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Mortgage Refinance Trends: New Wave Spurs 6-Week High Demand.

Posted on | February 5, 2010 | No Comments

It looks like there’s a “mini-wave” of mortgage refinancing that’s been pushing the rate of applications up to a six week high. But the home buyer tax credit doesn’t expire until the end of April, and that doesn’t apply to refinancing anyway, so why the rush?

The rush may be due to the anticipated end to the Federal Reserve MBS purchase program at the end of Q1, 2010. The MBS program is the mechanism by which the Fed has been buying mortgage-backed securities from banks, helping to keep mortgage rates near historic lows.

For example, the average 30-year mortgage rate has been near 5% for almost a year.

According to the Mortgage Bankers Association, their mortgage index jumped 21% last week, as a result of a 26.3% increase in demand for refinancing while purchase loan requests were up 10.3%.

It’s not all rosy news though, the report also states that the borrowing cost was up 0.40% from the record low set last March. Analysts expect both mortgage rates and mortgage costs to be headed higher throughout the year.

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Avoid These 5 Credit Card Rookie Mistakes!

Posted on | February 3, 2010 | 2 Comments

Rookie mistakes can affect anyone from major athletes to novice investors, even presidents. There’s a reason experience is so important in many facets of life; we learn from our mistakes.avoid-these-5-credit-card-rookie-mistakes_rookie-mistake

Some would argue that making mistakes is important expressly for the purpose of learning so that we can become better people, but I’ve often thought that it’s better to learn from other people’s mistakes when given the chance. Learning from other people’s mistakes saves us the personal pain and embarrassment of having made the mistake ourselves, but it can still provide us with a learning opportunity.

Mistakes are often costly, especially when credit cards are involved. Here are 5 credit card mistakes you should avoid even if you are a rookie when it comes to personal finance.

1. Substituting credit for cash

When you substitute cash for credit, you’re admitting that you can’t really afford what you’re buying. It’s hard to think of a more basic, rookie mistake than failing to plan ahead for that proverbial rainy day. Always save your money before purchasing an item. And always have an emergency account for unplanned purchases; it’s best to keep that money in a high yield savings account. I keep mine in an ING Direct savings account, but there are many other choices.

2. Making only the minimum payment

This is falling right into the trap laid for you by credit card companies. They know that it will take you literally forever to pay off your debt by making minimum payments - especially if you carry a balance and keep using the card for new purchases! DON’T DO IT!

Make at least twice as much as the minimum, and for Pete’s sake stop adding to the balance already!

Sorry to have gotten so rough with you on that, but it really is an easy mistake to make and a most difficult one to recover from.

3. Waiting too late to make a payment

Not only will you rack up late fees as a penalty on top of accruing more interest, but you may even be risking a rate hike. This is near suicidal in terms of credit card debt.

4. Taking a cash advance

If paying your credit card late and invoking interest rate hikes and late fees is financial suicide in credit card terms, then taking those oh so seductive cash advance offers is financial suicide with a tactical nuke!

Often times, these offers promise you cash today in exchange for you being saddled with a soul crushing, double-digit interest rate usually in the 30% range. This is almost as bad as a pay day loan, and it can leave you with nothing left over from your foreseeable future of pay days yet to come.

5. Closing your account

This is deceptive because it seems like the right thing to do to so many people - especially if you’ve juts paid off a huge credit card debt. In reality though, you’re much better off cutting up your credit card than closing the account. Closing your credit card account ends the line of credit available to you and makes you look less credit worthy. One exception I can think of is if you have 2 or 3 universal credit cards (VISA, Master Card, Discover or AMEX) and you’re closing a retail card like a Sears, J.C. Penny, Kohl’s, etc.. retail cards typically offer lower balances to begin with and much higher interest rates, so you’d probably be better off keeping the universal accounts open and closing the retail.

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New Home Sales Down 7.6% In December.

Posted on | February 2, 2010 | No Comments

According to this article from the AP, new home sales fell 7.6% last month.

The Commerce Department said December sales fell to a seasonally adjusted annual rate of 342,000 from an upwardly revised November pace of 370,000. Economists surveyed by Thomson Reuters had forecast a pace of 370,000 for December.

It’s mildly surprising given that the home buyer tax credit was still in effect at that time, but it could be due to a lag. It usually takes about 2-3 months to finalize the purchase of a home from the initial offer to the closing date and it could be that new home buyers at stopped looking by early November, when the tax credit was originally set to expire. If this is true, then we could expect to see a jump in new home sales in the January/February time frame.

I suspect the big reason however is that unemployment remains near historically high levels, and people simply don’t have or cannot plan to have the required, steady income needed to be able to afford a home.

The article never really mentions or even speculates about a reason for the ‘unexpected’ drop.

:-/

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How The Credit CARD Act Of 2009 Might Be A Bad Deal.

Posted on | January 28, 2010 | 2 Comments

A lock down on credit cards may not be as good as it sounds...

A lock down on credit cards may not be as good as it sounds...

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 has received much favorable press since it was enacted, and rightfully so in many cases.

There have been cases where unethical credit card companies have attempted to skirt the new regulations, but here’s another why in which the new regulations may negatively impact credit card users.

Part of the CARD Act is meant to put an end to unfair rate hikes and interest billing cycles, but it also aims to end the age of giving a credit card to anyone with a pulse.

Don’t get me wrong, I think that’s a worthy and noble intent. But there are destined to be people who get caught in the middle - who need access to credit, but really shouldn’t have it. I say they’re in the middle because they are in between qualifying for a credit card and not having to depend on one.

Many of these people are those who have simple not put aside savings in an emergency savings account. The result is that they are caught without access to cash or credit when their income suddenly drops or ends completely.

As John Ulzheimer, president of consumer education for Credit.com, says:

“We’re headed down the road where if you can’t verify your income, you can’t get a credit card. It’s going to affect the unemployed and the ability of small businesses to hire people and fund capital purchases. That all has a trickle-down effect to the economy.”

Again, I think this is true but it’s also part of a necessary pain. If you can’t afford to pay off your credit card balance every month, then you can’t afford the credit card. It’s that simple. And shouldn’t we only be giving credit (or loans in general) to those who can afford to pay it back? Doing otherwise is what got the economy in the mess it’s in - the push for “affordable housing” led to sub-prime lending, which has brought us to trillions of dollars in loans that can’t be repaid.

The sad truth is that too many people have become accustomed to thinking that credit cards are their emergency savings plan.

Consider that, according to a Consumer Reports survey conducted in 2009, 30% of consumers had credit card debt of $10,000 or more, and that 44% of them responded that they would need their credit cards to meet monthly expenses over a six-month period if their income became disrupted.

So, when the new CARD Act goes into effect on February 22nd, there are going to be a lot of people caught in lower available credit limits, or no access to credit cards, all of which will probably lead to further hobbling the economy at least in the near term. But I think it’s a good thing in the long term if we can get people to create and fund their own emergency savings, say in a high yield savings account like ING (click here for a free $25 referral code), and stop relying solely on credit cards as a financial life line.

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