Investing Curiouscatblog

Tag: Personal finance

  • Ignorance of Many Mortgage Holders

    Mortgage ignorance rampant

    In the survey of 1,004 adults conducted by Gfk Roper, homeowners with mortgages were asked what type of mortgage they had. A stunning 34 percent of the homeowners had no idea. “That’s a symptom of the complexity of the mortgage market today,” says Ken Wade, chief executive officer of NeighborWorks America, a nonprofit organization that provides financing and training to neighborhood-based housing organizations.

    Sorry but that is a symptom of massive ignorance. Not knowing an incredible important aspect of your largest financial decision is like not know what days you are suppose to show up for work. There is a minimum amount of knowledge people should have that sign a mortgage. I think at least 34% of mortgage holders need to read this blog. Ok, I probably alienated all of them, so if that is the case then they should read some of the blogs we list in our blogroll.

    Nationwide, 36 percent of homeowners who now have an ARM said they planned to refinance to a fixed-rate loan when their ARM changes. Only 2 percent planned to refinance into another ARM.

    There is a big problem in that logic – it could maybe make sense if you had good reason to believe rates will be lower in the future than when you took out the loan (but that is a very questionable). I don’t know why someone would think that in the last couple of years – the risks have been much better than rates would go up a few hundred basis points than down that much. Basically I can see someone that is very financially savvy using an adjustable mortgage to qualify and if they know they will move in a fairly short period…

    Related: Learning About Mortgages – Mortgage Defaults: Latest Woe for Housing – How Not to Convert Equity – 30 year fixed Mortgage Rates

  • 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

  • Retirement Savings Survey Results

    Have less than $25K in savings? Get in line

    Nearly half of all workers saving for retirement have savings that fall short of the $25,000 mark, according to the 2007 Retirement Confidence Survey by the Employee Benefit Research Institute and Matthew Greenwald & Associates. Predictably, the youngest workers (ages 25-34) dominate this group – 68 percent of them have less than $25,000 earmarked for their later years. But so do half of workers age 35 to 44 and a third of workers age 45 to 55 and over.

    What is a very rough estimate of what you need? Well obviously factors like a pension, social security payments, age at retirement, home ownership, health insurance, marital status… make a huge difference in the total amount needed. But something in the neighborhood of 10-25 times your desired retirement income is in the ballpark of what most experts recommend. So if you want $50,000 in income you need $500,000 – $1,250,000. Obviously that is difficult to save over a short period of time. The key to retirement saving is consistent, long term commitment to saving.

    Related: Saving for Retirement – Start Young with 401k and Roth IRA – Retirement Delayed: Working Longer

  • Telephone Savings

    Update: I would not even consider using Vonage. Any company that takes you money using there online site and then refuses to cancel your service without you call them is exactly like the traditional phone companies they try in ads to say they are different than. Then you call and then force your through a ridicules voice mail tree and then they tell you you have to call back between 9-5 on weekdays to have the privilege of not having them take your money. Completely unacceptable behavior. You can get VOIP phone service without a monthly free now via Ooma by purchasing a device to plug your broadband internet connection into (I got mine for $203 via Amazon).

    old post:
    Cutting expenses is a great way to free up money to add to savings.

    A couple years ago I switched to Vonage for my phone service. They provide phone service through my DSL high speed internet line. I play just $18/mo for local and long distance calls (this is for 500 minutes or less – for $29/mo you can get unlimited calling in North America and Europe). I still use my same phone (I just plug my regular phone into a modem they provided). You do lose the ability to make phone calls when the internet is down which happens if the power goes off – people can still leave you voicemail). I have been very happy and get free voice mail and free caller ID.

    More recently I picked up a prepaid phone from Virgin. I pay only for the time I use (no monthly charges) – 25 cents a minute for the first 10 minutes any day and 10 cents a minute thereafter. There are no fees for calling from out of your service area and you have a regular cell phone number. They require I add a minimum of $15 every 3 months to the account but if I don’t use that much the balance just keep growing. This is ideal for anyone that doesn’t spend much time on cell phones. Now some people are very attached to their cell phone. Then this isn’t a good way to save money but for those that don’t feel the need to to stay in touch at all times this is a good option to stay connected when you want without having to pay high monthly fees.

    Together I save at least $35/mo. (over $400 a year) and loose nothing I value. I would have to earn an extra $700, or so, to have the same impact (I have to pay taxes on additional earning).

  • How Not to Convert Equity

    CNNMoney is not exactly intellectual discussion of economic and investing issues but normally it offers fairly good material for the large number of people. Especially those who really don’t want to read Warren Buffett or Brad Setser. Still the following quote in their article, Cashing in on hot real estate is just wrong:

    They also have one extremely valuable asset: a house in the now trendy Silverlake neighborhood of Los Angeles that’s worth $1 million, nearly four times what they paid in 1995. The equity, Handel says, is “lovely,” but it’s not doing them much good right now.
    …
    San Diego-based certified financial planners Christopher Van Slyke and Terry Green recommend an unconventional plan: taking out a new $500,000 ARM.

    Handel and Laport can pay off their existing mortgage before the rate rises and retire their other debts. They can put the remaining $200,000 into stock and bond funds.

    To be sure, borrowing against a house to put the proceeds into the market rarely makes sense. But in Handel and Laport’s case it does because so much of their net worth is tied up in their home, and the super-hot L.A. real estate market looks primed for a fall…

    They can convert equity that might melt away.

    They can what? In no way does increasing their leverage convert equity that might melt away. Any amount of “melting away” will still happen after this increase in leverage – no conversion has happened. They still have a full ownership interest in the real estate. If the value of their house fell $300,000 before or after this supposed “conversion” they would “lose” (on paper) the same amount: $300,000. The investment risk for the house has not changed (for the whole portfolio you could argue it has but that gets complicated and subject to debate).
    (more…)