Investing Curiouscatblog

Category: Financial Literacy

  • Example of Mortgage Payments Depending on Credit Score

    Example 30 year mortgage rates (from myfico.com – see site for current rate estimates):

    FICO score APR Monthly payment*
    760-850 5.860% $2,362
    700-759 6.082% $2,419
    660-699 6.366% $2,493
    620-659 7.176% $2,709
    580-619 8.820% $3,167
    500-579 9.679% $3,416

    Amounts shown for borrowing $400,000 and rates as of May 7th. For scores above 620, the APRs above assume a mortgage with 1.0 points and 80% Loan-to-Value Ratio. For scores below 620, these APRs assume a mortgage with 0 points and 60 to 80% Loan-to-Value Ratio.

    FICO scores are determined by your:

    • Payment history – 35%
    • Amounts owed – 30%
    • Length of credit history – 15%
    • New credit – 10%
    • Types of credit used – 10%

    Related: 30 Year Fixed Rate Mortgage Rates – Learning About Mortgages

  • Broken Health Care System: Self-Employed Insurance

    Many of the Self-Employed Are Simply on Their Own:

    In 11 states, self-employed people have some of the same legal rights as small companies when it comes to dealing with insurers: Colorado, Connecticut, Delaware, Florida, Maine, Massachusetts, Mississippi, New Hampshire, North Carolina, Rhode Island and Vermont.

    But elsewhere, in dealing with insurance companies, the nation’s estimated 20 million self-employed are on their own. In Virginia, a state with relatively few controls on insurance rates, Clay Williams, a 59-year-old self-employed real estate agent in Falls Church, said the cost of health insurance for himself, his wife and two sons, had tripled in six years. After it ballooned last year to $1,956 a month, he angrily refused to renew.

    Fixing the health care system is not easy. But it is broken and doing serious harm to the economy and individuals and needs to be fixed. Post on our management improvement blog on fixing the health care system. In addition to the obvious harms the broken system discourages many people from taking on the challenge of self employment. It also greatly increases the friction in the economy for moving between jobs.

  • Live From Omaha

    Live From Omaha: The Berkshire Hathaway Meeting a nice series of posts at fool.com, including:

    Buffett cautioned, though, that the difference between investing on paper and investing with real money is like the difference between reading a romance novel and, as he delicately put it, “doing something else.” “There’s nothing like having a little experience in investing,” he said. Once you’ve done that, you can decide whether, as Buffett said, “it turns you on.”

    On a final note, he gave a not-too-surprising suggestion to always look a stock in terms of the whole company. So, for example, if you’re thinking about buying GM (NYSE: GM) at $30, he said, you should consider whether you think the entire company is really worth $18 billion.

    I wish someone would post a transcript or at least more details. If you know of a good source, please let me know.

    Related: Great investors, Warren Buffett – Buffett’s Newest Letter to Shareholders – Warren Buffett’s Annual Report 2004

  • Dragged Down by Debt

    Dragged Down by Debt by Jane Bryant Quinn (Newsweek broke the link so I removed it):

    Payday and car-title lenders tend to cluster in low-income neighborhoods—especially around military bases, where families are young and borrowers aren’t very savvy about interest rates. Congress recently slapped a 36 percent interest-rate cap on loans made to members of the armed services. But it left out everyone else, who pay rates that sometimes exceed 700 percent, says CFA’s Fox.

    Of all the predatory loans, “exploding mortgages,” with interest rates that wing up after two or three years, are probably the most toxic and have made the most headlines. They’re typically granted to borrowers classed as “subprime”— those with credit scores under 620 (a 900 score is tops). But these are the very people least able to handle monthly payments that suddenly double or triple.

    Related: Personal Loan information – Learning About Personal Loans – articles on loans

  • Learning About Personal Loans

    Personal Loans are either secured of unsecured loans to an individual. Secured loans have some form of collateral such as a car, stocks (margin loan) or a house (home equity loan). Unsecured loans are usually involve less paperwork (which is often an attraction to the borrower – though margin loans often take no paperwork). The interest rate on unsecured loans is normally higher since the lender does not have collateral.

    Credit cards are a form of unsecured personal loan. They normally are the worst way to borrow money (though for a very short term loan – say a month or two – when you factor in the ease of use they can be the best option). The problem is many people treat their credit card as a normal source of loans. This is a bad personal finance strategy. See our credit card tips for more information.

    Personal loans often have “teaser” rates – interest rates that are low (and quoted in big bold colors) while the real rate is hidden in small type. Don’t fall for the hype. The Annual Percentage Rate (APR) helps you look through the hype to the real cost, but is still not a perfect measure of the cost to the borrower.

    A MSN money article discusses the horrendous terms of some “payday loans”: Loans with triple-digit interest. Read more about personal loan terms such as: payday loans, Annual Percentage Rate (APR), line of credit, etc..

    Related: Payday Loans = Costly Cash, FTC Alert – Learning About Mortgages – How Not to Convert Equity – personal finance articles on loans

  • Victim of Real Estate Bust: Your Pension

    Victim of Real Estate Bust: Your Pension – Part 2:

    The skeptics also point out that credit spreads for junk bonds are so low today because we’ve had several years of historically low bond default rates. But anyone who’s ever opened up a book on economic history will tell you that most bad loans are made when times are good and the markets are complacent, not when times are bad and Wall Street is full of fear.

    The central premise of this post is that risk is being mispriced by the market (by failing to account for the risks bonds… are overpriced). And that when those risks are exposed (for example, as the sub prime crisis builds, recession…) prices will fall. Historically markets do exhibit this pattern – when times are good risks are not fully factored into prices, then those risks are appreciated and prices decline.

    Related: adjustable rate mortgage – investment risks – Mortgage Defaults: Latest Woe for Housing – Coming Collapse in Housing? – How Not to Convert Equity – Saving for Retirement

    This interesting graph, shows the amount of adjustable rate mortgages due for interest rate adjustments (which will increase mortgage payments for millions of people).
    (more…)

  • The Great Risk Shift

    The Great Risk Shift by Jacob Hacker presents some interesting data. I don’t always agree with his conclusions but I think the information he presents is interesting.

    The most interesting piece of data to me: The chance of a 50% drop in income in 1970 was 7% for any person. By 2002 it had grown to 16%. While this seems to include some questionable “data” such as divorces, retirees… Still the fairly steady climb (see chart page 31) from 1970 to 2002 shows this is one factor that should be a consideration in saving and spending plans. Don’t assume you will earn more and more every year. You will likely have some fairly large drops in income during your lifetime. Plan for it.

    Some more interesting data in 1992 7.9% of 25-34 year olds in the USA had debt payments over 40% of their income. In 2001 that rose to 13.3%. In 1984 median wealth for families with a head of household 55-64 was 4 1/2 times as wealth as those of 25-34 year olds, in 2003 it was 13 1/2 times as great. (page 99)

    While the average 401(k) balance is $47,000 the median balance is $13,000 (a relatively few large balances skew the average to make it much higher).

    Overall I tend to look at the data he presents and think people better consider these realities and plan knowing them. Jacob Hacker seems to more often say that this is unreasonable and show the hardships faced by those that either could not plan better (it was out of there hands which I would agree is part of the problem and requires some public policy changes) or who choose not to (which I would find the case more often than he would). Well worth reading in my opinion.

  • Boomers Face Retirement

    Boomers on brink of retirement wonder if they can afford it:

    Scholz was among a small group of economists cited in a recent front page story in the New York Times who said – to the shock of many – that the financial industry overstates how much money people will need in retirement.
    …
    Scholz doesn’t go that far, but he does question the popular notion that most baby boomers are “blowing it” in their preparation for retirement. He says the group’s research showed that, by and large, Americans born between 1931 and 1941 were faring quite well financially during their retirement. “That was very surprising to us,” he says. “So then an interesting question is, does the experience of that generation carry over to households that are younger?”
    …
    “They’re like, ‘Well, I finally got a cell phone.’ They use a computer but it’s one that’s eight years old. Their cars run forever.” That mindset is far different from most baby boomers, Haunty argues. To them, items once viewed as luxuries are now considered necessities. And, he adds, this “propensity to consume” is even more prevalent among Americans in their 20s and 30s. Haunty says he’s not advocating that baby boomers “save every penny and wear the same jeans they wore 10 years ago. But they’ve got to strike a balance.”

    Well said. If you have enough money to afford whatever you want and can maintain an emergency fund, buy disability insurance, buy health insurance, save for retirement, avoid personal debt, save for children’s education… great. If not, then choices need to be made about what is most important and then you get to live with the consequences of those choice.

  • Shop Around for Drugs

    Many of his patients, he explained, must pay for their drugs out-of-pocket, and yet even the generic drugs at pharmacy chains like Walgreens, Eckerd, and CVS could cost them dearly. So Wolf began snooping around and found that two chains, Costco and Sam’s Club, sold generics at prices far, far below the other chains. Even once you factor in the cost of buying a membership at Costco and Sam’s Club, the price differences were astounding. Here are the prices he found at Houston stores for 90 tablets of generic Prozac:

    Walgreens: $117, Eckerd: $115, CVS: $115, Sam’s Club: $15, Costco: $12

    Those aren’t typos. Walgreens charges $117 for a bottle of the same pills for which Costco charges $12.

    It pays to comparison shop for you prescription drugs.

  • Challenge Those Credit Fees

    Challenge those credit fees:

    You have some leverage, though, if you’re a “good” customer, meaning you pay bills on time and, preferably, carry a balance. In either case, don’t silently accept high fees and high rates, advocates say. Call the card issuer and politely complain. With little federal regulation of the industry, your best friend is industry competition, says CardRatings’ Arnold.

    If the card company’s representative initially balks at, say, waiving a late fee, ask to speak to the manager, Arnold says. If that doesn’t work, tell the company you want to cancel the card. At that point, you’ll likely be transferred to the retention department, whose job is to keep you as a customer, Arnold says. It’s expensive to replace customers, so you may be able to negotiate a waiver of fees or a temporary reduction in the interest rate. If not, prepare to shop around for a new card, Arnold says.

    Related: Curious Cat Credit Card Tips – Credit Card Currency Conversion Costs