Archive for March, 2008
Wednesday, March 5th, 2008
The big McMansion picture in my last post reminded me that I had to finish watching Maxed Out, a film about the credit card industry. You can watch it for free (albeit in low quality) on Google Video [90 minutes long]. The very first scene includes a real estate agent selling homes with crazy stuff like elevators, two dishwashers, and wine caves.
My Twisted Review
The purpose of the film was to “raise awareness of how credit and lending issues are affecting society.” I think this is a admirable purpose. However, as someone who is familiar with credit card companies and all their practices, my primary thought on this film was “duh”. Please watch out for large amounts of sarcasm and cynicism ahead.
Gasp! Credit card companies target the stupid, the poor, the rich, and everyone in between. They charge huge fees and enormous interest rates if you pay late. They will even offer credit to those who just filed bankruptcy recently, because they know (1) they can’t file bankruptcy again for several years and (2) they are already shown an inability to handle their spending. You could be dead or fictional and still be receiving card applications in the mail.
However, too often in the movie I heard phrases like “Yeah, I did sign it without reading…” or “I figured if they offered me money, it meant I could handle it” or “I never talked my kids about credit cards before sending them off to college” or “I know, I know, I should have read the fine print”. Don’t make it so easy for them, please…
Read the rest of this entry…
Posted in Credit Cards | 51 Comments »
Tuesday, March 4th, 2008
I’m trying to build a coherent series on the home-buying process, so to help me organize here is an index of posts that I’ve already written so far. Those with no links are outlines for future posts. If you think something is missing or want me to cover a specific topic, just leave a comment. Thanks!
Should I Buy A House?
Buying a house isn’t necessarily the best choice for everyone. There are lots of different pros and cons.
Finding a Real Estate Agent
Finding and Choosing A Home
If you do want to buy a house, what do you look for in a home?
Mortgage Basics: Choosing Loan Types
You found a home, so how are you going to pay for it?
Mortgage Practicalities: Choosing A Specific Lender & Interest Rate/Points
Making An Offer, Inspections, Escrow, and Closing
- Making and reading the offer contract
- Ordering Inspections, Asking For Concessioins
- Snags and Delays
- Signing Day
Housing-Related Humor
Buying a house is a serious and stressful endeavor. Watching these videos is not. 
Posted in Real Estate | 17 Comments »
Monday, March 3rd, 2008
“Good” Credit Card Debt
If you’re a new reader, you may have some concerns about my high levels of credit card debt. I’m actually taking money from 0% APR balance transfer offers and instead of spending it, I am placing it in high-yield savings accounts that actually earn me 4% interest or more, and keeping the difference as profit! Along with other deals that I blog about, this helps me earn extra side income of thousands of dollars a year. Recently I put together a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why, although I have the ability to pay the balances off, I choose not to.
Cash Savings, Home Purchase
If my posting has been a bit light lately, it has been because I’ve been bogged down by a combination of illness, travel, and the home-buying process. Also, I didn’t want to do it in real-time because there were some snags along the way… but we’ve finally closed!! I have lots of house-related posts coming about mortgages, inspections, and so on… but first here are a few details that will help explain this net worth update.
| Purchase price |
$600,000 |
| Down payment (20%) |
$120,000 |
| Discount points paid (1%) |
$6,000 |
| Buyer’s agent rebate (1.5%) |
$9,000 |
| Closing Costs |
~$3,000 (rest paid by lender) |
Our purchase price of $600,000 was more than the $500,000 we estimated we wanted to spend a couple years ago, but we are now in a 4-bedroom single-family home that we can see ourselves living in forever. In addition, we didn’t stretch too far as we can handle the mortgage payment on either one of our incomes.
We believe we got a good deal even though the short-term market looks bad, and the house has tons of potential. We’re even going to rent out a room to a relative. Our home appraisal actually came in at $640,000 - we’ve been told an appraisal coming in higher than purchase price doesn’t happen very much in this scared housing market. Using this value would actually leave our home equity at $160,000 instead of just the down payment of $120,000. However, I’m just going to be conservative and leave it at $120,000 for now.
As you can see, our 50% buyer’s agent rebate helped offset our closing costs and the points on the loan. Of course, mentally we are using the $9,000 rebate towards all the home improvement projects we have brewing. 
Finally, adding back in the $5,000 earnest deposit that I had marked as spent last month makes the numbers look a lot better than they really were.
Emergency Fund?
Our net cash balances have taken a big hit to less than $10,000, and that makes me nervous given that our monthly expenses just shot up drastically. Our foreseeable mid-term goal will definitely need to be to build up a proper emergency fund, which we’ve never officially had since we basically treated our downpayment funds as such. Visiting Brazil and Australia will have to be placed on the backburners for now…
Retirement and Brokerage accounts
February is the fourth month is a row that our IRAs and 401k/403bs have dropped by 3%. We may need to start setting up some regular monthly investments in order to help force ourselves to keep investing.
It’s been a wild month! You can see our previous net worth updates here.
Posted in Goals, Investing, Real Estate, Retirement | 60 Comments »
Saturday, March 1st, 2008
The virtual phone service GrandCentral has been invite-only beta for several months. But now the blog service Blogger (also owned by Google) is offering users free memberships. But hey, the special sign-up link works for everyone! 
Not really a loophole, since Blogger accounts are also free, but it does mean that it is now effectively open to everyone to wants to try it out.
To quickly summarize, GrandCentral offers you a free local US phone number from 47 states which can forward to any other US number. You also get free voicemail along with several other nifty features. I tried to explore the many possible uses of GrandCentral in this post. Here are a few of them:
- Have one permanent, central number for everything.
- Create an extra number for your side business, for any other reason you might think of.
- Avoid long distance charges, by getting a new number in a new area code.
- Combine with T-Mobile MyFaves or AllTel Circle for more free calling.
- Use it to allow people to call you via your website, without revealing your phone number.
Again, details are here. I’ve still been using GrandCentral as a separate business line. Although it doesn’t get used heavily, it does give me the ability to pre-screen calls to my business, or simply forward to a professional voicemail recording.
Posted in Deals & Offers, Entrepreneurial | 214 Comments »
Saturday, March 1st, 2008
I’ve already written about Millennium Bank - the offshore bank offering 8% certificates of deposit that are not FDIC-Insured, let alone highly regulated. More recently, a group called the Federally Insured Savings Network (FISN) has been advertising FDIC-insured Certificates of Deposit Paying Over 8%”. What’s the deal?
It definitely looks too good to be true, but let’s look at the fine print and see what we can find. I’ll just focus on the highlighted CDs paying a 8% and 8.25% APR to save some time.
These Are Long-Term Investments With Very Limited Liquidity
The maximum terms for these CDs are for 15 or 20 years! If you wish to withdraw early, you can be sure it will be with a fat penalty. However, it may not even be possible to re-sell them at all. From the disclosure: “Lack of Liquidity. The CDs will not be listed on an organized securities exchange. JPMSI may offer to purchase the CDs upon terms and conditions acceptable to it, but is not required to do so.” This could be worse than even taking money out of your IRA or 401(k).
High Minimum Investments
In this case, you need $25,000 to invest with FISN as your broker to JPMorgan Chase Bank.
They Are Callable, And That’s Not Good
A callable CD means that the bank can say “I found a better deal elsewhere, so I no longer want to pay you this much interest anymore. Bye!” You’ll get your principal plus interest earned up to that point, but this usually happens when interest rates fall, leaving you stuck with alternative paying a lot less than you were getting before.
On the other hand, you the depositor have no such flexibility. You’re still stuck for as long as the bank wishes. Again - up to 20 years! Put another way: Heads, the bank wins; Tails, you lose.
Not A Fixed Rate CD - 8% Rate Isn’t Guaranteed
When talking about a bank CD, you’re usually referring to a fixed rate CD. However with this investment, you may or may not get paid any interest based on the following criteria:
Interest is paid quarterly for every day the 30Yr Constant Maturity Swap (CMS) Rate is greater than the 10Yr Constant Maturity Swap Rate (Positive Yield Curve). If the 10Yr CMS Rate is greater than the 30Yr CMS Rate on any day (Negative Yield Curve) no interest is accrued for that day. Full 8.00% rate guaranteed for first year.
Trying to figure out exactly what CMS rates were made my head hurt. But very generally, if the long-term interest rates are higher than short-term interest rates (positive yield curve) you’ll get paid your fraction of 8% annual interest that day. However, if the curve goes negative, which it has for extended periods in the last few years, you don’t get paid any interest that day. So 8% is basically a best-case scenario. Over a 15-year period, I highly doubt you’ll be getting the full 8% each year. Earning 0% is the worst-case scenario.
I’m Not Interested
So yes, technically these are FDIC-insured to the extent that your principal is safe. But your money could be stuck sitting around earning nothing while inflation eats away at the actual value. And the bank will only keep paying the interest if it remains profitable for them. These seem to be sophisticated investments being marketed at the unsophisticated public. Buyer beware!
Posted in Banking, Investing | 15 Comments »
