Summer’s mortgage rates fall to new lows — again

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Mid-July’s mortgage rates are some of the lowest we’ve seen all year. With the average home loan selling for about 3.75%, you’ll be getting a great deal if you apply today.

To get the best interest rate, you need to know how and when to lock your rate. You also need to know how to not get taken advantage of by an unscrupulous lender.

“Many lenders do not require an upfront fee to lock. If they do, it must be applied as a credit, usually towards the discount points or another fee on the HUD-1 settlement statement that the borrower approves at closing,” says Ray Eickhoff, regional vice president of Fairway Independent Mortgage in Mill Creek, Wash.

For more expert tips from mortgage industry insiders about how to get the best rate lock and for more news about today's low mortgage rates, read my latest mortgage story for Interest.com, Summer’s mortgage rates fall to new lows — again.

And for more information on mortgages and homebuying, check out the Homebuying 101 section of my website, where you'll find links to all of my articles on how to buy a home.

Understanding your mortgage’s acceleration clause

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Most people breeze through the mortgage note as one of the many documents they sign at closing and never give it another thought.

But when you take out a mortgage, you need to understand that paying off the balance over time is a privilege, not a right.

To maintain that privilege, you must continually comply with the terms of your mortgage. If you don't, your lender can call your loan and require you to immediately repay it in full.

Make sure you understand the fine print of your mortgage note so you aren’t caught off guard. Read my Mortgage-Calc.com article, Understanding your mortgage's acceleration clause, for details.

What is property tax abatement?

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Property tax abatement is a temporary reduction in the amount of tax a property owner must pay. Often, tax abatement means that you only pay tax on the value of the property’s unimproved land; the value of the structure is not taxed. Other times, both the value of the land and the value of the structure are taxed, but at below-market rates.

For example, in places where property tax abatement programs are used to encourage the
redevelopment of run-down homes, local government will only charge tax on the property’s considerably lower pre-renovation value.

Property taxes are an ongoing, significant annual expense for homeowners, even after the
mortgage is paid off. Property tax rates vary by locality, but typically cost about 1% to 3% of the
home’s value each year. This means that if your home is worth $250,000 and your local property tax rate is 2%, your annual property tax bill would be $5,000.

Property tax abatement can save a homeowner tens of thousands of dollars over the program’s lifespan. It provides more breathing room in the monthly budget and can give a meaningful boost to long-term net worth.

Tax abatement can also put home ownership within reach for someone who otherwise couldn’t afford a home. In fact, some abatement programs are targeted directly at this group of buyers and limit eligible properties to those at the middle and lower end of the price scale for a particular community.

Being able to sell your home with a property tax abatement attached can improve the home’s resale value and limit its time on the market. However, the opposite could be true once the abatement expires.

Learn more about local programs for reducing your property taxes in my Mortgage-Calc.com article, What is property tax abatement?

Clueless shopper bares all in checkout line

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You need to be careful when you're applying for a store credit card--careful with your personal information and careful that you're not signing up for a card with lousy terms.

First of all, you shouldn't apply in store. The most secure way to apply for a store card, or any other debit or credit card, is in the privacy of your home, through a secure Internet connection or phone call.

If you don’t want to miss out on a discount on a large purchase, postpone your purchase—don’t compromise your financial security like this woman I saw at Target.

Second, you need to know what you're signing up for.

Even if the terms and conditions are made available to you at the store, you’re not likely to feel comfortable taking the time to read them, or be able to concentrate fully, when you’re standing in a checkout line with a cashier and other customers waiting for you.

Third, you need to figure out if the store credit card's discount is worth the trouble.

5% back on all your Target purchases sounds like a lot--but even if you spend $1,000 a year at Target, that’s only a $50 savings. Is $50 enough to make it worth having another bill to deal with 12 times a year?

Another chore associated with store credit cards is constantly checking to make sure you don’t exceed what will probably be a very low credit limit. I've had store credit cards with limits as low as $500, and I have very good credit.

If you're really interested in a store credit card, go home and apply after you've read the fine print and thought through the pros and cons.

Don't be the clueless shopper who bares all in the checkout line.


"Free" credit score from Citi isn’t free, but it is nearly worthless

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If you're a Citi credit card holder, you might have recently received notice of a promotion to get a "free" credit score.

The advertisement says the score is “based on data from Experian,” but doesn't clarify whether you're actually getting your Experian credit score or merely an estimate of your Experian score.

Some credit monitoring products provide estimated credit scores that personal finance experts refer to as "Fake-O" scores because they pretend to be the score lenders use to make credit decisions. The real score is called a FICO score, named after the company that created the scoring formula, the Fair Isaac Corporation.

Fake-O scores aren't helpful because creditors can base their lending decisions on your score from any one of the three big credit scoring companies--Experian, Equifax or TransUnion--or they can use a different service entirely. 


Each credit scoring company puts its scores together using a slightly different formula, so your credit score can differ by dozens of points from one agency to the next, easily making the difference between your being offered the best interest rates or even meeting a loan or credit qualification cutoff. 


Your credit score could even differ by hundreds of points across credit bureaus if one of your files contains a mistake. 


Get the facts about Citi's "free" credit score offer in my Interest.com article, "Free" credit score from Citi isn’t free, but it is nearly worthless.


American Express travel rewards bonus is truly bogus

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Say you decide to book a plane ticket through American Express’s special travel booking website so you can earn double Membership Rewards points. 

You’ll pay a hidden fee of $6.99 per domestic ticket.

But unless you’ve shopped at other travel websites and compared prices for identical flights against American Express’s prices, you’re unlikely to ever know that you’d paid this fee.

 It’s rolled into your ticket price without being itemized; you won’t find out about it unless you read the fine print before you buy your ticket.

To get to the fine print, you'll have to click on the link to “Taxes + Airline/American Express Imposed Fees” under step 2, “Review the price,” after you’ve selected your flights.

You’ll get a pop-up window with a document titled “Information About Taxes, Governmental Fees, Tax Recovery Charges and Service Fees.” 

The third item under “Air Transactions” says “Online Air Transaction Service Fee.A non-refundable fee of US$6.99 per domestic ticket and up to US$10.99 per international ticket is charged for each ticket purchased online for an airline that pays us a standard fee or commission.”

American Express doesn't just charge fees on air travel bookings, either.

Learn more about American Express's hidden travel booking fees and some better ways to earn rewards when booking travel online in my Interest.com article, American Express travel rewards bonus is truly bogus.

Hot July mortgage rates show no signs of cooling

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We started 2012 with record-low mortgage rates, and home financing has only gotten cheaper.

 But just how far have interest rates fallen during the first six months of the year?

Find out in my Interest.com article,  Hot July mortgage rates show no signs of cooling.

 You'll also learn how much you could save by taking out a 15 year mortgage instead of a 30 year mortgage--an option that might be within reach with rates so low.

These shorter-term mortgages are less expensive because lenders and mortgage investors consider them less risky.
The lower rate means that when you cut your loan term in half, your monthly payment won’t double.


Mike Davidson, a senior executive in the New York City area, says he’s held both 30- and 15-year mortgages.
“Earlier in my life, I always took out the 30, since it had a smaller monthly payment and I was just getting started. I didn't focus on total costs, just the monthly nut and how it compared to my salary,” he says.
“However, the last few times I've refinanced I have preferred the 15-year option,” he says, because the total overall cost is much lower.
“Here's the real deal sealer. With a 15-year mortgage I will be in a position to have this mortgage paid off just about the time my two children are entering college,” he says.
Christopher Davis, director of communications and retirement services for HFM Wealth Management in Hartford, Conn., provides the following example:For someone borrowing $300,000 for 30 years at a fixed rate of 3.375%, the estimated monthly principal and interest payment would be $1326. For a 15-year fixed rate mortgage, the interest rate would drop to about 2.75%, making the monthly payment $2035. 
Assuming the borrower could afford $2035 per month, he or she could choose the 30-year option but make additional monthly principal payments of $700 and pay off the mortgage in about 16 years.
“In exchange for the possibility of one more year of debt service, the borrower gains the flexibility of being able to reduce their payment, to as low as $1326 in this example, if they become cash-strapped during any period,” Davis says.




Your lender might not let you buy a home you want

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When you buy a home, it’s your money. You get to decide whether a property is in good enough condition to purchase. 

At least, that’s what people usually think.

If you’re buying the property with a mortgage, your lender will have a say in what you buy because it has to protect its collateral interest.

No one goes into a home purchase thinking they will ever lose the property. And while lenders know that they’ll have to foreclose on a certain percentage of borrowers, they’re not actually anticipating foreclosing on any particular loan. If they could foresee that risk from the start, they wouldn’t make the loan.

But since lenders do have to foreclose on a small percentage of homes, if you want to buy a home that’s in any condition less than turn-key, you could run into stumbling blocks.

Learn about the standards lenders impose on properties they finance in my Mortgage-Calc.com article, Your lender might not let you buy a home you want.





FHA refinancing now could be out of reach for some


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When you take out an FHA mortgage, you have to pay a lot of mortgage insurance.

Today’s mortgage insurance premiums (MIPs) are as high as 1.25% depending on what percentage of your home’s purchase price you’re borrowing (called “loan to value” or LTV, in mortgage industry-speak). They used to be just 0.55%.

Today's MIP rates are tiered and get as low as 0.35% if you have a 15-year mortgage and a loan-to-value below 90%. But FHA borrowers tend to put down as little as possible and want the smallest monthly payment possible, which often means 3.5% down (or 96.5% LTV) on a 30-year mortgage.

Today's higher MIPs mean many borrowers won’t save much, if anything, by refinancing.

Plus, refinancing means closing costs, which typically amount to thousands of dollars.

Even if you wanted to refinance your FHA loan under these less-than-ideal circumstances, FHA refinancing guidelines stipulate that there must be a “net tangible benefit” to borrowers from refinancing. The new principal, interest and monthly mortgage insurance payment must be at least 5% lower than the borrower’s current payment.  

“Benefit to borrower rules were put in place to make sure there was a savings or other benefit to someone refinancing,”  and not just a benefit to the lender facilitating the transaction, says mortgage broker Todd Huettner of Denver-based Huettner Capital.

If your loan closed on May 31, 2009, the cutoff date for a discounted FHA refinancing program, your refinancing math will probably look dramatically better than if your loan closed on  June 1, 2009. The UFMIP cost changes from a couple hundred dollars to several thousand.

And the real cost of UFMIPs is often higher because borrowers typically roll the premium into their mortgage and pay interest on it for the life of the loan. 

The difference in monthly MIPs also amounts to thousands over the life of the loan.

The loan cutoff date to refinance under the more favorable terms seems arbitrary. The Department of Housing and Urban Development, which sets FHA guidelines, has attempted to justify its decision by stating that borrowers who took out loans prior to June 1, 2009, typically have interest rates of at least 5% and stand to gain the most by refinancing.

Matt Kovach, a product development manager in Houston, Texas, for Envoy Mortgage, says the FHA lowered both the up-front and annual premiums to spur these homeowners to refinance and ultimately reduce the risk of future defaults on these loans.

Since FHA loans are government guaranteed, taxpayers like you and I must cover the losses when a homeowner defaults on his FHA loan.

Huettner points out that any time a borrower is able to lower her interest rate by refinancing, the odds that he or she will default get lower.

The FHA’s streamline program doesn’t allow cash-out refinancing, nor does it allow borrowers to roll closing costs into the mortgage. In other words, the amount borrowed can’t increase. There’s really no way to increase that borrower’s default risk by allowing a refinance.

But why should special terms only be available to the borrowers who stand to benefit the most? It seems like it would make sense to offer the more generous streamline refinance pricing to all FHA borrowers, not just a limited pool.

Get more details in my Interest.com article, Why it's harder to refinance a newer FHA loan.

How to Get the Best Price on Contact Lenses --- and Why I Chose Not to

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It's been a while since I bought new contact lenses, so I wanted to shop around thoroughly to make sure I got the best price.

I used eBates as my starting point. It gave me nine options for companies to buy contacts from. I narrowed these options down to four based purely on the price of a single box of contact lenses. The cheapest sites for my brand were Lens.com, ContactsAmerica.com, 1800GetLens.com, and JustLenses.com.

To find out the price with shipping, I had to begin a registration process for each site. Suspiciously, each of these four sites has an identical registration page. But the real clue that they are probably all the same company is the identical pricing for shipping of $7.95 and for "handling and insurance" of $6.36.

This hidden handling cost seems sketchy to me. It makes it more difficult to comparison shop across different contact lens websites and it's basically a charge for nothing. The $7.95 shipping charge is also inflated--it doesn't cost that much to ship two boxes of contact lenses, which weigh very little.

After all this comparison shopping, I decided to with 1800Contacts.com, which I've used before. The per-box price isn't the cheapest--it was $9 more per box, in fact--but shipping is free and there is no bogus handling charge. Also, I got 10% back through Shop Discover. If I didn't have a Discover Card, I could have gotten 5% back through eBates.

I paid $114 to place my order with 1800Contacts.com, and I'll get $1.14 in Discover Cash Back. I would have spent $112 at one of the other sites and gotten 5% cash back through eBates, or 56 cents. I actually spent slightly more by using 1800Contacts.com than I could have by using Lens.com, ContactsAmerica.com, 1800GetLens.com, or JustLenses.com, but would rather give my business to a reputable company that offers straightforward pricing. I also thought that if I needed to return my lenses for any reason, I could get a full refund (minus return shipping) since I hadn't paid $15 in bogus charges up front.