Saturday, March 29, 2014

Motley Fool Credit Card Article "Is Your Credit Card Interest Rate Above 20%? This Chart Shows Why." is a load of propaganda.

Motley Fool article is way off the mark in this blog's opinion. Credit Card Debt is the BIGGEST profit center for banks. 

What Motley Fool fails to acknowledge is that as time goes on not only are consumers paying a ridiculously high interest rate on credit card debt, but a significant portion of the credit card debt is interest rate charges that are accruing more interest rate charges!

One way to show how foolish Motley Fool is regarding this credit card debt article would be to create a graph that reveals what percentage of all credit card debt is actual interest rate charges that are "nestled", or nested, into the credit card.

If a credit card customer with a 5,000 dollar credit line defaults after 15 years, but in that 15 years time paid 15,000 dollars in interest rate charges and of the 5,000 dollars still owed 3,500 is additional interest rate charges that just keep accruing, just how badly did the credit card company lose? But wait, lets factor in that credit card companies are UNINTERESTED in collecting the defaulted debt if it were to be paid back slowly with no more interest rate charges, penalties or fees added in.

I didn't realize that Motley Fool (in my opinion) was such a government propagandist by actually justifying a 20% or higher interest rate charges on a credit card, wow.

Please consider viewing and then signing the Debt Neutrality Petition by clicking here.

Wednesday, March 26, 2014

Mathematical Example that Shows when a Reverse Mortgage is a bad idea.

Example 1, when Reverse Mortgages are a bad idea.

Retired couple wants to supplement their social security income by withdrawing 500 dollars a month against the value of their paid off $500,000 home via a reverse mortgage. They consider this to be a 20 year plan.
Unfortunately, the entire value of the home will be absorbed after 17 and 2/3's years in the following manner. The couple will get $106,500 in 500 dollar monthly payments while accruing interest rate charges on the money taken out by the couple plus the mortgage insurance premiums will be approximately 393,500!
I used a mortgage insurance premium interest rate of 1.5% on the full value of the home (it can be as high as 3% and perhaps down to 1.25%) plus 7.5% interest rate charge on the entire equity that has been taken out of the house (meaning mortgage insurance premiums on the full value of the house plus the modest monthly draw being taken out by our frugal, retired couple) for my calculation.

Now it is possible that the home may go up in value during that 17 years time. However, will increase in home value be absorbed by a higher and higher mortgage insurance premium amount as the value of the home rises? If the answer is yes, than a long term reverse mortgage may be a horrible long term program.

So when is a Reverse Mortgage "acceptable"? I don't know all the examples but three that come to mind would be, home is about to be lost to foreclosure and the Reverse Mortgage prevents that from happening. 

A second example would be Reverse Mortgage is used for needed home improvements so the home is more easily sellable in the near future.

A third example would be for whatever reason, getting a large chunk of money out right away while still being able to live in the home for a "while" is desired.

In my opinion, think of Reverse Mortgage as a short term plan, probably for most people 5 years or less would be my guess, but keep in mind that even if the home is sold within five years, there will still be signifcant amount of equity that went to the mortgage insurance and interest rate charges charged on whatever equity was converted to cash.

A HELOC is probably a more superior financial product but the government in their questionable wisdom has basically shut out 99% of all retirees from being eligible for a HELOC based on their social security income. It appears that Dodd / Frank bill is to blame for this.

Please consider viewing and then signing the Debt Neutrality Petition by clicking here.