Why Bad Credit People Pay Higher RatesWritten by Dave Czach
Why Bad Credit People Pay Higher Rates by Dave CzachLet's face it. People with credit problems pay higher rates for same reason people pay higher auto insurance premiums - risk. Virtually everyone knows if you receive a traffic ticket, you get points on your driving record and an increase in your insurance premium. Why? Because traffic ticket has created an emerging pattern of risk. If you got one traffic ticket, chances of receiving another one are now greater than when you had no tickets. Therefore, there is a greater likelihood of you filing a claim in future. A speeding ticket can lead to accidents, property damage or even vehicular manslaughter. All of which pose a real risk of insurance company paying a claim. The more claims company pays, less money they have to pay other claims and make sound investments to pay future claims. The credit world is similar. If you pay your bills late, your credit score decreases and interest rate on your next financing increases. Why? Because late payment has created an emerging pattern of risk. Whatever reason for your late payment is basis for future late payments. For example, if you have been living beyond your means buying items on credit because you can't afford to pay cash, this causes larger monthly payments. When it gets to point of causing a late payment, it's most likely to continue because you have demonstrated you don't have enough money to pay your bills. Hence, there is a greater chance of frequent or severe delinquency in future. But real world credit market differs from insurance comparison due to one more factor - opportunity. Lenders are not required to loan you money. Afterall, from their perspective, they are comparable to annuity investors. That's right - investors. Suppose you were buying an annuity that would pay you monthly for 30 years. You could choose Annuity X that pays in full and on time every month with a rating of "A." Or you could select Annuity Z that sometimes pays late and sometimes misses a payment completely with a rating of "B." As an investor who may not get paid entirely by choosing Annuity Z, it's only fair that you require a higher yield - or return on investment - in exchange for accepting extra risk of losing your money. If investor is not comfortable with added risk, they could exercise their right of opportunity and choose Annuity X. It pays a lower yield. But they are relatively assured they will receive all their money in full and on time.
| | Avoiding The Bi-Weekly Payment ScamWritten by Dave Czach
Avoiding The Bi-Weekly Payment Scam by Dave CzachOn surface, Bi-Weekly Mortgage Reduction Plan seems great. You divide your mortgage payment in half and pay it every two weeks into a large escrow account. The escrow service company then pays your payment every month on your behalf. The amount they pay is equal to your regular payment plus 1/12 of one payment. The extra 1/12 is applied directly towards your principle balance - not interest. Thus, shaving approximately 9.1 years off a 30 year mortgage loan and saving you tens of thousands of dollars in interest. Now here's flaws with this system. First, escrow company usually charges a set up fee in neighborhood of $200 or more. Second, escrow company charges you around 2% of your new payment amount every month. Third, you sign a contract to authorize escrow company to make your loan payments on your behalf. Fourth, your credit rating is now in hands of strangers. The good news is you can do this on your own without fees or sleepless nights. There are two methods for do-it-yourself mortgage reduction. First, simply send two checks each month to pay your loan. One check for full regular amount. One check for 1/12 of your regular payment with memo section highlighted and stating "Apply directly to principle reduction only." At beginning of each quarter, send a certified letter to your lender requesting your account balance history over past three months. Double-check to see if your 1/12 payment was applied directly to your principle. If not, send a certified letter to manager with copies of your checks to settle dispute.
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