How Quickly Mortgage Rates Can Change, Affecting Your Payments

Think about this for a minute…

On Tuesday, the rate on a 30-year fixed mortgage stood at about 5.03%. That same mortgage had a rate of 5.44% on Thursday. To get an idea of what this means dollar-wise, I ran some numbers. Because mortgages are such big, long-term loans, small changes in interest rates can have a significant impact on payments and interest expense:

How changes in interest rates affect mortgage payments.
How changes in interest rates affect mortgage payments.

On a $200,000 mortgage, a person would have to pay $50.75 more per month if they took out their mortgage on Thursday instead of Tuesday. This increased interest rate would also mean that they would pay $18,269 more in interest over the life of the loan. Stating it a different way, 80.4% of the first payment would go to pay interest on the 5.44% mortgage while it would have been 77.8% with the 5.03% mortgage.

I included the last column in the graphic as a reference point to where interest rates were back in late October. In other words, mortgage rates have a ways to go before they are back to October’s levels.

If you’re in the market for a house, it pays to pay attention to mortgage rates. If you are looking, you might be wise to try to lock-in your rate. You’re under no obligation to use that rate (should rates decrease) but it does protect you should rates increase before you actually get the loan. Check with your bank or loan officer to see how long this protection lasts.

There’s Only So Much an Advisor Can Do…

This is the introduction to a Kiplinger article titled, Does Your Advisor Make the Grade?

Until last fall, Pam Nintrup thought the financial adviser she had hired two and a half years before was doing a good job. He’d consolidated her and her husband’s scattered accounts onto one statement and run computer scenarios to determine whether her goal of retirement by age 60 was achievable. It was, he said. He then suggested a stock-heavy mix of investments to help Nintrup, 57, meet that goal.

But with her portfolio down more than 40% since last December, Nintrup’s early-retirement plans are out the window, and doubts about her counselor are mounting. Why wasn’t her money invested more conservatively given her imminent retirement? Is the adviser’s explanation — that bonds didn’t cushion the stock losses as well as anticipated — good enough? Why should she stick with the same plan, as he recommends, when it has done so poorly?

The article doesn’t tell us how this woman’s portfolio was allocated. Regardless, it’s easy to look back and say stuff like, “Why didn’t my advisor see this coming?” What if the money had been invested more conservatively and the market had gone way up and she missed out on the gains? You think she would have been pleased? Hindsight is 20/20.

Think back to the late 90s when some advisors weren’t jumping on the tech bandwagon and their clients were upset with them because their dentist was making money hand-over-fist by daytrading tech stocks. These advisors were losing clients because they weren’t making money fast enough.

Then the tech bubble burst and people were upset because their advisors were investing too heavily in tech stocks.

Bottom line: unless you have a crystal ball or some other magical power, it’s impossible to protect yourself from the market. The only thing you can do is make sure you have a decent asset allocation plan invested in low-cost funds. Stick with your plan but be willing to make changes if necessary. The woman in the example may want to work longer or maybe work part time once she turns 60. Or, she may want to save more towards her retirement now. Or, perhaps a combination of both.

Consider This Before You Sign Up for Credit Card Insurance

I read a short article about credit card insurance in today’s Wall Street Journal and thought it would be fun to run some numbers to find out how much such a program would cost.

For those of you who aren’t familiar, credit card insurance is an insurance that supposedly makes your credit card payments in the event that you can’t make the payments. I have never seen or read an actual agreement for this type of insurance but I am certain that there are lots of catches and exceptions involved with this kind of insurance.

That said, let’s assume that you actually purchased such insurance. How much will this insurance cost you? To run an illustration such as this, we’ll need to assume the following:

• Beginning balance of $5,000
• Credit card insurance is $.49 per $100 of the outstanding monthly balance (around $25 for the first month). Some companies charge more and some companies charge less.
• Monthly payment of $100 applied to the card with the insurance and $125 for the card without insurance.
• No additional purchases are made.
• Annual interest rate is 13.99%

I ran an illustration using Excel and this is what I found:

Credit Card Insurance

As you can see from my example, you would spend nearly $300 in credit card insurance premiums. Remember, this amount is charged per $100—so it declines as the balance declines. In my opinion, you are better off taking the credit card insurance premiums and putting them towards paying down your debt. Yes, it is an insurance product, which could be useful if you lost your job. But, as I mentioned earlier, these plans can be full of loopholes and exceptions. You may not be getting what you think you are paying for. My guess is that the $25 per month they charge you in premiums is pure profit for the credit card company. If it wasn’t, they wouldn’t be calling us every other day trying to enroll us in such a program.

Kiplinger’s 10 Best Cities (it’s all about the jobs)

Here’s a quick look at Kiplinger’s 10 Best Cities for Jobs. I’m surprised that only one city from Texas made the list. Click on each city to go to Kiplinger’s write-up on each city.

No. 1: Huntsville, Alabama

No. 2: Albuquerque, New Mexico

No. 3: Washington D.C.

No. 4: Charlottesville, Virginia

No. 5: Athens, Georgia

No. 6: Olympia, Washington

No. 7: Madison, Wisconsin

No. 8: Austin, Texas

No. 9: Flagstaff, Arizona

No. 10: Raleigh, North Carolina

My Plumbing is Fixed and I’m Happy!

Yesterday was the first day our plumbing has worked properly in a LONG TIME!

As some of you may recall, I wrote about having plumbing issues over a year ago. The first plumber to give me an estimate, told me it would cost $6,700 to solve my problem. I put off making the repairs for over a year because I didn’t want to part with the money. Possible slab issues aside, the problem for me putting off this repair was that I THOUGHT ABOUT THE PLUMBING ISSUE EVERY SINGLE DAY FOR A YEAR! It bugged the heck out of me and yet I did nothing about it because I didn’t want to fork over the money.

Well, two weeks ago it got to the point where I HAD to do something. The kitchen sink wasn’t draining properly and the dishwasher was backing up. So, I called Connor Plumbing and asked them to send someone out to take a look. They suggested rerouting the line and capping off the old line and quoted me $4,500 – $4,850. I agreed and they broke the cement on Friday, tunneled 15 feet under the house on Monday, set the pipe on Tuesday, dug the trenches and routed the pipe on Wednesday, and today they have a crew here packing the dirt back under the house.

I know this is a local issue but if you have plumbing issues in the Beaumont Area, I can recommend two plumbing services: Noack Plumbing&151;a small company owned by a friend of mine (no website) and Connor Plumbing. Connor did an excellent job and was friendly and professional. I’ll definitely use them again.

No, I wasn’t paid to write this post…lol.

Coming June 1st, 2009…

I have been talking about doing a project for months. Now I’m finally ready to do something.

Beginning June 1st, I want to do a community book review of Napoleon Hill’s The Law of Success*. A cheaper version ($10.99 vs. $30) of the book has become available and I think it would make an excellent source for a group study.

My goal is to incorporate other bloggers into this study by allowing them to host a lesson. This will help us all out in a couple of ways:

1. I don’t have to review every chapter, and
2. Other bloggers can get some recognition (and hopefully some new readers).

The book is divided into sixteen lessons (17 lessons depending on which version of the book you are using) and I thought it would be cool to focus on one lesson a week for 16 or 17 weeks. The study would end on September 21.

Bloggers who are interested in hosting a week can send me an email (JLP – at –, along with the following information:

• Please put Law of Success in the subject line of your email.
• Lesson # you prefer to host (see list below)
• Name and URL of your blog

For the most part this will be on a first-come-first-serve basis. But, I reserve the right to reject any blog for any reason. I will update the information below as bloggers choose lessons.

In the meantime…

AFM readers who are interested in following along may want to pick up a copy of the book* and start reading. It’s a rather large book.

Monday, June 01, 2009

Lesson 1: Introduction to the Master Mind

Host Blog:

Monday, June 08, 2009

Lesson 2: A Definite Chief Aim

Monday, June 15, 2009

Lesson 3: Self-Confidence

Monday, June 22, 2009

Lesson 4: The Habit of Saving

Monday, June 29, 2009

Lesson 5: Initiative and Leadership

Monday, July 06, 2009

Lesson 6: Imaginiation

Monday, July 13, 2009

Lesson 7: Enthusiasm

Monday, July 20, 2009

Lesson 8: Self-Control

Monday, July 27, 2009

Lesson 9: The Habit of Doing More Than Paid For

Host Blog:

Monday, August 03, 2009

Lesson 10: A Pleasing Personality

Monday, August 10, 2009

Lesson 11: Accurate Thinking

Monday, August 17, 2009

Lesson 12: Concentration

Monday, August 24, 2009

Lesson 13: Cooperation

Monday, August 31, 2009

Lesson 14: Profiting by Failure

Monday, September 07, 2009

Lesson 15: Tolerance

Monday, September 14, 2009

Lesson 16: The Golden Rule

Monday, September 21, 2009

Lesson 17: The Universal law of Cosmic Habitforce

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