With the changing rate environment, some have wondered about whether an Adjustable Rate Mortgage (ARM) is a better alternative to the traditional fixed-rate mortgage loan. Here are some tips to help you decide if an ARM would be right for you.
As with any loan, it is important to balance the risk against the reward. ARMs typically come with a lower initial rate that is variable, meaning it can go up if a certain index rate increases, but only to a certain level, and usually with caps on how much it can go up at a time. So with that uncertainty, how to decide if it is more to your advantage than a fixed-rate loan? Ask yourself the following questions:
- How long are you going to stay? Generally, if you plan to move out of a home within a few years, you are more likely to benefit from an adjustable rate mortgage loan.
- Which bank has the best features? Some ARMs may have a fixed rate for 10 years before the interest rate can change, others may reset after three. One may be better for you than another, depending on your circumstances. Also, the maximum rate increases during the interval and the life of the loan can be different from one lender to the next. Some lenders “discount” the initial rate of the ARM, which means that your payments are likely to increase A LOT beginning with the first reset period (when the 1st rate adjustment takes place).
- Am I OK with the loan payment if the rate soars to its highest level while I still own the home? Your lender has to disclose the worst-case scenario with respect to rates, so assess the implications of that situation. Remember to factor the possibility of increasing property tax and insurance, because while your income may not increase, the property expenses probably will.
There are other factors to consider when evaluating whether an ARM represents a good opportunity. Your lender can help you decide which loan type makes the most sense, too. The FDIC has a helpful resource on its website, along with links to additional information. Read “The Comeback of the Adjustable Rate Mortgage” or to get the audio recording of the text.
Ever noticed how some people seem to manage their credit cards better than others? Perhaps that’s because managing credit cards starts before you even open the credit account.
Any purchase that is made with a credit card is a loan. It must be repaid. And as with any loan, the payment terms are very important considerations. As important as it is to use credit cards wisely, it is very important to choose a credit card that meets your needs and your financial circumstances. Choose wisely.
Take Charge and Pick the Right Card
Too often people are tempted to simply choose the credit card that came in the mail with the best offer, or the one at the store that offered such a discount on the purchase. But such a convenient circumstance may not represent the appropriate circumstance.
- Think about how you will use the card. Do you expect to pay your card balance off in full every month? If so, the price discounts and even the points applied to charges may be a worthwhile feature. If not, you may be better off choosing a card with a lower Annual Percentage Rate (APR).
- Shop and compare. Don’t assume that the credit card offers that come addressed just to you are the best deals for you. Take the time to compare current offers from several lenders. Their websites can help you make that decision. Some websites offer to make the comparison for you, but beware that sometimes the credit cards listed are there because they paid for advertising on the site.
- Understand the key terms and conditions. The FDIC has published a very handy reference that describes APR, Fees and Rewards. Read that important summary.
A good manager understands the inner-workings of the process and controls what things are possible to control. Be a good manager of your credit cards. Choose wisely, use wisely, to avoid the trap of out-of-control debt.
For more tips and information, start at the FDIC Web page “How to Choose and Use a Credit Card”. Another resource is a set of questions and answers developed by the Consumer Financial Protection Bureau.
The actor Michael Caine is quoted as saying “Save your money. You will need twice as much in your old age as you think.” His advice rings true. The cost of things are rising rapidly, often to suit Wall Street (pun intended), and one shouldn’t expect that to stop. It’s out of our hands. However, there are two means to overcome the problem of escalating prices that you can do something about: save your money, and make it work harder by investing it.
Pay Yourself First
One of the key factors to any savings program is pay yourself first, before paying your other obligations, and without going into debt to do it. The idea is to take some of your excess from paying for necessary things like food, clothing, shelter and other demands. Every pay period, and before you are tempted to spend money on optional items, put the money away in a savings account. Your bank can help you set this up so that your checking account automatically transfers some money to your savings account whenever you tell it to.
Having a good budget will help you figure out what to pay yourself. We have a blog post on how to prepare a simple personal budget that will help you get started. If you know how to use Excel, you might also like to download a good budget template from smart people who have already done the work of getting the calculations set up. We like the Family Budget Planner (get the free template) from Vertex42.com because it includes a savings plan as part of the monthly expenses, and shows your money growing if you keep your expenses in line. Their site includes a video demo of how to use the free spreadsheet template, too.
Make Your Money Work
It’s good to have some extra money laying around, but far better to make that money work by investing it. The state of the economy being what it is today, the interest paid on money is low by historical standards. But by today’s standard, it’s a level playing field. Everybody is in now in the same economy you’re in, right? So consult with a financial planner, a real financial planner with real credentials. Your community banker may have a recommendation for you. The NC Secretary of State maintains a list of licensed financial planners, so get information on how to inquire about an investment advisor’s license or status in North Carolina. But before you invest, it is recommended that you have three to six months’ worth of funds to cover your expenses in case of emergency.
Of course, there are other things that a good saver and investor can do to make their money work. Read more about this topic on the US Government’s Save and Invest page.
Money has to work all the time; it doesn’t get a vacation. But you do. A respected financial web site recently posted “15 ways to protect your money on vacation”. The story has its problems. For one thing, and this should be obvious, most of us don’t want to even think 15 different things on vacation. A list of fifteen vacation-related items that doesn’t include underwear on it seems… too much. For another, the article left one important thing that’s so easy your 9 year old could do it for you. Hey, it’s a vacation moment. We gotta think like real people here.
So in the interest of your relaxed vacation, we distill that list to three important ways to protect your money that you can read in 15 seconds or less, and remember longer. We will just include a link to the big list posted on Bankrate.com if one of your family members is up to a Mensa challenge.
You must know that to gain access to your money, whether on vacation or not, thieves and fraudsters need easy access to what you have to protect. That makes our list of three important things pretty simple:
- Slim down your wallet and keep it safe. Keep your wallet in a secure place, perhaps your front pocket, and don’t put all your cash and credit cards in one place. Maybe you really don’t need to bring all those credit cards and old notes and phone numbers that are in your wallet right now. You certainly should not bring your Social Security Card.
- Put a good password on your mobile phone, tablet and laptop. Most of these devices have your email account on them. If a thief can get to your email which is conveniently accessible on your stolen phone or tablet, he or she can change your email password, making your identity and perhaps even your money easy prey. Think how peaceful and nice it would be to spend two or more vacation days on the phone with credit card companies and your bank because the thief who stole your device used it to change your passwords. Having a lock-screen password on your phone and tablet makes for a much more relaxing vacation. It might even force you to be more social, in the oldest and truest sense of the word, but that’s not our business.
- Use credit cards for major purchases and keep the receipts. Credit cards’ zero-liability policy makes them a good choice for vacation spending. Keep a note of your card number and the customer service number stored safely in your hotel room so you can make a quick call if your card is stolen.
There you have it. Three basic and simple steps you can take to protect your money while on vacation and still have a good time.
Now, if you want to know more ways – 13 of them in fact – to protect your money while on vacation, read the story Bankrate’s lawyers let them publish, complete with advertisements. No joke, it’s worth your time to read.
We take your money very seriously, and we want your money to remain your money. (We’ll even pay you to let us borrow it.) So have a great vacation! And don’t worry about your money at Peoples Bank. We’ll make sure it keeps working.