Eddie On Everything » finance http://www.eddieoneverything.com Tips & tricks on things that interest me Wed, 11 Jan 2012 08:29:23 +0000 http://wordpress.org/?v=2.9.2 en hourly 1 What’s the difference between a Fixed Rate and an Adjustable Rate Mortgage? (ARM) http://www.eddieoneverything.com/finance/whats-the-difference-between-a-fixed-rate-and-an-adjustable-rate-mortgage-arm.php http://www.eddieoneverything.com/finance/whats-the-difference-between-a-fixed-rate-and-an-adjustable-rate-mortgage-arm.php#comments Sun, 21 Feb 2010 00:52:56 +0000 eddie http://www.eddieoneverything.com/?p=725 When financing a home, there are two major types of mortgage financing, a fixed rate mortgage and an adjustable rate mortgage (ARM). A fixed rate mortgage is a loan in which the interest rate does not change during the term. Conversely, with an adjustable rate mortgage, the interest rate is periodically adjusted during the repayment period. Typically, ARMs are readjusted based on market indices, such as Treasury securities.

Fixed rate and adjustable rate mortgages each have pros and cons. Fixed rate mortgages are in one way advantageous because the payment amount (principal and interest) does not change for the term of the loan (typically 15 or 30 years). This can help families keep within a budget. However an ARM can provide a lower payment, especially during the first few years of the loan. However, budgeting may be difficult, because, when the ARM rate changes, it can cause the monthly mortgage payment to skyrocket.

Some ARMs prevent the interest rate from rising within the first few years (sometimes called the adjustment period). Some ARMs also have “caps” to prevent borrower default. Some caps are essentially limits on the total possible rise in interest rate. Other caps are limits on the frequency of interest rate changes. Fixed rate loans do not include caps, as the interest rate remains fixed for the life of the loan.

ARMs can be useful if the owner plans to live in the home for a short period of time. For instance, if you plan on selling within five years, it would probably be advantageous to take a “5/1″ adjustable rate loan. The 5 refers to the initial interest rate term (5 years), and the 1 refers to a 1-year interest readjustment period. In other words, the interest rate will be recalculated, based on a market index, every one year. So, the owner of the house would enjoy a low fixed interest rate for five years, after which the rate would change (and likely increase). But, if the owner sells within this period, no extra interest payments will ever be made. If you plan to live in a house for five years and take out a fixed rate mortgage, your monthly expenditure will likely be more, since fixed rate mortgage interest rates are typically higher than the initial rates offered by ARMs.

While fixed rate loans are the “classic” mortgage in the United States, ARMs have gained some popularity. However, during the last few years, some buyers purchased homes with ARMs that had very low initial interest rates. When the interest rates went up and home values plummeted, many of these buyers found themselves “upside-down” in their mortgages. In other words, their homes were worth less than they owed. While ARMs are not evil, many of the so-called “predatory loans” made in the last few years were ARMs with low initial interest rates (sometimes referred to as “teaser rates”).

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]]> http://www.eddieoneverything.com/finance/whats-the-difference-between-a-fixed-rate-and-an-adjustable-rate-mortgage-arm.php/feed 2 American Express unexpectedly lowers credit limit, loses life-long customer http://www.eddieoneverything.com/finance/american-express-unexpectedly-lowers-credit-limit-loses-life-long-customer.php http://www.eddieoneverything.com/finance/american-express-unexpectedly-lowers-credit-limit-loses-life-long-customer.php#comments Mon, 17 Aug 2009 23:29:17 +0000 eddie http://www.eddieoneverything.com/finance/american-express-unexpectedly-lowers-credit-limit-loses-life-long-customer.php I’ve been an American Express customer for nearly 10 years. No, “customer” isn’t quite the right word – I’ve been more of an American Express “evangelist.” I use my AMEX exclusively. I shy away from businesses that don’t accept American Express. I am always telling my friends about the benefits of American Express – from automatic warranty extensions to their no-questions-asked charge dispute approach. Also, as a small business owner, I also choose to pay higher fees to accept American Express cards than I do to accept Visa and Mastercard. (They make merchants sign a separate, more stringent, more expensive, agreement.)

But all of that changed today – as of today, American Express and I are no more. We’re done, we’re over, we’re through. I wish them the best, but I just can’t continue in this relationship.

I currently have two AMEX cards – an AMEX Blue and a Costco TrueEarnings Business Card, with limits of $10,000 and $25,000, respectively. I spend about $2,000 per month on my AMEX, and I’ve always paid my bills in-full and on-time. As of 10 minutes ago, my FICO (FAKO?) scores were all around 740 or higher. (Credit scores courtesy of the $11.99/month American Express “Credit Secure” service that I subscribed to until about 10 minutes ago.) I have very little non-student loan debt. A pretty good credit profile, right? I thought so.

So imagine my surprise when I received the call telling me that American Express had “reviewed my account” and decided to slash the credit limit on my Costco TrueEarnings card by 75%. The stated reason: Over the last 3 months, I ran up a balance of $4,500, and made only the minimum payment on the card. They also noticed a few new “inquiries” from other creditors. I explained that I had recently purchased a house, and that was the source of both the inquiries and the minimum payments – my mortgage company chose to pull my credit report several times, and I chose to stay cash-heavy during the process so I could make a larger down payment. Rest assured, I told them, I’ll be paying off the card in full this month.

“Thanks!” multiple levels of customer support told me, “but we’re still cutting your credit limit.” As I pushed each for reconsideration, they told me that my only option was to send in a copy of my credit score and “file an appeal” with their “review department.”

Really? You want me to BEG for the privilege of using your card? Sorry, AMEX, but I have another option – I can cut up my American Express cards, use a different card (Visa, Mastercard, Discover, anyone?) for my daily spending, and stop accepting American Express at my business. I think I’ll go that route instead. You know, I think I’m going to cancel my Costco membership as well. Sam’s Club has better prices anyway.

“But it’s not personal, sir.” Isn’t it? You’ve spent millions of dollars marketing yourself as my “trusted partner,” telling me that we’re friends and that you’re looking out for me. But you’ve been lying through your teeth. What a fool I’ve been. Your credit limits and minimum payment amounts mean nothing. Sorry, AMEX, but I need a partner I can rely on. And after this incident, I just can’t trust you.

Superior customer service used to set American Express apart. Now that that’s gone, the only things distinguishing them are a yearly fee and the shrinking number of merchants who accept AMEX.

Good luck with that, guys.

I’m not the only one affected by this practice.

Planet Feedback has tons of complaints

Consumerist is full of American Express complaints.

Compaints Board – Full of complaints.

Complaints at Yahoo

Got more stories? Post ‘em in the comments.

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]]> http://www.eddieoneverything.com/finance/american-express-unexpectedly-lowers-credit-limit-loses-life-long-customer.php/feed 14 10% Of Customers Pay 90% Of Bank Overdraft Fees http://www.eddieoneverything.com/finance/10-of-consumers-pay-90-of-the-overdraft-fees.php http://www.eddieoneverything.com/finance/10-of-consumers-pay-90-of-the-overdraft-fees.php#comments Thu, 13 Aug 2009 19:47:50 +0000 eddie http://www.eddieoneverything.com/finance/10-of-consumers-pay-90-of-the-overdraft-fees.php Ever wonder how may bank customers actually pay overdraft fees? According to The Consumerist and the Financial Times, 10% of bank customers pay a whopping 90% of the overdraft fees.

The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft revenues coming from 10 per cent of the 130m checking accounts in the US. Regular use of overdrafts is most common among consumers with low credit scores, Moebs discovered.

Wow. I knew that some consumers are really bad with money, but I had no idea that the numbers shake out like this.

While some people are crying foul, accusing the banks of unfairly targeting the “poor,” I have to wonder : Why do these same 10% of people continue to rack up overdraft fees? Why don’t they learn their lesson after being hit with the first, second, or, say, twelveth? I understand being poor, but this just makes you poorer.

Most banks offer free or low-fee overdraft protection – that is, they will let you “link” a credit card to your checking account, so that if you should ever fall short of funds, the balance will be applied to your credit card. Even at cash-advance rates, it’s a hell of deal when compared to paying these high penalties.

And the average fee for an overdraft? $26, in case you’re wondering.

The median bank overdraft fee has this year rose from $25 to $26, according to Moebs, the first time it has gone up in a recession for more than 40 years.

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]]> http://www.eddieoneverything.com/finance/10-of-consumers-pay-90-of-the-overdraft-fees.php/feed 0 Another Reason to not use Gift Cards http://www.eddieoneverything.com/finance/another-reason-to-not-use-gift-cards.php http://www.eddieoneverything.com/finance/another-reason-to-not-use-gift-cards.php#comments Mon, 25 Feb 2008 00:33:17 +0000 eddie http://www.eddieoneverything.com/finance/another-reason-to-not-use-gift-cards.php Reports have retailer Sharper Image, currently undergoing a bankruptcy, is refusing to honor gift cards both in both its retail stores and online.

If you really needed another reason to stay far, far away from these ripoff gift cards, this is it.

So let’s sum up just a few reasons to not use gift cards:

  • Limited to spending your money at one store.
  • Unused balance often left unspent, meaning pure profit for the retailer
  • The cards are pre-paid, non-interest bearing accounts. This means that the store, not you, makes interest on your money.
  • Most have monthly maintenance fees after a period of inactivity
  • No purchase protection like that offered by credit cards and even debit cards.
  • Store may refuse to honor the gift cards at any time, subject to their issuance terms.
  • Many Visa branded gift cards do not work at all retailers; in fact, they rarely work at gas pumps.
  • As we learn here, gift cards are a form of unsecured debt for the store, meaning that if the store should happen to file for bankruptcy, card holders are very low down on the totem pole when it comes to reimbursement.

With all of these negatives, why do people continue to purchase these things? My guess is that most purchases are made as gifts for others – you don’t know what to buy your friend/aunt/cousing, so instead of picking out a gift, you buy him/her/it a Target-branded gift card. Word to the wise – next time, just give cash.

Customer Experiences from the Consumerst:

… Now, I finally go to the store and hand them my certificate and I’m told that due to Chapter 11, SI is not accepting Merchandise Certificates or Gift Cards from anyone.

He called Sharper Image customer service see what the problem was and the representative told him they had suspended gift card redemptions due to the bankruptcy.

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]]> http://www.eddieoneverything.com/finance/another-reason-to-not-use-gift-cards.php/feed 1 My sudden jump in FICO credit score http://www.eddieoneverything.com/finance/my-sudden-jump-in-fico-credit-score.php http://www.eddieoneverything.com/finance/my-sudden-jump-in-fico-credit-score.php#comments Thu, 21 Feb 2008 15:34:13 +0000 eddie http://www.eddieoneverything.com/finance/my-sudden-jump-in-fico-credit-score.php
What’s in a credit score? Good question.

A FICO credit score is a single number that, in theory, quantifies your creditworthiness. In practice, however, it doesn’t always work out like that. Comprised of factors such as length of credit history, number of open accounts, and ratio of debt-to-credit available, credit scoring techniques can confuse even the savviest borrowers.

Take, for instance, the recent happenings with my credit score. I received a notice today that my credit score had changed by more than +/- 20 points. I was expecting a jump – last month, I received notice my score fell by approximately 40 points because a company that I’ve never heard of reported that I was late in making payments. (For the record, I haven’t made a late payment on any account or liability in more than 10 years.) I filed disputes with each of the three credit bureaus and the negative history was removed almost as quickly as it was added.

However, I’m still left wondering about the result:

Untitled-1.png

I would have expected my score to return to about 700, where it has hovered for the past year or so. Instead, it shot up to a whopping 745. Why? I haven’t done anything different in the past month – I still have about $12,000 of credit card debt (at 1.9% – so it’s not going to get paid off any time soon), I still have $100k in student loan debt, and I still make the same payments each month. I keep opening new cards at the same rate I normally do. (My latest – I got a free $150 for opening a Chase Freedom card.)

So why the big jump in score? Inquiring minds want to know.

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]]> http://www.eddieoneverything.com/finance/my-sudden-jump-in-fico-credit-score.php/feed 0 Most Expensive Zip Codes in the U.S. http://www.eddieoneverything.com/lists/most-expensive-zip-codes-in-the-us.php http://www.eddieoneverything.com/lists/most-expensive-zip-codes-in-the-us.php#comments Sun, 11 Jun 2006 00:10:07 +0000 eddie http://www.eddieoneverything.com/lists/most-expensive-zip-codes-in-the-us.php
Looking to move on up?

If so, you’ve better have a lot of case on hand. According to Forbes magazine, the median price tag of a home in the most expensive zip code in the US (94027, (Atherton, CA) tops $2 million dollars. You read that right, that’s the median home price.

If you don’t have $2 million laying around but still want to live in a top 20 zip, you could always slum it down in Los Altos for a paltry $1.4 million. Chump change to those in Atherton, I’m sure.
List of the priciest zip codes

Rank ZIP code City Median price 2004
1 94027 Atherton CA $2,496,553
2 93108 Santa Barbara CA $2,176,251
3 92067 Rancho Santa Fe CA $2,144,254
4 92662 Newport Beach CA $2,046,577
5 11765 Mill Neck NY $1,948,636
6 94957 Ross, CA $1,910,263
7 89402 Crystal Bay, NV $1,806,962
8 7620 Alpine, NJ $1,773,880
9 89413 Glenbrook, NV $1,765,000
10 7976 New Vernon, NJ $1,760,000
11 11568 Old Westbury, NY $1,759,206
12 90402 Santa Monica, CA $1,749,834
13 10013 New York, NY $1,635,000
14 21056 Gibson Island, MD $1,626,000
15 90210 Beverly Hills, CA $1,582,886
16 6831 Greenwich, CT $1,573,755
17 33109 Miami Beach, FL $1,505,655
18 94528 Diablo, CA $1,452,500
19 94920 Belvedere Tiburon, CA $1,421,336
20 94022 Los Altos, CA $1,392,522

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]]> http://www.eddieoneverything.com/lists/most-expensive-zip-codes-in-the-us.php/feed 0 Top 10 Highest Paying Careers http://www.eddieoneverything.com/lists/top-10-highest-paying-careers.php http://www.eddieoneverything.com/lists/top-10-highest-paying-careers.php#comments Sat, 10 Jun 2006 23:50:45 +0000 eddie http://www.eddieoneverything.com/lists/top-10-highest-paying-careers.php
Looking to make a career change so you can start making the big bucks?

Are you a college student trying to pick a major?

Are you just plain nosey about how much money your neighbor really makes?

Whichever it is, you can never have too much information. Below is a chart of the Top 10 highest paying professionals, as compiled by Money Magazine. Notice that professionals of all types dominate the list, especially health care professionals. It just goes to show – it pays to stay in school.

Top 10 Highest-paying careers

Chief Executives $254,643
Physician/Surgeon $247,536
Oral and maxillofacial surgeons $211,766
Lawyer $153,923
Sales manager $135,903
Financial services sales agents $130,385
Financial managers $128,910
Dentist $122,883
Financial advisor $122,462
Natural sciences managers $116,504

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]]> http://www.eddieoneverything.com/lists/top-10-highest-paying-careers.php/feed 0 What does it mean to be “upside down” on a loan? http://www.eddieoneverything.com/finance/what-does-it-mean-to-be-upside-down-on-a-loan.php http://www.eddieoneverything.com/finance/what-does-it-mean-to-be-upside-down-on-a-loan.php#comments Sat, 10 Jun 2006 22:01:10 +0000 eddie http://www.eddieoneverything.com/finance/what-does-it-mean-to-be-upside-down-on-a-loan.php Q: What does it mean to be “upside down” on a loan? I keep hearing this term on talk radio shows. (Like Dave Ramsey.)

A: Usually used in the context of car loans, the term “upside down” means that the car is worth far less than the amount of money owed on the loan. For example, let’s say that you owe $15,000 on a car that is only worth $7,000 – in this case, you are “upside down” by $8,000.

Many car buyers end up upside down in auto loans because they buy more car than they can afford at terms that they should never accept. Car dealers are all to eager to dangle low-monthly payment options in front of an unsaavy car buyer, knowing that once he accepts, the dealership will make a killing as the customer proceeds to make years of interest only payments, never reaching the actual principal. Under these terms, it can take a decade or more to finally pay off a car loan.

Remember, it is almost always a mistake to agree to any auto loan with a term of more than 60 months. If you can’t afford to make the monthly payments on a 5 year loan, you can’t afford the car.

Exacerbating the situation is the fact that automobiles depreciate faster than you can say the word “boondoggle.” Most new cars lose half of their value in a short 18 months, leaving most anyone with a loan term of more than 36 months upside down fairly quickly.

If you are upside down on an auto loan, you’re not alone. A recent Money Magazine survey showed that nearly 30% of new car shoppers are upside down in their current car loans.

Getting out

Unfortunately, there isn’t a lot you can do to get yourself out of this situation, other than pay off the loan as quickly as possible. And remember next time you buy a car, if you can’t afford the monthly payments on a 5 (or better, 3) year loan, you can’t afford the car!

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]]> http://www.eddieoneverything.com/finance/what-does-it-mean-to-be-upside-down-on-a-loan.php/feed 2 When do you pay tax on a CD? http://www.eddieoneverything.com/finance/when-do-you-pay-tax-on-a-cd.php http://www.eddieoneverything.com/finance/when-do-you-pay-tax-on-a-cd.php#comments Wed, 31 May 2006 07:11:06 +0000 eddie http://www.eddieoneverything.com/finance/when-do-you-pay-tax-on-a-cd.php Question: Hi, I was wondering if there is any advantage to putting money into a CD versus a regular savings account (like Emigrant Direct or ING) if the rates are same or very close.

On the one hand, a savings account is more liquid than a CD. On the other, a CD is set at a particular rate, so even if the rates fall, you’ll still be locked in. Anything else?

I’m wondering because some I’m seeing some places with rates like 4.75% for regular savings accounts, and others places with 6 month CD’s for 4.75%.

Thanks!

Answer: You hit the big ones – the tradeoff between liquidity and rate security. In addition, there may be tax reasons that you’d prefer one instrument over another.

Interest from both certificates of deposit and savings accounts is classified as income. Generally, income is taxable in the year in which it is received. Many CDs pay interest in one lump sum, when the CD reaches maturity. Savings accounts, on the other hand, generally pay interest each month.

If you have a large income this year, but expect to have a much smaller income next year, it may behoove you to choose the CD over the savings account – you would delay the taxable event (your receipt of the income) until next year, when you’ll be taxed at a lower rate. Alternatively, if you expect to have a large income next year but have a much smaller income this year, you would likely come out ahead by choosing the savings account.

The above holds true for CDs with terms of 1 year or less, but things get a little trickier when the term is over 1 year. Depending on how the CD is structured, you may have to pay tax on a portion of the total interest due. Forbes offers the following bit of advice in a January 2006 article:

If you buy a CD with a maturity of more than a year, you must include as income each year a part of the total interest due. This applies to similar deposit arrangements, such as time deposits, bonus plans, savings certificates, deferred income certificates, bonus savings certificates and growth savings certificates.

While that sounds fairly straightforward, it’s not quite as simple as Forbes would have you believe. IRS Pub 550 covers investment income and expenses. According to Page 5 of that publication,

“Certificates of deposit and other deferred interest accounts. If you open any of these accounts, interest may be paid at fixed interval of 1 year or less during the term of the account. You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. If interest is deferred for more than 1 year, see Original Issue Discount (OID), later.” (emphasis added)

So, it would seem that according to the IRS, you need only claim the income if 1) you are “entitled” to receive it before the instrument matures and 2) there is no “substantial penalty” for early withdrawal. But it doesn’t stop there – even if you think that you’re in that situation, you may have issues to work out with the OID (found on page 14).

Confusing, I know. Which is probably why the Forbes article fibbed a bit.

It seems that a good rule of thumb is that for CDs with a term of less than one year, no tax is due until the CD matures, so you may safely use the above strategy when choosing between a CD and a savings account. If you’re looking to buy a CD with hopes of delaying a taxable event for more than one year, though, you might want to talk to professional first.

Good Luck, and Happy Investing!

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]]> http://www.eddieoneverything.com/finance/when-do-you-pay-tax-on-a-cd.php/feed 0 Is there any advantage to putting money into a CD rather than a regular savings account if each pays the same rate? http://www.eddieoneverything.com/finance/is-there-any-advantage-to-putting-money-into-a-cd-rather-than-a-regular-savings-account-if-each-pays-the-same-rate.php http://www.eddieoneverything.com/finance/is-there-any-advantage-to-putting-money-into-a-cd-rather-than-a-regular-savings-account-if-each-pays-the-same-rate.php#comments Wed, 31 May 2006 02:48:06 +0000 eddie http://www.eddieoneverything.com/finance/is-there-any-advantage-to-putting-money-into-a-cd-rather-than-a-regular-savings-account-if-each-pays-the-same-rate.php Question: Hi, I was wondering if there is any advantage to putting money into a CD versus a regular savings account (like Emigrant Direct or ING) if the rates are same or very close.

On the one hand, a savings account is more liquid than a CD. On the other, a CD is set at a particular rate, so even if the rates fall, you’ll still be locked in. Anything else?

I’m wondering because some I’m seeing some places with rates like 4.75% for regular savings accounts, and others places with 6 month CD’s for 4.75%.

Thanks!

Answer: You hit the big ones – the tradeoff between liquidity and rate security. In addition, there may be tax reasons that you’d prefer one instrument over another.

Interest from both certificates of deposit and savings accounts is classified as income. Generally, income is taxable in the year in which it is received. Many CDs pay interest in one lump sum, when the CD reaches maturity. Savings accounts, on the other hand, generally pay interest each month.

If you have a large income this year, but expect to have a much smaller income next year, it may behoove you to choose the CD over the savings account – you would delay the taxable event (your receipt of the income) until next year, when you’ll be taxed at a lower rate. Alternatively, if you expect to have a large income next year but have a much smaller income this year, you would likely come out ahead by choosing the savings account.

The above holds true for CDs with terms of 1 year or less, but things get a little trickier when the term is over 1 year. Depending on how the CD is structured, you may have to pay tax on a portion of the total interest due. Forbes offers the following bit of advice in a January 2006 article:

If you buy a CD with a maturity of more than a year, you must include as income each year a part of the total interest due. This applies to similar deposit arrangements, such as time deposits, bonus plans, savings certificates, deferred income certificates, bonus savings certificates and growth savings certificates.

While that sounds fairly straightforward, it’s not quite as simple as Forbes would have you believe. IRS Pub 550 covers investment income and expenses. According to Page 5 of that publication,

“Certificates of deposit and other deferred interest accounts. If you open any of these accounts, interest may be paid at fixed interval of 1 year or less during the term of the account. You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. If interest is deferred for more than 1 year, see Original Issue Discount (OID), later.” (emphasis added)

So, it would seem that according to the IRS, you need only claim the income if 1) you are “entitled” to receive it before the instrument matures and 2) there is no “substantial penalty” for early withdrawal. But it doesn’t stop there – even if you think that you’re in that situation, you may have issues to work out with the OID (found on page 14).

Confusing, I know. Which is probably why the Forbes article fibbed a bit.

It seems that a good rule of thumb is that for CDs with a term of less than one year, no tax is due until the CD matures, so you may safely use the above strategy when choosing between a CD and a savings account. If you’re looking to buy a CD with hopes of delaying a taxable event for more than one year, though, you might want to talk to professional first.

Good Luck, and Happy Investing!

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]]> http://www.eddieoneverything.com/finance/is-there-any-advantage-to-putting-money-into-a-cd-rather-than-a-regular-savings-account-if-each-pays-the-same-rate.php/feed 0