Photo: Mortgage signing

Mortgages: the Closing Cost Minefield

When my new partner and I bought a condominium last month to accommodate our combined stuff, I remembered that borrowing so much money can be an emotional, even terrifying, ordeal.

It’s difficult to think clearly.

But attention should be paid to closing costs, which add to the cost of buying a house. So I decided to apply my skills as a veteran newspaper reporter and grilled my lender, attorney and real estate agent about these costs.

Despite my diligence, I was only modestly successful at reining them in. But I stepped on a few land mines that might help other homebuyers:

The HUD-1 matters:

Federal law requires prospective mortgage lenders to provide loan applicants with a “good faith estimate” of the closing costs within three days after they submit the application. This “GFE” is your lender’s best guess of the final fees they’ll charge for originating your loan.

My lender promptly sent the GFE. But the bank’s salesman promised to reduce the closing costs shown on the GFE, and I had to repeatedly nudge him to provide the more important document: the HUD-1 statement of my actual closing costs. …Learn More

Photo: Folders of insurance, medical, and bills

Healthcare Credits Reach Middle Class

Individuals earning nearly $46,000 a year and families of four earning $94,000 may be eligible for federal tax credits under the new health care law.

Tax credits are the mechanism by which the federal government caps how much people pay for health insurance premiums, which are set by the private market. The premium caps are based on how much someone earns, relative to the federal government’s definition of poverty.

Here’s an example of how premiums are calculated for, say, young, single workers who earn between $17,236 and $22,980 per year, which is between one-and-one-half and two times the poverty level. The premiums, which range from 4 percent to 6.3 percent of their income, start at about $57 a month for those at the low end of this income range and up to $121 at the high end.

In the following charts, Squared Away converted into dollars the income and premiums that the Henry J. Kaiser Foundation, in its brief on the healthcare law, has expressed as percentages of the U.S. poverty thresholds: …Learn More

Photo: Man helping elderly walk

Family Network for Elderly to Dwindle

Husband, wife, grandmother, uncle, elderly friend – we all need a devoted caregiver when we grow old.

But in a not-distant future, according to a new report from the AARP’s Public Policy Institute, the number of family and close friends available to fill this demanding role will decline sharply. It’s unlikely there will be enough of these unpaid caregivers for the multitudes of aging baby boomers.

Today, there are seven Americans between the ages of 45 and 64 for each individual who is at least 80 years old. The baby boomers, largely because there are so many of them, have done a good job of caring for their parents born during the Depression era. One surprising result has been a steady decline in nursing home occupancy rates.

But AARP estimates that the number of folks age 45 to 64 for each individual at least 80 will fall from seven today to six in 2020, four in 2030, and three in 2050. Worse still, not all of them can or will fill the role of caregiver.

“We’re at the demographic sweet spot right now,” said Donald Redfoot, senior strategic policy adviser for the AARP Public Policy Institute. “But as we go forward, all those positive developments over the past 20 years are going to reverse.” …Learn More

Photo: Checked boxes

Got a 401k? A Guide for New Retirees

Upon retiring, you suddenly have access to a chunk of money that’s been accumulating in your 401(k). It’s easy to make a move that incurs unfamiliar tax consequences or otherwise jeopardizes your hard-earned savings.

Based on interviews with financial planners, as well as experts at the Center for Retirement Research, which funds this blog, Squared Away assembled the following check list for imminent and new retirees:

  • At least one year before retiring, collect information from:
    • Social Security – how does your monthly check vary, depending on the filing age you select, and how can you and your spouse determine the best strategy for getting the benefits you’ll need?
    • Your employer – is an annuity an option in your 401(k) plan, or how much can you expect to receive per month from a defined benefit pension?
    • A fee-only planner or other financial resources – what are your priorities and options; how much retirement income do you need; do your Social Security, 401(k) savings, and employer pensions generate enough income, and with how much risk; should you delay Social Security to increase your total monthly income; and should you purchase an annuity to cover your fixed expenses?
       
      “Make sure before you stop working that you’re financially prepared to do so,” said John Spoto, owner of Sentry Financial Planning in Andover, Mass., near Boston. …

    Learn More

Make-up of Non-Bank Customers Changes

Nicole DeConinck. Photograph by Adele M. Pleatman.

Having cashed her McDonald’s paycheck at a check cashing outlet in Boston’s South End neighborhood, Nicole DeConinck has completed one half of her Friday afternoon ritual.

She will now walk to a nearby pharmacy to purchase a debit card, which she’ll use to make her purchases.

More Americans like DeConinck say they have used non-traditional financial services, such as check cashing, or are getting loans from places like pawn shops, payday lenders, or firms that offer advances on IRS refunds. In 2011, 41 percent had, up from 36 percent in 2009, according to the Federal Deposit Insurance Corp., which insures U.S. commercial banks.

One thing fueling this growth is that non-bank loans, which are ready sources of cash, are reaching new segments of the American public, according to a recent analysis of the FDIC’s data by Gregory Mills and William Monson of the Urban Institute in Washington. Once associated with minorities, immigrants and low-income workers, they found they’re more prevalent among non-Hispanic whites, college graduates, and people who earn more than $50,000.

“It’s a measure of the extent of distress throughout the American economy that more and more individuals regarded as insulated from having to turn to these kinds of borrowed funds are now having to access them,” Mills said. …Learn More

Graphic: Split in half pink house

Financially Mismatched Couples at Risk

Financial planners say it happens all the time: couples who don’t see eye to eye on money matters often break up or divorce.

One reason they run into trouble is that a financial mismatch makes it more difficult for them to achieve important goals, said financial adviser Bonnie Sewell of Leesburg, Virginia.

“They’re working against the tide. People who pick like-minded partners get there faster,” said Sewell, who’s written a book about money and divorce.

Her contention is backed up by the preliminary results of a study of more than 30,000 married and cohabiting couples between 1999 and 2012 by Federal Reserve Board researchers Jane Dokko and Geng Li. Their study compared the partners’ individual credit scores to gauge their financial compatibility and found that the larger the disparity between the two of them, the higher the incidence of break-ups.

The authors said credit scores are a proxy for financial behavior and also can measure trustworthiness. The link between poor financial matches and household dissolution, they wrote in their paper, was “quite strong.”

To prevent unhappy endings, Sewell, the financial planner, has three suggestions for new couples: …Learn More

Graphic: Insurance

Poor Insurance Advice in India

Prior research has established that agents tend to sell the financial product that will pay them the highest commission. A new study on India’s life insurance market advances the ball by focusing on the quality of one high-commission product agents recommend and concludes that it’s wrong for the client.

The researchers sent trained auditors into the field posing as customers seeking insurance and then analyzed the advice they received. The auditors’ meetings with agents revolved around life insurance, specifically two types of policies: term and whole life.

In a term policy, the individual pays a premium to ensure a set dollar amount goes to a surviving wife or children if the customer dies. Like term policies, whole life policies also cover the risk of death, but insurers charge a higher premium to provide an additional service: the extra premium is invested on behalf of the client, who accumulates a cash balance that he can later redeem.

The researchers said term insurance is much more valuable, if customers in India take what they save on its lower premium and invest in the government’s savings certificates, earning a higher return than they would get from the insurance company.

Yet the researchers found that just 5 percent of the customer-auditors were advised to only buy term policies when that’s what best suited their needs. …Learn More

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