According to the federales themselves, the top 1% of wage earners in the United States earned more than $388,806 in 2006.

There were 1.65 million citizens in this category. As a group, they paid $488 billion in income taxes. That was 40% of all income taxes. But they only earned 22% of all wages. In short, the marginal tax rates on America’s top earners were almost 100% more than average. OBAMA! will increase the top rate these people pay – because paying 100% more than average just isn’t quite “fair” enough.

We might argue about whether or not we ought to charge some citizens different rates of income tax. But if you’ll take the time to read the U.S. Constitution, it’s clear that progressive taxation is unconstitutional. Just read the 14th Amendment. It says the government “may not deny to any person within its jurisdiction the equal protection of the laws.” That means the law can’t treat one citizen differently from another – white or black, rich or poor.

If our Constitution weren’t merely a dead letter, the equal protection clause – which was designed to prevent black people from being discriminated against by southern states following the Civil War – would now effectively prevent a black president from “spreading the wealth around” as much as he sees fit. History is nothing if not ironic.

Even if you think progressive taxation is a good idea and redistributing income ought to be the government’s prerogative, I can tell you judging from history and the recent experiences of several different countries, when society expects 40% of the tax burden to be carried by only 1% of the population, bad things happen. The masses always demand too many services from the government – because they’re not paying for them. And, eventually, the 1% that’s paying leaves, quits working, or hides their income.

The result is always catastrophic, not only for the state but for the culture. Once people get used to living off the bounty of their neighbors, they’re reluctant to go back to work. And they’re angry about it. There’s not much more dangerous to society than lots of poor, angry, and desperate people who have become addicted to entitlements. Think unionized employees at Chrysler and GM. Welcome to Amerika.

At the present time, America’s income taxes are the most progressive of any major industrialized nation. That’s not a contest we should seek to win.

A lot of so called tax-reforms are anything but. Consider the introduction of the refundable tax credits, which looks like it will push America to follow Europe down the road of socialism!

The sad fact is that America is broke and the money required to pay interest on the money we’ve borrowed has to come from somewhere? Should we continue to “soak the rich”, or should everyone buckle-up and contribute their fair share? Or maybe we should just continue with business as usual and let our kids and grandkids deal with the consequences?

Related Posts

• June 8, 2007 -- Taxes Suck! (And so does Aurora Loan Services)
• June 27, 2009 -- Why The “Cash For Clunkers” Idea Is Stupid
• January 16, 2009 -- California Tax Refunds To Be Delayed
• October 12, 2008 -- Interview With Warren Buffett
• August 28, 2008 -- Manipulation In the Financial Markets
• August 17, 2008 -- Tax Breaks For New Home Buyers
• April 11, 2008 -- Tax Benefits Of Passive Income

In case you haven’t heard, Congress will soon implement a “Cash For Clunkers” program. If you trade in your old car, you’ll get $3,500 towards the lease or purchase of a new one. If you have an old SUV you’ll get $4,500. Seems like a good plan doesn’t it?

Yesterday I had a short phone call with Bob Meigan, VP of TurboTax and we discussed the short-comings of this program. First of all, your car has to be a clunker. That is it shouldn’t be worth more than $3,500 since you won’t get anything extra if it is worth more.  By law, the dealer will have to scrap the car so even if its worth $5,000 he’s not going to give you a dime more than the $3,500 he’s getting from the goverment.

image source

So basically you need to be driving something like a  salvaged car that you’ll trade in for a brand new one. Secondly, the salvaged car needs to be getting 18 miles or less ( I think its 16 for the SUVs) according to the EPA sticker when you first bought it. 

Don’t you think that people who are driving around worthless junk with terrible gas mileage are doing it becauase they can’t afford a nicer car? Do you think a $3,500 incentive will enable them to afford a new car? The incentive is probaly worth only $70/month over a 5 year period on a car loan – I’m pretty sure you’ll need to come up with the rest.

And in order to prevent people from gaming the system and buying salvage car for a thousand dollars and using them to get a bigger discount, the plan enforces that you must have owned the car for a year. (And the promotion only runs from July to November 2009).

So probably the only people who will be able to use this program are students who were driving around clunkers and now having found jobs despite the tough economy are looking to upgrade. However, these people would’ve bought cars anyway, so there’s no real stimulus to the economy or the car companies. Just another waste of time and money.

However, if you are in the market for a new car, remember you can deduct the sales tax this year.

Related Posts

• June 28, 2009 -- Interesting Libertarian Rant Of The Week
• January 16, 2009 -- California Tax Refunds To Be Delayed
• November 21, 2008 -- Should Congress Bail-Out The Auto Industry?
• August 17, 2008 -- Tax Breaks For New Home Buyers
• April 11, 2008 -- Tax Benefits Of Passive Income
• January 10, 2008 -- How The World’s Cheapest Car Is Bad For Your Wallet
• October 25, 2007 -- Gimme My $1.395 Million Back!

Investment newsletter editor, Keith Fitz-Gerald, recently had a post on his blog regarding the 4 ways to protect your investments against inflation. Here’s an excerpt:

What’s interesting is that many investors holding large cash positions view their money as an asset, when, ironically, it’s really more of a liability at this stage of the game.
Some might take issue with that statement. After all, even we at Money Morning have counseled readers that cash – correctly deployed – can allow an investor to sidestep the worst stretches of a financial crisis, like the one from which we’re currently attempting to extricate ourselves.

But when the markets are as beat up as they as they have been, history suggests there’s probably more upside than downside – even if we haven’t bottomed out yet.
And there’s a broad body of research to support that contention – including our own newly created “LSV (LIBOR/Sentiment/Value) Index” (published as a part of The Money Map Report, the monthly investment newsletter that’s affiliated with Money Morning).

There’s also data sets widely published by others, such as Yale Economics Professor Robert J. Shiller. Shiller has found that when you look at 10-year periods of Price/Earnings (P/E) data dating all the way back to 1871, the markets tend to rise when the average P/E is low, as it is right now. Conversely, when the average Price/Earnings values are high – as they were in late 1999, and again in 2007 – a decline in stock prices is much more likely.

There are obviously no guarantees that history will repeat itself. But if it does, the same data implies we could see real returns of 10% a year or more “for years to come,” as Shiller noted in a recent interview with Kiplinger’s Personal Finance.

My own research seconds the general-market-increase theory, but I’m much more conservative in my expectations of returns and think that returns of 7% are more likely.

Perhaps what’s more important right now is that inflation typically accompanies growth – and with a vengeance. And that means that investors who are sitting on cash “until the time is right” may have their hearts in the right place but are relying on the wrong protection strategy.

My recommendation is a four-part plan that can help lock in the expected returns you want, while also protecting your cash from the ravages of inflation. Let’s take a close look at each of the four elements of this strategy:

• First, protect your cash with Treasury Inflation Protected Securities (TIPs). Even though the trillions of dollars the Fed has injected into the system seem to be having some effect on the critically ill patient the U.S. central bank is trying to fix, we’re likely to pay a terrible price in the future. Forget the hyperinflation scenario so many people are hyping at the moment. While that’s certainly possible, it’s not probable. However, what is likely is a dramatic realignment of the dollar and a general increase in worldwide living expenses.

If you’re based in the United States and have mostly U.S. assets, you may want to consider something as simple as the iShares Barclays TIPS Bond Fund (NYSE: TIP) to offset this risk. The TIP portfolio is chocked full of inflation-indexed securities, but it also offers a healthy 7.46% yield. If you’ve got international exposure, you may also want to consider the SPDR DB International Government Inflation Protected Bond ETF (NYSE: WIP). It’s a collection of internationally diversified government inflation indexed bonds that provides similar protection. Make sure you talk with your tax advisor about both, though. Depending on your tax situation, you may find that because of the tax liability on inflation-related accretion, these are generally best held in tax-exempt accounts.

• Buy gold but don’t go crazy. Despite widespread belief to the contrary, gold has never been statistically proven as an inflation hedge. But the yellow metal has proven to be a great crisis hedge because of the 10:1 relationship between gold prices and bond coupon rates – which obviously are directly related to inflation. Over time, the two move in such a way that having $1 for every $9 in bond principal can help immunize the value of your bond portfolio.

So to the extent that you own gold, do so not because you expect it to rise sharply, but because it will offset the inflationary damage to your bonds. A good place to start is the SPDR Gold Trust (NYSE: GLD) because it’s tied directly to the underlying asset without the hassles or risks of direct personal storage associated with bullion.

• Consider commodities. It’s too early to tell if the so-called “green shoots” that everybody is so excited about are little more than weeds. Therefore, it makes sense to concentrate on picking up resource-based investments. History shows that these things are less susceptible to downturns, but more importantly, rise at rates that far exceed inflation when a recovery begins in earnest.

I prefer companies like Kinder Morgan Energy Partners LP (NYSE: KMP) that are less dependent on the underlying cost of energy than they are on actual growth in demand. That way, if energy prices don’t take off immediately for reasons related to deflation or stagflation, those still will benefit from demand growth. It’s a fine point, but one that merits attention for serious investors. KMP, incidentally, yields an appealing 8.68% at the moment.

• Short the dollar to hedge your bets still further. Not only is the government going to borrow nearly four times more than it did last year, but when you add the complete federal fiscal obligations into the picture, our government owes nearly $14 trillion. This makes the dollar, as legendary investor Jim Rogers put it, “a terribly flawed currency” that could fail at any time.

To ensure you’re at least partially protected, consider the PowerShares DB U.S. Dollar Index Bearish Fund (NYSE: UDN), which will rise as the dollar falls. It’s essentially one big dollar short against the European euro, the Japanese yen, the British pound sterling and the Norwegian kroner, among other currencies.
In closing, there is one additional point to consider. You rarely get a second chance to do anything, especially when it comes to investing. So act now before the markets make it cost-prohibitive to protect yourself. When the economic recovery gets here, you’ll be glad you did.

[Editor's Note: Fourteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 14 for 14, meaning he's closed every single one of his trades at a profit. And he did this in the face of one of the most-volatile periods since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.]

Pretty sound advice. I was just thinking about converting my 401k into TIPS today when I came across this article. The rest of the advice I’ve followed in some form or another. Instead of directly shorting the dollar, I’m long FXA, which is the CurrencyShares Australian Dollar ETF and EDD which is an ETF of short-term foreign government and corporate bonds.

Related Posts

• June 16, 2008 -- Time To Buy Online Retailers?
• December 1, 2007 -- The Weakening Dollar – II
• May 29, 2009 -- Jim Rogers Expects A Currency Crisis
• May 9, 2009 -- Is The Economy Recovering?
• April 19, 2009 -- Calm Before the Storm? What You Should Do With Your Money While Markets Are Still Up
• March 8, 2009 -- Bear fund managers warn against short sales
• January 31, 2009 -- Another Case For Gold

I was able to ask the CEO of HubPages.com and YieldBuild.com, Paul Edmonson some questions about his entrepreneurial experience and passive income.

How did you begin in online marketing?

I started in online marketing back in 1999 when I first started working on the search engine optimization strategy for MongoMusic. Since then I’ve started numerous sites that range from lead generation to niche content, been an SEO consultant and am now the CEO of HubPages.com and YieldBuild.  Both technologies are geared toward helping publishers optimize their online ad revenues.

I have made a few hundred hubs personally, but there are over 367,000 Hubs published now and more getting added every day.

HubPages revenue is driven by the YieldBuild ad optimization service that come primarily from optimizing AdSense, and Microsoft PubCenter through our service.

I think the biggest challenge of online businesses is getting to scale.  It generally takes time and several iterations to get a product or service fit to the market.  Generally, you won’t know how good a business will be until the product is fit to the market.  I think this process is the most difficult for every web based business I’ve bee apart of.

It starts with quality.  You have to make a quality product or service.  This take time and lots of hard work.  And.  You have to continue to improve and iterate.  If you are starting out online, I’d suggest make something extraordinary well, and keep iterating until it gets fit to the market.

Personally my wife and I have Hubs and a few sites that make about $2K-$3K per month, but our YieldBuild business will gross over $3 Million this year and is growing quite quickly.

Yes, people should check out HubPages.com if they are interested in starting with earning revenue online by creating and sharing content. Make high quality Hubs and overtime, you will start to generate revenue.  For people that have sites, they should take a look at YieldBuild.com and try our ad optimization services.

While he mentions that he makes $2-3k from his hubs, he didn’t tell you that he has nearly 250 hubs. This must have taken serious effort. Creating online income, passive income or any sort of income for that matter isn’t easy. Its takes time and effort. Many people give up before they even get started. If you expecting to see quick results, you will likely be disappointed.

What online revenue streams do you have? What has or hasn’t worked for you?

Related Posts

• April 23, 2009 -- Online Income Update: 1st Quarter 2009
• October 6, 2008 -- How To Make Money On Ebay Without Actually Selling Anything
• September 10, 2008 -- Passive Income Update For August 2008
• May 18, 2008 -- How Passive Is Your Passive Income?
• February 11, 2008 -- Supplement Your Adsense Revenue!
• February 7, 2008 -- January’s Online Income Grows 36.92%
• January 30, 2009 -- December 2008 Passive & Alternative Income Update

According to Northwestern CEO Edward Zore, “Gold just seems to make sense; it’s a store of value. In the Depression, gold did very, very well.”

According to Bloomberg, Northwestern has accumulated about $400 million in gold. CEO Zore believes that the price of gold could double “or even rise fivefold” if the economy continues to weaken. “The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95%.” But gold “is not going down to $90.”

Despite the rise in “cash for gold” TV ads and billboards, people are still generally skeptical about buying gold as an investment or hedge against inflation. As I’ve said before, I think gold will be the next bubble as people eventually lose confidence in the dollar and US governments ability to repay its debt.

Check out the increase in the money supply over the past year.

A lot of you will protest that it hasn’t really increased and that the banks that got the money from the Fed have just given back to the Fed to shore up their reserves. True, and the Fed is paying the banks interest on this money too. But as some point the Fed is going to stop paying interest, and the greedy bankers are going to start lending this money out. The Fed hopes that this money will work its way into the economy in a slow and orderly fashion, so it takes maybe 5-10 years to enter the system and not rush in all of a sudden, because if it did the result would be similar a massive drug overdose. But in smaller amounts, its more palatable with contained inflation. But it will result in inflation nonetheless. And when it does, gold prices are likely to keep on rising.

If you interested in buying gold coins check out my previous posts on gold/silver and coins, as well as my personal list of favorite gold coins.

Related Posts

• March 26, 2009 -- The End of Cheap $1000 Gold?
• March 24, 2009 -- How To Invest In Gold
• February 18, 2009 -- Demand For Gold Tops $100 Billion!
• February 2, 2009 -- Peter Schiff: Dollar Is The Next Bubble To Collapse
• November 27, 2008 -- Perth Mint Suspends Orders For Gold Bullion
• November 22, 2008 -- Gold Jumps: Has It Become Correlated To The Stock Market?
• July 22, 2008 -- The World’s Most Expensive Gold Coin

Even Jim Cramer jumped on the housing recovery bandwagon and declared that June 30th would be the bottom! As I mentioned before in Are Jim Cramer’s picks worthless?, you shouldn’t be taking your investment advice from him. I don’t know what sort of crystal ball he has, but his track record isn’t very good. Besides, people who can predict the future (like David Einhorn) tend to invest for themselves and not make broad public statements.

Home prices may be fairly valued, but whenever you have a bubble of huge proportions, valuations do not simply revert to the mean, they overshoot it and become grossly undervalued.

A lot of people have been reporting that housing is rebounding. Here’s an excerpt from Reality Times dated June 9th.

The big economic news for housing this week is all about sales.

Housing sales and pending sales contracts are up, dramatically in some markets, and a rebounding real estate sector could soon start stimulating the broader economy.

Even Federal Reserve Chairman Ben Bernanke told Congress last week that essentially the worst is over, the housing market is stabilizing, and we’re heading out of recession in the second half of the year.

…

In a handful of major markets, closed sales also are moving up sharply. In Las Vegas, sales jumped by 36 percent during April – the highest in two years, according to MDA DataQuick researchers.

…

Meanwhile, low prices nationwide, combined with mortgage rates at near-record lows, have pushed the National Association of Realtors’ Affordability Index into record territory.

…

But here’s a little sobering news: It’s becoming increasingly clear that low mortgage rates are not going to be around forever. Average thirty year fixed rates took their biggest jump in half a year last week on bond market jitters.

With everyone and their real estate agent being confident about the housing rebound, I can see how its easy to get sucked into the belief. Let’s go through the points step by step.

The Fed Chairman didn’t know that we were in recession until almost a year into it. On the other hand, some people did get it right. He also didn’t know that lowering the interest rates below the real rate of inflation would cause a spike in asset prices creating the largest bubble in history (to be fair, it was a different Fed Chairman).  Given the poor track record, why should we believe him now? Part of his job is to maintain the world’s faith in the US dollar (and by extension the US economy) and another part is maintaining consumer confidence in the US economy. By being bullish on the economy, he’s only doing his job! Since he always needs to project a bullish facade, he isn’t a reliable source of bullish information.

Home sales have jumped in many markets. However, by itself the number of sales is not an indication of a housing bottom. Basic economic principle dictates that when prices fall, demand increases. At a certain price, there will be a strong demand for housing. The question to ask is whether houses can be built (or rented out) profitably at this price.

There is also some evidence that the median home prices are increasing in some areas as well. However, there is no median home size information included with this data.  If more large homes are being sold, the average home price will increase. You can read a more detailed explanation at Minyanville, but here’s the gist of it:

And as price discovery works its way through well-to-do areas, the mix of homes sold will continue to revert to more expensive sales, pushing up median- and average-sales-price data. This dynamic will present the misleading conclusion that the country’s housing market is recovering, even as actual prices continue to fall.

On top of that, the unemployment rate keeps increasing every month. Yes, the second derivative is positive which means the rate of job loss is slowing, but it’s still a negative number! Read this article at FiveThirtyEight about why a decrease in the rate of job loss is nothing to celebrate.  Additionally, its becoming more difficult to obtain a home mortgage. This two reasons alone are causing the pool of potential home buyers to shrink, which results in a lack of demand.

The few people I know who are buying foreclosures or REOs at 40% discounts to current market price are paying CASH for investment homes. But how many people have $150,000 lying around? The savings rate in the US was ZERO for many years. In the past year it’s increased to about 8%, but that only leads to lower consumption, a lower GDP and in turn more layoffs. And as investors pay $150,000 for homes listed at $250,000, this exerts a further downward pressure on prices.

So when is a good time to buy?

When the media stops reporting about the recovery and starts telling you that real estate is a lousy investment, that’s probably a good time to start buying.

Right now, I think people are still too bullish.  However, that being said, if you can afford to pay cash or can find a really cheap house or even a manufactured house that rents for twice the mortgage payment, it would probably make a good investment. But on the whole, I would wait.

Related Posts

• May 25, 2009 -- How To Avoid Foreclosure
• April 20, 2009 -- In The Market For a Condo? You Can’t Afford It!
• April 12, 2009 -- Real Estate: No Bottom Yet?
• March 30, 2009 -- Home Ownership: A Marketing Scam?
• March 26, 2009 -- 30 Year Mortgages At 4.85%!
• March 10, 2009 -- Housing Sector Update
• March 6, 2009 -- Global Economic Recession: Coming To A Town Near You!

But landing these jobs was very tough. It probably would have been easier if I had looked for product management jobs, since i have a programming background, but I really wanted to do something different over the summer. If I’m spending all this time and money getting an MBA, I might as well do something that doesn’t just slot me as another techie.  My first preference would have been a job in investment management but despite having several interviews that didn’t pan out.  I think if I had networked a lot more, that could’ve become a reality but that’s probably true of any field. If you network hard enough, you’re bound to land a job sooner or later.

One thing all students should do is contact alumni in their fields of interest and offer to buy them coffee to learn about the industry. It’s much easier to do as a student otherwise you’re just some weird random dude who wants to meet them! You never know who will be able to help you get a job. And it probably won’t be the friends you hang out with all the time. You’re all part of the same network and if there were an openings, you would have known about them already. So go out and expand your network!

Check out this funny video for more job finding tips.

Related Posts

• May 12, 2009 -- Humor: How Capitalism Will End
• November 28, 2008 -- Hitler: Real Estate Only Goes Up!
• September 7, 2008 -- Why You Shouldn’t Flirt When You’re Drunk!
• May 24, 2008 -- Profiting From The Rise In The Price Of Oil
• May 12, 2008 -- UCLA Loves Me!
• April 19, 2008 -- Got An MBA Fellowship = No Student Loans!
• March 26, 2008 -- Understanding The Subprime Mess

“I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO [congressional Budget Office] to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?

“Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.“

A large tax increase would significantly hamper the economy growth and prolong the recession. So that’s probably not the path that the government will follow. On the flip side, 100% inflation over a 10 year period which causes the dollar to devalue significantly may not be an optimal solution either. (But if it is, you should be buying gold!)

May be a middle path which favors taxing the rich and a Europe-style Value-Added-Tax on certain items will be chosen. Whatever they chose, I hope they know what they’re doing.

Related Posts

• May 9, 2009 -- Is The Economy Recovering?
• March 24, 2009 -- How Geithner’s Plan Will Cost The Taxpayer (Yet Again)
• March 13, 2009 -- Buying Our National Debt
• March 9, 2009 -- Jim Rogers: How To Get Out of This Mess
• February 17, 2009 -- Government Bail-Out Of The Auto Industry – Part 2
• January 23, 2009 -- Deleveraging Is Not Deflation!
• January 9, 2009 -- What Happens When Demand for US Debt Dries Up?

Here’s a recent video on Bloomberg. He thinks US stocks suck and the US Bond market is the last bubble left and mentions TBT. Here’s my post on my short bond trade. There may even be a currency crisis in the US and other countries. I still think its a good time to buy gold!

Related Posts

• October 15, 2007 -- Jim Rogers Backs The US Dollar
• June 24, 2009 -- Protecting Yourself Against Inflation
• March 9, 2009 -- Jim Rogers: How To Get Out of This Mess
• December 17, 2008 -- Mortgage Meltdown: The Worst Is Yet To Come!
• August 23, 2008 -- Why Jim Rogers Hates Investing In India
• August 15, 2008 -- Rogers Still Bullish On Commodities
• June 14, 2008 -- What Is Jim Rogers Buying Now?

But could he have avoided foreclosure?

I think so. Let’s review some of the financial mistakes he made. The real ones, not the excessive spending that set in once he stopped making house payments!

1. He divorced his wife of 21 years

This is always grounds for economic disaster. No matter who you are, the longer you stay married, the more it’s going to hurt you financially.  If you are going to divorce, do it like Tom Cruise and get out before the magic 10 year mark or before you have kids.

2. He paid almost 2/3rds his net income in child support

Ouch! Paying $4,000 in alimony and child support when your net income is $6,777 is a lot. Effectively, his take home income is $33,000 per year or about $16/hour. I think most people on that wage move back home to their parents basements.

3. He bought a house he couldn’t afford

If there’s one major recipe for disaster, it’s buying a $500,000 house when you’re only taking home $16/hour.  He really should have known better. But then again, he outsourced the analysis of his finances to his mortgage broker instead of doing it himself.  He was set up to fail from the beginning. I’m sure his broker knew in the back of his mind there was a chance Ed would face foreclosure at some point. But Ed really should have bought a cheap house instead.

4. Not spending enough time understanding the most expensive purchase of your life

A home mortgage is the most complex financial transaction you’ll probably ever undertake. So it’s easy to blow it off or let some one else do the heavy lifting for you. However, the mortgage broker doesn’t necessarily have your best interest at heart. They get paid on commission for every loan they close and are directly incentivized to get you into the largest, most outrageously expensive home loan possible. There is a tremendous conflict of interest and you should not let them dictate what you should do. Many people claim that a home loan is just too difficult too understand. True, but only if you don’t take the time to understand it.

I strongly recommend Randy Johnson’s stellar book How to Save Thousands of Dollars on Your Home Mortgage. If you don’t know what Yield Spread Premium (YSP) or Paid Out of Closing (POC) means on a HUD-1 you definitely should read this book. If you own a home and don’t know a HUD-1 is then get your spouse to smack you and then go buy the book! I promise you’ll save thousands of dollars on your mortgage.

Just in case, you missed that last paragraph, BUY THAT $12 BOOK ABOUT SAVING THOUSANDS OF DOLLARS ON YOUR HOME MORTGAGE. You should buy it before you buy a house, before you even think of buying house, maybe before you even graduate from college. If you’ve already read it, you should buy a dozen copies of the book and gift it all your friends, co-workers, in-laws, cousins, nieces and nephews for Christmas. Unless you hate them.

The best way to prevent foreclosure from happening to you is to buy a house you can afford with a mortgage that is the cheapest over the life of the loan. That may mean paying extra points to buy down your interest rate, which means the cheapest loan is not necessarily the loan with the lowest closing costs. Learning about your finances, and how mortgages actually work is probably the best way to save money in the long run.

Related Posts

• April 20, 2009 -- In The Market For a Condo? You Can’t Afford It!
• March 26, 2009 -- 30 Year Mortgages At 4.85%!
• June 12, 2009 -- Is It Time To Buy Real Estate?
• April 12, 2009 -- Real Estate: No Bottom Yet?
• March 30, 2009 -- Home Ownership: A Marketing Scam?
• March 14, 2009 -- The End Of Credit?
• March 10, 2009 -- Housing Sector Update