Mortgage Rate News

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Technically, the recession may be over, but that doesn’t mean that individual financial problems are just going away. That’s not really how it works when it comes to personal finances. Instead, things are looking kind of desperate for some folks. The cumulative effects of a weak labor market and tighter credit (not to mention the things credit issuers have been doing that mean hardship for consumers) will be hard to shake off, and the latest data about bankruptcy filings bears this out.

Indeed, the American Bankruptcy Institute offers this report on the number of bankruptcy filings in October:

The 135,913 consumer bankruptcy filings in October represented a 27.9 percent increase over last October’s monthly total of 106,266, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). The October 2009 consumer filings represented an 8.9 percent increase from the September 2009 total of 124,790. Chapter 13 filings constituted 28.5 percent of all consumer cases in October, a slight increase from the September rate.

“The nearly 9 percent increase in consumer bankruptcy filings in October, together with a 7 percent jump reported in business cases, demonstrates the sustained stress on the U.S. economy,” said ABI Executive Director Samuel J. Gerdano. ABI forecasts that total bankruptcies this year will exceed 1.4 million, the highest number since 2005.

This is a new high, and likely represents the hard times that people have fallen upon. Traditionally, most bankruptcies are caused by medical bills and expenses. However, I’m wondering if this most recent rash of bankruptcies is more the product of job loss and an inability to keep up with everything due to economic conditions. And, of course, in some cases it might be a strategic decision to start all over, much like a strategic default.

Of course, the increase in bankruptcies should also serve as an important reminder to the rest of us: It is vital to prepare our personal finances ahead of time. Emergency funds, paying off debt and proper insurance can help. Although, in some cases, there are situations so devastating, or so long-term, that no amount of preparation can avert a financial catastrophe.

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Sometimes, it seems like we need something, and that a loan is the only way to get it. Before you decide to borrow, it is a good idea to think about whether you really need the money for something. You should also consider the type of loan you are getting. It might seem like a good idea at the time, but the end results could be scary. Here are 5 scary loans to try and avoid:

1. Interest only loans: These are mortgage loans that really are scary. And they were part of the issue in the recent mortgage market crash. You borrow money, but at first — for three, five or seven years — you only pay the interest on the loan. You aren’t making any headway on the principle. It seems like you can afford a bigger house, because the payments are so low. But once the initial term expires, and you have to start paying the principle, if you haven’t managed to refinance or seen an increase in income, things get really scary really fast. You could lose your house.
2. Car title/payday loans: These types of loans seem convenient when you’re strapped for cash, but the interest rates are high, and, in the cash of a car title loan, if you can’t repay, the car can repossessed.
3. Margin loans: These loans are used to buy stock. You can make a lot of money buying stocks margin, but you can also lose a great deal. The greater the leverage, the greater the risk.
4. Advance loans: Whether you are getting a credit card advance or an advance on your tax refund (a tax anticipation refund), the interest rates are high, and fees can be atrocious. Credit card advance loans can result in going over the limit (and getting more fees), and what happens if you don’t quite the tax refund you anticipated?
5. Co-signing: Co-signing on a loan can be scary, scary stuff. You agree to take on the obligation of the loan. This can be detrimental, since it can impact your credit if the person you are co-signing for doesn’t pay. And, of course, you don’t even get the benefits of using whatever it is you co-signed for.

Can you think of other scary loans that should be avoided?And, in honor of Halloween, a look at what Disney Villains have to say about money:

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Right now, there are a lot of good deals to be had when it comes to buying a home. Home prices are low, and mortgage interest rates remain relatively low. And, it looks like Congress is getting serious about some sort of extension to the home buyer tax credit. It really is a great time to buy — if you can find the right deal. However, in the frenzy, it is important to slow down and evaluate whether or not you really are getting the best deal. Carolyn Warren wrote the book Homebuyers Beware: Who’s Ripping You Off Now? What You Must Know About the New Rules of Mortgage and Credit. Here are 5 things, shared in an email, that Warren points out about what you should know about home buying:

1. Some prices are too good to be true: 
   

   “That ultra-low price might be nothing more than a lure to bring in bids. Right now, many homebuyers are bidding on 5 to 10 bank-owned properties before they get a bite due to bidding wars and all-cash offers. If you want to avoid that type of stress, make an offer on a privately-owned property instead.”

2. Don’t think that “exclusive” always is: 
   

   “Realtors like to post signs saying a property is “exclusive” with them, but what that really means is that you cannot go to the home owner directly with your offer and that all offers need to go exclusively through the listing agent. That’s normal, whether the sign says “exclusive” or not. Naturally, you have the right to your own agent representation, and you should not forego that right. If you plunge into the home buying arena using the seller’s agent, you are setting yourself up to pay more.”

3. Use your own Realtor when buying new construction: 
   

   “Using the builder’s agent as your dual agent is like using your opponent’s attorney as your attorney, too. It’s folly!”
   

4. Avoid a “no points” mortgage:
   

   “Why would any sane person leave out points, which are income tax deductible, and then pay just as much in lender fees instead?”

5. Your bank may try a few tricks: 
   

   “Never sign anything or commit to a loan without first reviewing a Good Faith Estimate and getting your questions satisfactorily answered. (And by the way, if you ask what a certain odd-sounding fee is for and get a runaround answer such as, “Oh, that’s just standard,” then beware. You are probably being over-charged.)”