The Fine Print of Credit

Current Balance versus Outstanding Balance

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 14:31:00 +0000

When you call to know what your balance is, you have to clarify what type of balance you are asking about. Typically, the credit card customer service representative is going to quote you your current balance - also known as the statement balance. What if you wanted to know your outstanding balance, though?

Current Balance - The current balance or the statement balance is the balance for your current billing cycle. If your billing cycle starts on the 1st of every month and ends at the 30th of the month, then the current balance is the sum of all the charges you have made on the card from the 1st of the month to the 30th of the same month, plus any pertinent finance charges for the month (if that has already been computed, that is.)

Outstanding Balance - The outstanding balance is the sum of all the balances on the card not only for the current billing cycle but for all time. This is the sum of your current statement balance plus any other balance you have not yet paid from previous billing cycles. In other words, if your last statement had a balance of $450, and you paid only $100 for that cycle, then you have a remaining balance of $350. Add that remaining balance to your current balance so far - say, $200 - and your total outstanding balance is $550.

So the next time you ask for your credit card balance, be sure to clarify which type of balance you are asking for. Learn more about the different types of credit card balances by reading the post on, well, "Types of Credit Card Balance."

Types of Credit Card Balance

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 14:21:00 +0000

You'd think your credit card balance is whatever you have on your card, right? Well, the truth of the matter is that credit card companies actually segregate balances.

Your credit card company's customer service rep may tell you what your total balance is - after all, that's what you ask for whenever you call, right? However, the total balance is actually the sum of several types of balances. Why is this piece of information significant, you ask?

The truth is, different balances merit different interest rates. That's right; a certain type of balance may have a much higher interest rate than another type of credit card balance. If you know the different types of balances, then you'll know which type of balance will get you levied a very high interest rate and thus you will know which type of balance you should avoid.

The Purchase Balance - The purchase balance is the most common type of credit card balance. Simply speaking, it is the sum of the purchases you have made using your card. This includes purchases made with your card present (when you swipe or "wave" your card in the supermarket or store), and those purchases you have made through the phone or through the internet.

The purchase balance is accumulated when you use your card to buy something, period. When your credit card company talks about "standard APR," they are talking about the interest rate that applies to the purchase balance.

The Balance Transfer Balance - You will have a balance transfer balance on your credit card if you process a balance transfer - that is, if you have used your credit card to pay off your loans or balances on other credit cards and have thereby transferred those loans and balances on to your credit card. The loans and balances transferred are not considered as purchase balance because they are not card purchases (obviously). Balance transfer balances have their own Annual Percentage Rate (APR) or interest rate; the interest rate that applies to the purchase balance does not necessarily apply to balance transfer balances.

Balance transfer balances usually get special rates - especially if you get them on a promo. However, they may be the same if you do a balance transfer under normal circumstances (i.e. there's no balance transfer promo). Learn more about balance transfers by reading this post about balance transfers.

The Cash Advance Balance - The cash advance balance is the balance that is accumulated through cash withdrawals. In other words, if you use your card at an ATM or if you go to the bank to withdraw some cash from your credit card account, the amount you withdraw will be put on you cash advance balance - not on the purchase balance. If you use a balance transfer check (balance transfer check is something that you get from your credit card company to pay off your debts and transfer such balances to your credit card account) to pay yourself (you use your name or the term "cash" on the "pay to" portion), that will be considered as a cash withdrawal and will also be placed on the cash advance portion of your account.

The cash advance balance typically has the most punitive interest rate of all credit card balances. Thus, it is best to use your cash advance privileges sparingly.

Credit Card Annual Fees

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 14:16:00 +0000

Not all credit cards have annual fees. Typically, an annual fee is charged for credit cards that offer special privileges and rewards. They also usually come with the so-called "charge cards" or cards that must be paid in full each month.

Credit card companies charge an annual fee to recoup the costs of the privileges they offer through the card. In the case of charge cards, they are considered as payment for extending credit, seeing as charge cards do not have finance charges.

Annual fees vary, depending on the credit card company and type of credit card product. Annual fees can be as low as $25, but it can also go over $250. There are some really high-end credit cards that have over two thousand dollars in annual fee (e.g. the Centurion card from American Express).

Annual fees are usually waived for the first year - this is a standard promotional strategy by credit card companies. If you want to try out a card with an annual fee - see if it's worth its annual cost - then you can take up a credit card offer for a year. If you deem the annual fee worth it, then simply renew your card. If you don't want to continue, then you should be sure to call your credit card company before the year is up. Otherwise, your credit card account may be charged the annual fee before you can cancel.

Read the post about credit card fees if you want to learn more about other fees credit card companies usuall charge.

Credit Card Fees and Penalties

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 14:12:00 +0000

What do you need to pay for when you get a credit card?

Certainly, you're not going to pay for only the cost of your actual purchases. Credit cards may come with other fees that you need to be aware of in case they suddenly appear in your credit card statement. Forewarned is forearmed they say, so consider yourself duly warned!

Annual Fee - This is what credit card companies charge for giving you a particular credit card. Some credit cards come with special privileges. A card I know, for instance, will give you assured seating in special concerts and sports events. There's also a credit card that will give you roadside help when you need it. While credit card companies would like to call these privileges "free" - they actually cost you something - the annual fee. Learn more about annual fees.

Membership fee - As you know, credit card companies sometimes coordinate with certain merchants to come up with the so-called "co-branded" credit cards. They are co-branded because they carry the name of the credit card company and the partner merchant. If the partner merchant charges its members a fee for membership (e.g. Costco, a partner merchant of American Express, charges an annual membership fee), your card will be automatically charged a membership fee every year unless you specifically state that you don't wish your membership fee to be put on the card.

Finance Charge - The finance charge is the interest charged by the credit card company on the money you borrow. Every time you charge something on your credit card, you use the credit extended by your credit card company. Thus, you borrow money for your card purchases. For this "loan," you are charged a finance charge. Learn how to compute finance charges.

Late Fee - The late fee is the penalty for paying late (obviously). If you pay even a day late, you will get a late fee on your account. Late fees vary by credit card company and by type of credit card product.

Overlimit Fee - Overlimit fee is the penalty for exceeding your credit limit. For example, if you have a credit limit of $2,000 of which you have already spent $1,700, and you buy something worth $400, then you are going to be over your limit by $100 - and that's not counting the finance charge you'll still be charged on your card. That will mean an overlimit fee. This is usually a fixed amount.

Balance Transfer Fee - Obviously, this is the fee charged by credit cards for processing balance transfers. This is usually a percentage of the balance you have transferred or a minimum amount - whichever is higher. Learn more about balance transfers.

Cash Advance or Withdrawal Fee - When you withdraw money from a cash machine or ATM, you will be charged a cash advance or cash withdrawal fee. This is also usually a percentage of the amount of money withdrawn.

No-Good Payment Fee - A no-good payment happens when you pay through check or directly from your bank account and the check bounces or your account has insufficient funds. Your credit card company will then penalize you for the returned payment. It may also jack up your interest rates in result.

Currency Conversion Fee - When you use your credit card in one of your travels - or when you purchase something online that is priced in a different currency - your credit card company will convert the cost of your purchase into dollars (or whatever is your card's standard currency) and add a currency conversion fee. The actual amount of purchase plus the currency conversion charge will be the amount posted in your credit card statement.

Credit Card Approved - You Owe Us $247!

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 14:03:00 +0000

Here's the deal. Your credit card application just got approved, but before you even get your card activated, you already owe your credit card company $247 on account of the bunch of fees you get charged just for opening the account. Oh yeah, they call it the account setup fee, the participation fee, the annual fee, and the monthly maintenance fee. Your credit limit, furthermore, is only $300. So once you receive your credit card you have only $53 in remaining credit. The good news (?) is that they will raise your limit by $100 at a time, for which "privilege" they will charge you $25 every time.

Congratulations on getting approved for a credit card? Condolences may be more like it.

Yet there is a bank that offers just such a deal - and obviously there are people who are taking it up. Apparently, this credit card product has been designed to "help" people with bad credit - help them do what, though? Get in deeper in debt, perhaps? Maybe help them ruin their credit even faster?

If you have bad credit, please, don't think you deserve a bad deal. You don't. It's not true either that you have to put up with bad rates and bad terms just because you have bad credit. You have enough credit repair options. You just have to know where to look.

It doesn't even have to take a lot of effort on your part. Use the internet and find credit card products for which you can be approved. Secured credit cards (credit cards where you deposit money to secure your credit limit) will give you a comparable credit limit to the one above mentioned but none of the crippling and pathetic fees.

If you want ultimate proof that credit card comparison is necessary before you sign up for a credit card deal, then this is it. If you do not do some groundwork research before you leap at a credit card offer, you may end up with just such a nasty deal. Watch the video about this bad credit card deal from Money Talk News:

The Practicality of Taking Out Insurance

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 13:57:00 +0000

Do you or do you not take out insurance?

Imagine a person named Joe whose house and contents are worth US$300,000. To be adequately prepared for his house burning down, our fictitious personality Joe needs to have at least the same amount of money on hand if he wants to be able to get his house rebuilt or repaired. He must have more if he wants to be able to provide for his and his family's living expenses while the rebuilding or repairs are underway.

Let's say that Joe does not want to take out a homeowner's insurance policy. Joe wants to be prepared for such a calamity but he prefers to do it his own way, not through homeowner's insurance. Thus, Joe who earns US$50,000 annually sets US$5,000 aside every year for his "personal house insurance fund." In this scenario, it will take Joe approximately 60 years to come up with the amount of money that he is aiming for. By that time, the event he has been saving up for - namely his house burning down - may have already happened, in which case he wouldn't have been fully prepared for his misfortune.

On the other hand, let's say that Joe gets homeowner's insurance. Joe takes out a US$300,000 home insurance policy that requires him to pay a monthly premium of US$34. Joe, being the conscientious person that he is, never misses an insurance premium payment. One year after taking out the policy, his home burns down. In this scenario, Joe's insurance company will reimburse him for his loss as per the terms of his insurance plan.

Let's look at the particulars of this second "insured" setting. After only one year of paying insurance premiums, by which time he has only made payments of approximately US$408, Joe is reimbursed for the full amount of his policy or US$300,000. This means that by getting his house insured, Joe obtained home protection that is immediately effective. If his house burns down, therefore, he will not need to have US$300,000 on hand to get his home rebuilt or repaired. The insurance company will pay him the money.

Joe's insurance company will have money to cover Joe's loss because it has a large pool of funds. These funds have been collected from other insurance policyholders. The money that the insurance company will pay in this example is, in actuality, not going to come from Joe's meager US$408 contribution but from the collectivity of insurance premiums contributed by Joe and other people like Joe.

However, if Joe's house does not burn down in his lifetime, Joe will not be able to get a refund of his insurance contributions. By agreeing to become an insurance policyholder, he gives the insurance company the right to use his contribution as recompense for other policyholders' losses when these people's houses burn down. In this case, therefore, Joe loses his insurance premiums to the insurance company.

In this given scenario, Joe loses a considerably large amount of money. In 60 years, for instance, he will contribute a total of US$24,480 in insurance premiums. Since Joe's house does not burn down (a good thing, of course), the insurance company lays claim to his contributions. On the other hand, if Joe does not get insurance and saves his own money as mentioned above, he will be able to save US$300,000 in 60 years. Thus, if his home does not burn down, Joe will end up with US$300,000 to enjoy.

Of course, the question will always be, "What if?"

If you can't stop worrying and you need peace of mind, then you'd better get insured. Your insurance contributions will give you such peace of mind. If your house burns down, you are covered. If your house does not burn down, you may lose your contributions but this is not such a bad deal when you consider the fact that while that you are paying your small insurance premiums, you are insured for full damages all the time.

Consider, too, the fact that alone, a person will find it very hard to shoulder the financial burden of protecting himself against a calamity or a disastrous event. Through an insurance policy, many people contribute to a general fund so the financial risks are spread to a multitude and are thus minimized. In effect, an insurance policyholder shoulders only a fraction of the total cost he will need if the calamity he desired protection against actually happens.

So, do you or do you not take out insurance? I'd like to think the answer is obvious.

Consumer Report

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 08:20:00 +0000

A consumer report is essentially an assessment of an individual's credit-worthiness; thus it is popularly known as a credit report. A consumer report is usually prepared and furnished by a consumer reporting agency (credit bureau in popular lingo) like Equifax, Experian and TransUnion.

So much more than a credit report:

A consumer report can contain other information such as those that pertain to a person's lifestyle, reputation, character, etc and spans the individuals' relevant activities such as payment and purchase transactions/history. All these types of information are included for the express purpose of assessing a person's financial standing/status and credit capacity as well as his general inclinations (character, reputation and lifestyle).

Not a credit score:

A consumer or credit report is not synonymous to a credit score. A credit score is a single numerical figure that results from a credit scoring system and is thus interpreted as a quantitative measure of a person's credit-worthiness (i.e. if I lent him money, will he and can he pay me back; is he a good credit risk?) The higher your credit score is, the less risky you will seem to lenders.

You can get your credit score for a fee from any of the credit reporting agencies.

Uses:

Since an evaluation of an individual's ability to pay his or her debts figures prominently in a consumer report, it (among other criteria) is used by lending agencies and financial institutions as a basis for deciding whether or not to approve an individual's loan application.

Generally, a consumer report may also be used for the following purposes:

employment: a prospective employer requests a consumer report on a job candidate; a current employer requests a consumer report on an employee

insurance: an insurance company requests the report to determine an individual's eligibility for insurance coverage; an insurance company requests the report for the purpose of evaluating an individual's current credit obligations

procurement of license or benefit: an agency requests a report on an individual who is being considered as a possible recipient of a benefit or who is requesting a licence (only when the law says that an individual's financial status or capacity should be assessed before such license or benefit is granted)

investment/service provision: an investor requests a report about an individual or business entity on whom/which he is considering investing; a service provider requests the report to find out whether individual or a business has the capacity to meet his financial obligations

litigation: a consumer report is requested by virtue of a subpoena issued by court

child support: a consumer report may be requested in order to determine an individual's capacity to make and maintain child support payments and, if so, to determine how much such child support payments should be

consumer's request: an individual, when necessary, can get a copy of his or her own consumer report through a written request to the consumer reporting agency; an individual is legally entitled to request a free copy of his or her credit report from the credit reporting agencies above-mentioned every 12 months.

other justifiable purposes: generally, whenever there are reasonable grounds for needing to assess a person's financial standing and credit worthiness, a consumer report can be requested

Disclaimer: These are just general descriptions of purposes. Requesting a consumer report for each of the above potential uses may entail specific conditions and exceptions. This post is not meant to be authoritative or comprehensive. Check out the Fair Credit Reporting Act for more specific information.

0% Balance Transfer Offer Part 2

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 06:28:00 +0000

At last, here’s the continuation of the 0% balance transfer discussion. It’s been a while, but my schedule was near to bursting with all my deadlines. Anyway, I’ve finally had a few moments to spare so I can continue with the previous post.

In this particular post, more facts are revealed about 0% balance transfer offers. These points and the others which I have brought up in the previous post likely apply to other balance transfer offers (not only 0% balance transfer offers) made by credit card companies, but I digress.

You MAY be charged a fee for processing a balance transfer.

Credit card companies usually charge a processing fee for balance transfer transactions. The fee is usually a fixed percentage of the balance that you will transfer to your credit card account. There is also usually a minimum on this charge so the actual fee charged is usually the greater between the minimum fee and the calculated percentage amount.

However, the above usually applies to regular balance transfers or those that do not come with balance transfer promotions. Balance transfer offers that come with new credit card offers usually have no associated balance transfer fees.

To know for sure whether or not your 0% balance transfer offer comes with a balance transfer fee, ask your credit card company’s customer service personnel.

Not all debts may be transferred.

The term balance transfer, strictly speaking, refers to transferring the balances on one or more credit cards over to a new credit card. However, to entice more customers, most credit card companies have begun processing transfers to pay off mainstream loans. However, you cannot transfer just about anything to your balance transfer credit card.

As a rule of thumb, loans are transferable to a credit card account that allows balance transfers. However, transfers to investment houses, to your own bank account and other transactions that do not satisfy the generally accepted designation of “loan payment or credit card payoff” are usually not deemed to be balance transfers. In such instances, your balance transfer may not be approved. In other cases, your transfer may proceed yet it may do so at a rate that is different from what you were expecting (e.g. you may get the cash advance or cash withdrawal APR instead of the 0% balance transfer rate stated on your balance transfer offer).

Different credit cards have different rules when it comes to determining which loan balance may or may not be transferred over. Please check with your credit card company before you make a balance transfer so that your transfer will proceed as planned or that you may not be charged a cash-advance fee and levied a cash-advance rate on what was supposed to be a balance transfer transaction.

Balance transfer requests take time.

In the previous post, it has been mentioned that balance transfer offers and promotions have a deadline or that they can be taken up only for a fixed period of time. This fact becomes important when you take into account the fact that balance transfers take time to be processed or completed.

Therefore, you should act accordingly and process your balance transfer at around a month before you actually need it done. It’s true that it will probably be processed in 15 days – perhaps less – but do you really want to risk a can-be-good-deal for a technicality?

You should continue paying your other creditors until your balance transfer registers.

Even if most balance transfer requests get approved (although some do get approved at terms and rates that are different from what was expected), balance transfer requests are by no means a fait accompli. That is, you can never assume that your request will be approved by your credit card company.

Consequently, you must NOT neglect to pay at least the minimum payment dues for the credit cards or loans, the balances of which you have requested to transfer, until there’s incontrovertible or indisputable proof that your requested balance transfer or transfers have been successfully processed. If you make this mistake, you will put your credit standing in jeopardy.

What if your balance transfer request has been denied or delayed yet you – thinking that the transfer is a sure thing anyway – did not make your usual payments? In such a scenario, you’d be defaulting on your existing loans and credit card debts.

So, continue paying until the credit card account or loan that you wish to pay off shows the transfer from the credit card company that has offered you the balance transfer option.

0% Balance Transfer Offer Part 1

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 06:14:00 +0000

A 0% balance transfer offer? Wow! You think you have it good when you receive a pre-approved credit card application in the mail with such a balance transfer introductory rate. You're right. On the surface, indeed, such an offer is a heaven-sent. Dig deeper, though. Before you sign up and apply for the card, understand the following:

The balance transfer offer has a deadline.

Such balance transfer offers have a deadline and you need to get your balance transfer application approved before the deadline is over. Take note: your balance transfer should have been processed and APPROVED by the time the offer's expiry date rolls in. Otherwise, your balance transfer would NOT be in the introductory rate that has been specified but in the standard or regular balance transfer rate attached with your credit card product.

Different credit card companies have different balance transfer application time allowances so be sure to check with your credit card company. Moreover, do remember that a balance transfer application is a separate and distinct process from credit card application and approval. After you get approved for your credit card, you still have to apply for a balance transfer.

A 0% balance transfer introductory rate has a fixed effective period.

No credit card company would offer you 0% balance transfer rate for life so expect that when you receive a balance transfer offer with a 0% special interest rate, this rate would last only months. The length of time during which you'll have the special rate will depend on your credit standing as well as your payment history with the credit card company - if you're already a card member.

The effective period of the special 0% balance transfer rate usually ranges from 3 months to 15 months. When your offer says 0% balance transfer interest rate up to fifteen months, however, never assume that you would get 15 months of 0% interest rate on your balance transfers. It just means that you MAY get up to 15 months; the actual number of months to which your account will be entitled to the 0% rate will still depend on the credit card company’s assessment of you credit worthiness.

It’s best NOT to use a balance transfer card for making purchases.

If you took up the credit card company’s 0% balance transfer offer, it would be best for you if you were to keep the card exclusively for balance transfers and not use it to make purchases.

The explanation for this lies in the fact that balance transfers are considered distinct from credit card purchases. As such balance transfers and purchases made with the credit card will have distinct applicable interest rates and usually, credit card companies will apply your payments towards the portion of your account with the lower interest rate. If your purchase rate is higher than your balance transfer rate (this is probably true – after all, there’s nothing lower than a 0% interest rate), your payments would all go to your balance transfer balances and not on the purchases that are incurring interest rate charges.

The separation of balances and their implications will be explained in much greater detail in another post. For now, suffice it to say that making purchases using the card which you have used to pay off other credit cards and loans is NOT a wise move. If you do so, you’d probably be doing yourself a big disfavor and cheating yourself out of what could have been a good deal.

You still have to pay a monthly minimum.

Even if you have 0% interest rate on your balance transfers, you still have to pay your monthly minimum dues. Each credit card company may have a different way of computing monthly minimum dues. However in cases where there’s 0% interest rate, it’s usually a standard minimum amount (say $15 or $20) or a certain percentage of your balances (say, 2% or 4%) whichever is higher.

Do not mistake 0% interest rate for no minimum payment required or you’ll lose your special rates.

You lose your special rate when you default.

When your payment is late, when you don’t make a payment or when the payment you have sent your credit card company through ACH or wire transfer is denied by your bank, you’d lose your 0% balance transfer rate. It takes only one instance of default – then your special rate will be gone.

If your credit card company gives you another chance, you may get your special rate back. However, this is something that you should not count on. However unfair you think such rigid or unyielding terms are, they are nonetheless part of the credit card agreement that you have accepted when you signed up for the card.

You lose your special rate when you go over your limit.

You have a credit card limit and you can only process balance transfers as long as you have credit to use up. Do not insist that your credit card company process a balance transfer that would put your over the limit; that would be senseless as going over limit may lose you your 0% balance transfer rate anyway.

You do have a credit limit.

When your credit card company says “pay off your loans through a balance transfer,” it’s actually saying “pay off other credit card accounts but only up to your credit limit.” Thus, it’s crucial to wait until you get approved for your card and until know your exact credit limit before you process a balance transfer. If you don’t, all you may accomplish with your credit card balance transfer is a mere shifting around of balances owed – not a debt consolidation or a balance transfer in the strictest sense of the term.

Finance Charges - Why You Get Them

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 06:02:00 +0000

Let us get one thing straight. Even if you do pay your monthly minimum charges (or more than the minimum), as long as you don’t pay in full for what you spent on your card, you’re using up your credit. You are also incurring debt just by using the card for your purchases. Remember that when you make a purchase on your credit card, you are not spending your own money; you are spending the credit card company’s money.

For the use of its money, your credit card company charges you interest. This becomes the monthly finance charge in your credit card bill. Your finance charges are simply something you pay the credit card company in exchange for the temporary loan. From the credit card company’s perspective, it is entitled to finance charges because it took the risk of lending you money.

Of course, the fact remains that the credit card company has actually had you thoroughly checked out before it even considered approving your application for a green, gold, platinum, titanium, black, silver, or whatever-they-call-it card. The credit card company probably used every known risk assessment tool just to ensure that you represent as small a risk as possible to the company – but that (they'd tell you) is beside the point, he he.

So now, you know why you are being charged finance charges – you owe the credit card money (even temporarily) and these finance charges also compensate for the risk the credit card company has taken when it has signed you on for one of its numerous plastic products.

How to Compute Finance Charges

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 05:10:00 +0000

At the start, I wasn’t sure how computing finance charges was done. But given the nature of my previous job, I had to learn really fast. If you have a credit card, read on and find out exactly how your monthly finance charges are calculated.

Computing finance charges

Illustration:

Let us assume the following:
APR = 10.99%
Start of your billing cycle = July 27
End of Your Billing Cycle = August 26
Daily Balances (For simplicity’s sake, let’s assume that you charged your card only three times for the whole billing period):
July 27 to Aug 4 = $200
Aug 5 to Aug 20 = $400
Aug 21 to Aug 26 = $550

Then let’s apply the above outlined steps:

What You May NOT Know about Mortgage Refinance

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 03:17:00 +0000

Mortgage refinance is taking out another loan to replace your existing mortgage – you know that. However, there are two things which you may not know about it that can mean the difference between a good financial move and a disastrous one. Read on to find out what these two things are.

You PAY to Refinance

Yes, you will pay to get your home mortgage refinanced. Refinancing your home mortgage is like taking out a brand new mortgage. This means that you will have to pay some upfront fees that are similar to what you paid when you took out your original mortgage. The origination fee (or the upfront loan closing cost) is one of the one-time fees which you have to pay for a home refinance. This is also known by the term “origination points” because the one-time loan closing cost is typically expressed in points – one point being equivalent to one percent of the total loan amount.

In some cases, your lender may forgo charging origination points in exchange for higher interest rates. Your lender can also charge you a separate loan processing fee to cover the cost of processing your loan. You also have to pay your attorney. You may also incur home appraisal fees, government certification fees, and taxes among other things.

Finally, you also have to look out for penalties from your original mortgage lender. Your contract may have a clause stating that you would be penalized if you pay off your mortgage earlier than your stated loan period.

Lower Rates Are NOT Always Better

Generally, you should choose a refinance plan that will give you an interest rate lower than your current mortgage’s rate. However, this rule is strictly applicable only when you are replacing a fixed-rate mortgage with another fixed-rate mortgage. If you have an adjustable rate mortgage, however, it might be better to exchange a current mortgage with a low interest rate for a home refinance loan with a higher rate of interest. An adjustable rate mortgage’s (ARM) interest rate is typically composed of an index rate (this can be the London Interbank Offered Rate, Constant Maturity Treasury Index, the Cost of Funds Index, etc.) plus the lender’s fixed marginal rate (this can be 1%, 2%, 3%, etc.). In such a setup, your actual interest rate will vary with the index to which it is tied.

Thus, if the index rate for your mortgage is on a continuous, upward climb, you may have to refinance your mortgage now. That is to say it may be wiser to settle for a refinance mortgage with a relatively high but FIXED interest rate than to continue paying for a mortgage with a currently low but VARIABLE interest rate. The former may give you a high interest rate now, but you’ll have a constant rate of interest. On the other hand, the latter is uncertain; your actual interest rate may be low now, but it might become very high in the future. Thus, in cases where security is your priority, you may have to sacrifice low interest rates for certainty.

Remember these two things before you refinance your mortgage. First, compute how much you’ll have to spend on a home refinance before applying for one – you may end up incurring more costs than what you were promised you’ll save. Next, study the market conditions to know whether you should refinance your mortgage to get a secure but relatively high interest rate or stay with an uncertain but relatively low interest rate.

The Credit Card Agreement - Why You Need to Read It

noreply@blogger.com (jinkysphere) — Thu, 20 Nov 2008 03:02:00 +0000

I used to work as a customer service representative for a leading U.S. credit card company. It struck me that many people who signed up for a credit card account did not really know what they were letting themselves in for.

When the late fees, the finance charges and all the penalties were tagged on to their balances, card members called - baffled - wanting to know why they were being charged all those fees. I quote what a former colleague told one card member "Credit card companies are not charitable institutions."

Like any financial company that tells you your best interests are its foremost considerations, credit card companies are in business to make a profit. Your penalties are just part of such profit. You don't have a right to cry foul, too. First of all, you must know that credit card companies won't exist if there is no profit to be made in extending credit to millions of borrowers. Secondly, credit card companies are lending you money. Therefore, it is only right that they get something in return for their service. Finally, they don't deceive you and hide the fees. You just refuse to read the agreement and ask questions so you'd learn all about these fees.

I had a talk with a customer once. He told me that he did not know signing up for the card meant he had to pay a membership or annual fee. One other card member transferred money from the credit card company to his personal bank account and told me he did not know about the fees associated with such a transfer. One card member asked me to waive his late fees for all his cards because he said he spent a lot on these cards anyway. The above examples - and there are a lot more like them, believe me - just demonstrate one unassailable truth. A lot of people go and get themselves a credit card without knowing exactly what such a move entails. Unfortunately, most people get to be that way because they simply refuse to take the few minutes required to read the card member agreement. If only they have read the card member agreement, they would have known that certain cards do have annual fees, that transfers to personal accounts are considered cash withdrawals, and that late fees are tagged on whenever you don't pay on or before your due date - regardless of how much you spend on the card.

If you have a credit card or are thinking of getting one, I implore you! Please read the fine print before you sign up and commit. It would save you - and my former colleagues - a lot of headache.