The Money Ladder

Smart Money Advice For Smart Young People

Archive for the ‘Credit’ category

Mortgage Rates Are Rising: Consider Refinancing Now.

December 21st, 2009

After enjoying historic lows in mortgage rates for some time, home buyers are set to get hit with increasing financing costs. 30-year mortgage rates jumped up by 0.12% from the previous week on Dec 18, while 15-year fixed rate rose by 0.6%. There are indications that this is the beginning of an upward trend in mortgage rates.

There are two factors driving a possible increase in mortgage rates. First, an improved economy will mean interest rates will not be kept too low by the Federal Reserve driving up mortgage rates. Secondly, the Fed will end a program to purchase mortgage-backed securities issued by firms like Fannie Mae and Freddie Mac by the end of March 2010. By purchasing these securities, Fannie and Freddie free up capital for banks to make fresh loans, and the end of the Fed program is expected to tighten credit in the mortgage markets.

Should You Refinance? If you fall in one of the following groups, consider refinancing now.

1) You have a fixed mortgage rate that is higher than current mortgage rates.
2) You have an ARM and would like to fix your interest rate to avoid the risk of higher rates in the future.

Follow these common sense tips to ensure that the process goes smoothly.
1) Shop around for the best refinancing rates. Ask each lender you speak to for a Good Faith Estimate (GFE) to ensure that you have a good idea of closing costs and other charges you will have to pay.
2) Have all the documents from your previous mortgage ready. If you own a coop or a condominium, ensure the coop management agency or the condo association is aware of your refinancing and sending out your paperwork on time to the mortgage banker.
3) Stay on top of the appraisal and underwriting process by staying in touch with your mortgage banker. When credit is tight, banks may deny your application on technicalities. If you keep track of the process, you will be able to resolve issues earlier.

Bottomline, take advantage of currently low mortgage rates by refinancing your fixed or adjustable mortgage, especially with the uncertainty about where rates are headed next.

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Posted in Credit, Real Estate

Tags: credit crunch mortgage mortgage rates refinancing

Read Before You Sign: Credit Card Change Of Terms

October 25th, 2009

The Federal Reserve has drafted a new set of rules to protect credit card holders from unfair practices by card companies. Unfortunately these don’t go into effect until 2010 and in the meanwhile, card companies are moving fast to make changes to boost their profits from fees and late payments.

Next time you get an updated customer agreement to read and sign from your card company, watch out for any changes that are meant to circumvent the rules set to take effect next year.

1) Interest rates can no longer be arbitrarily hiked up particularly in the first year of opening an account. At least 45 days of notice is required before rate increases. To outwit this legislation before it takes effect, card companies have started jacking up rates for current customers. Call your card company to demand an explanation for any rate increases on your card.

2) Because rates can be changed more easily on variable rate cards than fixed rate cards, companies are racing to convert their fixed rate customers into variable rate ones. Do not be tempted by offers to make to switch to a variable rate card with a low teaser rate. This is similar to what home buyers fell for when they signed up for ARM-type mortgages.

3) Planning to transfer balances? Ensure you are not charged an obscene transfer fee for getting out of your current card. Card companies are jacking up transfer fees to make up for the losses they fear are coming from the new laws.

If you don’t like the changes in your Customer Agreement, you can refuse to sign the change of terms contract. In that case, your account will be closed and you will no longer be able to charge your card. You can then pay off the balance under the old agreement. This will not affect your credit, but I do recommend paying off your balance entirely before closing your credit card account.

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Posted in Cash, Credit

Smart Move: Student Loan Consolidation

October 25th, 2009

Consolidating my student loans on the last day of my senior year was one financial decision that I have been more grateful for than any other. It helped me keep my monthly payments manageable and spared me from worrying about interest rates going up (which they did soon after I graduated).

There are two types of student loan consolidation that you can do:

Convert a loan with a variable interest rate into one with a fixed interest rate.
Combine a number of loans taken from different lenders into a single loan with only one payment to be made each month.

(Note to students with a Federal PLUS or Stafford loan taken out prior to 2006: you are probably on a variable interest rate schedule and are very vulnerable to interest rate hikes that many economists believe are coming. Definitely look into consolidation!)

For example, say you have $20,000 in a Federal Direct Stafford loan at 4.21% and an Federal PLUS loan of $15000 for 8.1%, you can consolidate both into a fixed loan at 5.875% with monthly payments of $248.

Remember that you can only consolidate your student loans once. With interest rates overall at historic lows, now’s the time to do it!

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Posted in Credit, Loans, Obligations

Reading a credit report

October 25th, 2009

I was given a credit report to read earlier this week by a friend looking to rent out his apartment. The credit report belonged to a prospective tenant who was all set to move in. At the very last moment, my friend decided to ask her to undergo a credit check and was rather shocked to see an icky credit score come up. Not willing to judge her solely on the basis of a number, he retrieved her entire credit report (TransUnion has a feature that allows landlords to get their tenant’s credit reports for a fee of about $30) and asked me to help him make up his mind.

If you have seen a credit report you know that at first glance it looks about as comprehensible as a preschooler’s scribblings. There is a ton of jargon used to describe “credit events”: things that affect the person’s credit score in the eyes of the credit bureaus and lenders.

I thought it would be interesting to throw together a guide to all the terms used on a credit report:

- ID Mismatch: This is a serious red alert on a credit report. This means the social security number, name or address of the person it belongs to is incorrect or inconsistent with government and public records. If you see this on your credit report, make sure you contact the Social Security Administration and the three credit bureaus rightaway.

- Public Records: This area of your credit report is better blank than filled out! Zero public records mean that you have had no bankruptcies, no tax evasion and no finance related crimes.

- Installment Loans: These refer to fixed payment loans such as a mortgage, car loan or student loans.

- Revolving Loan: This refers to a credit card, Home Equity Line Of Credit (HELOC) or any other credit line that you can draw upon. Needless to say if you see an installment loan or a revolving loan on your credit report that you don’t recognize, call the credit bureaus immediately.

- Positive and Negative Trade Lines: A negative trade line is a loan that has had late payments. A positive trade line has had no late payments. “Late” is a relative term across lenders but 120 days late is definitely considered to be a credit event. Once a loan gets designated as a negative trade line, it takes a long series of on-time payments before the record is cleared.

- Past Due: The amount that was due on a loan/credit line when a particular event occurred. For example, if a credit card was closed when the “Past Due” was set to $1000, it would mean that you closed the account without paying off your debt. Prospective lenders or employers do not like to see this, so make sure all past dues are set to zero.

These are the terms I found to be most recurrent. Let me know if you have come across anything else that puzzled you on a credit report.

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Posted in Credit

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