Which Mortgage Is Right? - The New York Times:
By BOB TEDESCHI
Published: July 20, 2006
Industry executives say most homebuyers continue to gravitate toward fixed loans and conventional adjustable-rate mortgages (or ARM’s), but given the heady prices in the real estate market, many speculators and some homebuyers are also rushing toward so-called 80/20’s (also referred to as a “piggyback” loan, or “no money down” loan), and five-year interest-only loans.
Illustration by Andy Rash
30-Year FixedIn the late 1990s, as many as 70 percent of all mortgages were 30-year fixed loans, where the first payment is identical to the last. It is an understandable statistic, perhaps, given what many of those homeowners lived through in the high-interest environment of the 70’s and 80’s.But as of 2006, that figure had dropped to about 40 percent, according to Anthony Hsieh, president of LendingTree.com, which connects mortgage applicants to lenders and brokers.
One reason is that in the recent housing boom, as housing prices rose and interest rates dropped, consumers were less willing, or able, to lock themselves into more expensive fixed-rate loans.Mr. Hsieh said long-term, fixed-rate mortgages still appeal to a healthy number of consumers who know they will stay in their homes, and who would rather avoid the anxiety that accompanies interest rate fluctuations. But tastes are clearly shifting, he said.“In the previous generation, every house was pretty much the same, and people lived in it for 30 years and at the end they had a mortgage-burning party,”
Mr. Hsieh said. “Now, particularly young, first-time buyers have no intention of staying put for 30 years. They want the opportunity to step up into a different home.”One choice for these buyers is shorter-term fixed rate loan, of 10, 15 or 20 years, which buffers the homeowner from interest rate fluctuations while accelerating the amortization process.
Such loans are popular among those who have the money to make monthly payments that are significantly higher than 30-year loans at the same rate, and who wish to quickly free themselves of a mortgage burden or diminish their overall interest costs.Adjustable-Rate Mortgages, or ARM’sFor less risk-averse borrowers, ARM’s are the loan of choice.
These mortgages typically carry the initial interest rate for a set period — usually between one month and 10 years — after which time the rate fluctuates according to changes in various interest rate indexes. Some indexes are well-known, like the Prime Rate, while others less highly publicized, like the 11th District Cost of Funds Index.
No matter the index, banks limit the interest rate adjustments in two ways. First, a rate change cannot exceed a set amount – usually 1 or 2 percent – from the previous rate. Second, banks set a cap on the interest rate, typically 5 or 6 percent above the initial rate.The chief benefit of ARM’s, of course, is that they carry lower interest rates than fixed rate loans.
That benefit can be significantly expanded with so-called option ARM’s, which have shot to popularity in recent years. As Mr. Hsieh said, option ARM’s are “almost like a giant credit card, where the principle never reduces.”Option ARM terms typically start with an interest rate of 2 percent for the first few months. Each month thereafter you can choose from three payment options.
The first is to pay the prevailing interest rate – say 6 percent, plus a share of the principle (based on a 30-year amortization schedule).
The second is to pay only the 6 percent interest.
The third is to stay with the 2 percent rate, which means the loan is accruing significant interest monthly.Should borrowers choose the third option, the terms are reset when the debt reaches a set amount greater than the original loan (usually between 7 and 15 percent).
Then, the loan reverts to a 30-year fixed loan, with principle-and-interest payments each month.“This is good for people who are self-employed, or have seasonal income, because you can pay as much as you want or as little as 2 percent,” Mr. Hsieh said. “But it’s not designed for consumers who can’t afford the home unless they’re making a 2 percent payment, because you end up owing a lot more than you borrowed.”
Nonetheless, Mr. Hsieh said, some option-ARM borrowers take the chance. “Whether it’s right or wrong nobody’s certain, but consumers are a lot more tolerant of risk than before,” he said.
80/20 MortgagesThe 80/20 is so named because consumers actually take out two mortgages – one for 80 percent of the home’s value, and the other for the remaining 20 percent.
The first mortgage typically has a payoff requirement after two or three years, which in practical terms means borrowers must refinance the home at that point.
The 80/20 mortgage rose to popularity, Mr. Hsieh said, starting in about 2003, mostly in response to demand among “young working professionals with good income and credit, but very little savings.”Because of the structure of the loan, 80/20 borrowers are betting that the home’s value appreciates enough that they can pay off both loans at the time of the refinancing, and realize additional equity from the new appraisal.
If the home’s value appreciates, the homeowner may re-finance to a longer-term loan.Interest-Only LoansAnother comparatively risky, and increasingly popular, product is the interest-only mortgage, where the buyer pays no principle, typically for 5 or 10 years.
Beyond that, the interest rate fluctuates to the prevailing short-term rate and borrowers start repaying principle on an accelerated basis.Mr. Hsieh said these loans are popular among homebuyers who simply cannot afford a big monthly payment, and who are betting that their homes accumulate in value during the interest-only portion of the loan.
If that happens, they can refinance after five years, using the home’s increased equity as the basis for a loan with better terms.If the home’s value stays flat, though, the homeowner has essentially paid rent on the property for five years. And if the home’s value decreases during that time and the owner sells because he cannot afford a monthly payment that includes principle, he faces a big loss.
Sunday, August 24, 2008
Driving Is Down, but Auto Insurance Rates Are Rising - NYTimes.com
Driving Is Down, but Auto Insurance Rates Are Rising - NYTimes.com:
Gasoline prices are well above last year’s levels, and people are driving less. That would suggest fewer crashes, and a little relief for the struggling American consumer, in the form of lower auto insurance premiums.
But instead, many insurers are raising their rates, sometimes by large amounts.
“On average, they have been asking for a 7 percent increase” in New York, said Michael Moriarty, the state’s deputy insurance superintendent for property and capital markets.
North Carolina is pondering an industrywide request for a 13 percent increase. In Illinois, increases have been from 3 percent at State Farm to 13 percent at the United Services Automobile Association, which insures military families.
For several years, auto rates had been flat and even declining slightly, thanks to new safety features on cars and, in some places, campaigns against drunken driving and insurance fraud. Officials in states flirting with deregulation said increased competition had also kept rates down.
Some states, like California, say auto rates are still falling, but nationwide, the trend is upward, according to the Insurance Information Institute. It says premiums have risen at an annualized rate of 1.7 percent so far this year — a small amount, perhaps, but more than four times the rate of increase for the comparable period in 2007, before gasoline prices spiraled.
Only a few states, including New York, have challenged the increases, though several insurance departments say they have stepped up their scrutiny.
J. Robert Hunter, an insurance consumer advocate with the Consumer Federation of America, is urging state regulators to find out why rates are rising when Americans are driving, in total, billions of miles less than a year ago.
“As Americans drive less because of the price of gas, fewer claims will be filed with insurance companies,” Mr. Hunter said in a letter to the nation’s governors in June. “Whether this will mean windfall profits for insurers or rate cuts for the consumers is up to governors and state regulators to determine.”
Many state regulators are staying on the sidelines, having taken steps to deregulate auto rates in recent years, in hopes that competition will keep rates low. Some states do not preapprove rates, as New York does, but can take action later if they find an increase was inappropriate.
“A lot of them say, ‘We don’t regulate rates, so we don’t care,’ ” said Mr. Hunter, citing evidence that rates are lower in states where regulators exert a heavier hand.
Insurance companies say that their auto rates are based on their recent experience with claims, and that this year’s increases are justified. The reduced driving has not yet shown up in fewer accidents, they say, and meanwhile, other factors are increasing the overall cost of claims.
“Higher inflation, and the commodities price boom, increases the cost of steel, plastic, paint, aluminum, copper and everything else used to repair a vehicle,” Robert P. Hartwig, president of the Insurance Information Institute, said. “It also ultimately drives up medical and legal costs.”
While insurers track accidents closely, their data lags behind real time because it can take months to settle claims. The Department of Transportation has tracked big declines in driving through June, but the insurance institute has data on crash frequency only through March. Whether accidents declined over the summer will not be known until the end of September, Mr. Hartwig said.
Still, Mr. Hartwig, an economist, offered data from the 1970s to show what can happen when a spike in gasoline prices prompts Americans to curtail their driving. During the five-month Arab oil embargo of 1973 and ’74, car crashes did taper off, he said, but they rose almost immediately after the embargo ended. Meanwhile, the oil price shock spread inflation throughout the economy, driving up the cost of car repairs.
“Entrenched inflation can push up costs for many years,” said Mr. Hartwig, warning that the same thing could happen again.
The overall uncertainty about inflation is making it hard to evaluate insurers’ projections that their claim costs are about to rise.
Gasoline prices are well above last year’s levels, and people are driving less. That would suggest fewer crashes, and a little relief for the struggling American consumer, in the form of lower auto insurance premiums.
But instead, many insurers are raising their rates, sometimes by large amounts.
“On average, they have been asking for a 7 percent increase” in New York, said Michael Moriarty, the state’s deputy insurance superintendent for property and capital markets.
North Carolina is pondering an industrywide request for a 13 percent increase. In Illinois, increases have been from 3 percent at State Farm to 13 percent at the United Services Automobile Association, which insures military families.
For several years, auto rates had been flat and even declining slightly, thanks to new safety features on cars and, in some places, campaigns against drunken driving and insurance fraud. Officials in states flirting with deregulation said increased competition had also kept rates down.
Some states, like California, say auto rates are still falling, but nationwide, the trend is upward, according to the Insurance Information Institute. It says premiums have risen at an annualized rate of 1.7 percent so far this year — a small amount, perhaps, but more than four times the rate of increase for the comparable period in 2007, before gasoline prices spiraled.
Only a few states, including New York, have challenged the increases, though several insurance departments say they have stepped up their scrutiny.
J. Robert Hunter, an insurance consumer advocate with the Consumer Federation of America, is urging state regulators to find out why rates are rising when Americans are driving, in total, billions of miles less than a year ago.
“As Americans drive less because of the price of gas, fewer claims will be filed with insurance companies,” Mr. Hunter said in a letter to the nation’s governors in June. “Whether this will mean windfall profits for insurers or rate cuts for the consumers is up to governors and state regulators to determine.”
Many state regulators are staying on the sidelines, having taken steps to deregulate auto rates in recent years, in hopes that competition will keep rates low. Some states do not preapprove rates, as New York does, but can take action later if they find an increase was inappropriate.
“A lot of them say, ‘We don’t regulate rates, so we don’t care,’ ” said Mr. Hunter, citing evidence that rates are lower in states where regulators exert a heavier hand.
Insurance companies say that their auto rates are based on their recent experience with claims, and that this year’s increases are justified. The reduced driving has not yet shown up in fewer accidents, they say, and meanwhile, other factors are increasing the overall cost of claims.
“Higher inflation, and the commodities price boom, increases the cost of steel, plastic, paint, aluminum, copper and everything else used to repair a vehicle,” Robert P. Hartwig, president of the Insurance Information Institute, said. “It also ultimately drives up medical and legal costs.”
While insurers track accidents closely, their data lags behind real time because it can take months to settle claims. The Department of Transportation has tracked big declines in driving through June, but the insurance institute has data on crash frequency only through March. Whether accidents declined over the summer will not be known until the end of September, Mr. Hartwig said.
Still, Mr. Hartwig, an economist, offered data from the 1970s to show what can happen when a spike in gasoline prices prompts Americans to curtail their driving. During the five-month Arab oil embargo of 1973 and ’74, car crashes did taper off, he said, but they rose almost immediately after the embargo ended. Meanwhile, the oil price shock spread inflation throughout the economy, driving up the cost of car repairs.
“Entrenched inflation can push up costs for many years,” said Mr. Hartwig, warning that the same thing could happen again.
The overall uncertainty about inflation is making it hard to evaluate insurers’ projections that their claim costs are about to rise.
Car Accident: Insurance Claims - Do's and Don'ts -- Lawcore.com
Car Accident: Insurance Claims - Do's and Don'ts -- Lawcore.com:
If you have been involved in any kind of traffic accident, whether a car accident, truck accident, or motorcycle accident, you will inevitably have to deal with your insurance company as well as the insurance agents of others involved in the accident. Filing an insurance claim and handling insurance adjusters can be quite a task. Here are some essential dos and don’ts to remember, regarding insurance claims.
Do's
Do contact your insurance company as soon after the accident or injury as possible. Unless you have some very serious injuries to take care off, your insurance agent is the first person to call in case of an accident or injury.
Do take time to read your insurance policy and understand it. This will help you in determining what coverage your policy allows so as to make the necessary claims.
Do your best to get as many details of the accident as possible. This will include taking pictures of the damaged vehicles and any injuries sustained. Also do try to take down the names and numbers of any witnesses to the accident who may later be able to help prove your insurance claim.
Do make a note of the insurance details of any other person or vehicle involved in the accident.
Do keep a written account of any conversations and dealings with the insurance officers, agents, and any other people involved in the claims process.
Do save receipts and bills for any and all expenses relating to your insurance claim, bills for any repair work on the damaged vehicle, and also any medical costs incurred on the treatment of any injuries that are covered by your insurance policy.
Do be frank and honest with the insurance investigators so that your claim is not denied for fraudulent reasons.
Do check if you have more than one insurance policy that provides coverage for the particular accident or injury. Many people have multiple insurance policies under which they may be able to file valid insurance claims. So, do take the time to review all your insurance policies.
Don’ts
Don’t admit to any kind of liability on your part but just stick to the facts without expressing any opinion.
The ascertaining of liability is affected by different circumstances. It is not your job to admit fault but is the job of the insurance investigators to gather all the necessary facts and evidence and then determine liability.
Don’t give anything in writing to any insurance officers, whether your own or the other party’s, if you do not understand any part of your policy or claim.
Don’t let any time limits to file your insurance claim run out. All insurance companies require you to file an insurance claim within specified periods of time after the accident or injury. So make sure you don’t disregard this time limit or else your claim may not be considered valid.
Don’t take everything that your insurance agent tells you as the last word, especially regarding the value of your claim or a settlement. Insurance companies always try to give you estimates of losses that are lower than your actual losses.
Don’t just accept their estimates without doing some estimation of your own.
Don’t sign any document that is a release or a waiver of any kind. If you are not sure about what you are being asked to sign, consult an attorney for help.
Don’t take any check as a full and final payment unless you are certain that it is a fair compensation for your losses.
If you have been involved in any kind of traffic accident, whether a car accident, truck accident, or motorcycle accident, you will inevitably have to deal with your insurance company as well as the insurance agents of others involved in the accident. Filing an insurance claim and handling insurance adjusters can be quite a task. Here are some essential dos and don’ts to remember, regarding insurance claims.
Do's
Do contact your insurance company as soon after the accident or injury as possible. Unless you have some very serious injuries to take care off, your insurance agent is the first person to call in case of an accident or injury.
Do take time to read your insurance policy and understand it. This will help you in determining what coverage your policy allows so as to make the necessary claims.
Do your best to get as many details of the accident as possible. This will include taking pictures of the damaged vehicles and any injuries sustained. Also do try to take down the names and numbers of any witnesses to the accident who may later be able to help prove your insurance claim.
Do make a note of the insurance details of any other person or vehicle involved in the accident.
Do keep a written account of any conversations and dealings with the insurance officers, agents, and any other people involved in the claims process.
Do save receipts and bills for any and all expenses relating to your insurance claim, bills for any repair work on the damaged vehicle, and also any medical costs incurred on the treatment of any injuries that are covered by your insurance policy.
Do be frank and honest with the insurance investigators so that your claim is not denied for fraudulent reasons.
Do check if you have more than one insurance policy that provides coverage for the particular accident or injury. Many people have multiple insurance policies under which they may be able to file valid insurance claims. So, do take the time to review all your insurance policies.
Don’ts
Don’t admit to any kind of liability on your part but just stick to the facts without expressing any opinion.
The ascertaining of liability is affected by different circumstances. It is not your job to admit fault but is the job of the insurance investigators to gather all the necessary facts and evidence and then determine liability.
Don’t give anything in writing to any insurance officers, whether your own or the other party’s, if you do not understand any part of your policy or claim.
Don’t let any time limits to file your insurance claim run out. All insurance companies require you to file an insurance claim within specified periods of time after the accident or injury. So make sure you don’t disregard this time limit or else your claim may not be considered valid.
Don’t take everything that your insurance agent tells you as the last word, especially regarding the value of your claim or a settlement. Insurance companies always try to give you estimates of losses that are lower than your actual losses.
Don’t just accept their estimates without doing some estimation of your own.
Don’t sign any document that is a release or a waiver of any kind. If you are not sure about what you are being asked to sign, consult an attorney for help.
Don’t take any check as a full and final payment unless you are certain that it is a fair compensation for your losses.
Young Drivers Auto Insurance, Tips and Advice
Young drivers insurance tips
So, you've got your licence, you've got some wheels, you've got places to go. Now what you really need is a good insurance deal. Young drivers aged 17-21 are the highest risk category for auto accidents and this is reflected in higher auto insurance premiums.
But there are a number of ways you can reduce your premiums and still get good insurance cover for less.
Add an older named driver to your policy. Even if your dad or sister only occasionally driver your car, this can still help reduce the premiums for your auto insurance.
Be a safe driver. If you can build up a no-claims history then this will help in the long term.
Add an older named driver to your policy. Even if your dad or sister only occasionally driver your car, this can still help reduce the premiums for your auto insurance.
Be a safe driver. If you can build up a no-claims history then this will help in the long term.
Install safety features, such as a Thatcham approved alarm some insurance companies offer discount, as long as the device is professionally installed.
Resist the temptation to modify your car as many insurance companies charge more for modifications.
Find a secure parking location for your car, such as an off-road position or ideally in a garage.
Change the excess you are prepared to pay on any claim to reduce the premium on your auto insurance policy.
Take a Pass Plus course, it builds confidence and experience, and can also get you a cheaper insurance deal.
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Auto Accident Facts:There were an estimated 6,420,000 cars involved in accidents in the US in 2005. The cost of these accidents exceeds 230+ Billion dollars. There were about 2.9 million injury cases and 42,636 car accident deaths. An average of 115 persons die each day in motor vehicle crashes in the United States -- one every 13 minutes. According to the World Health Organization about 3000 people die in crashes each day worldwide.
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So it is very important you put up your auto insurance deals strong and straight.Young drivers should take note of this and take seriously.
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Even when you have the best auto insurance deal, the most important thing is to be very cearful, a little more than you ordinarily would have been.
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