment could increase.
ARM lenders aren't making them attractive because they know once your introductory rate ends, you could refinance to a lower-rate fixed mortgage and they'd lose your business after just a few years. They could end up losing money if you haven't paid enough in fees and interest to offset their cost of issuing the loan.
Unless you believe that rates can drop further (or until ARM rates are low enough to offer borrowers significant savings), they aren't a wise choice in the near term.
So, unless you believe that rates can drop further or until ARM rates are low enough to offer borrowers significant savings, they aren't a wise choice in the near term. However, always discuss your mortgage options with potential lenders, so you evaluate them in light of current economic conditions.
RELATED: How to Prepare Your Credit for a Mortgage Approval
5 types of home loan programs
Now that you understand the fundamental differences between fixed- and adjustable-rate mortgages, here are five loan programs you may qualify for.
1. Conventional loans
Conventional loans are the most common type of mortgage. They're also known as a "conforming loan" when they conform to standards set by Fannie Mae and Freddie Mac. These federally-backed companies buy and guarantee mortgages issued through lenders in the secondary mortgage market. Lenders sell mortgages to Fannie and Freddie so they can continuously supply new borrowers with mortgage funds.
Conventional loans are popular because most lenders—including mortgage companies, banks, and credit unions—offer them. Borrowers can pay as little as 3% down; however, paying 20% eliminates the requirement to pay an additional monthly private mortgage insurance (PMI) premium.
2. FHA loans
FHA or Federal Housing Administration loans come with lenient underwriting standards, making homeownership a reality for more Americans. Borrowers need a 3.5% down payment and can have lower credit scores and income than with a conventional loan.
3. VA loans
VA or Veterans Administration loans give those with eligible military service a zero-down loan with no monthly private mortgage insurance required.
4. USDA loans
The USDA or U.S. Department of Agriculture gives loans to buyers who plan to live in rural and suburban areas. Borrowers who meet certain income limits can get zero-down payments and low-rate mortgage insurance premiums.
5. Jumbo loans
Jumbo loans are higher mortgage amounts than what's allowed by Fannie Mae and Freddie Mac, so they're also known as non-conforming loans. In general, they exceed approximately $500,000 in most areas.
Always compare multiple loan products and get quotes from several lenders before committing to your next home loan.
This isn't a complete list of all the loan programs you may qualify for, so be sure to ask potential lenders for recommendations. Remember that just because you're eligible for a program, such as a VA loan, that doesn't necessarily mean it's the best option. Always compare multiple loan products and get quotes from several lenders before committing to your next home loan.
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