Top Personal Finance Blogs
Monday May 20th 2019

Should You Switch to Solar Power?

Switching over to solar power for your home is very tempting to consider for your family’s energy needs. It’s tempting because many people say they can save a lot of money by switching over to a solar power system for their homes. However, switching completely over to solar power won’t always be a worthwhile investment.

It can also pose several problems if you don’t know what you’re doing. As a result, it’s important to do some research in advance to see if switching over to solar power is the right option for your family. Here are some reminders and resources that readers can use to help them do this research.

How Does a Short Sale Affect Your Credit?

Many people often believe that a short sale does not affect their credit at all. For this reason, they choose this option when they are having difficulty making payments on their home. They believe that this is going to be better for them than an actual foreclosure. What most do not realize is there are negative effects to choosing this option, as well. In fact, the damage to your credit score may be just as harmful as a foreclosure.

First, it must be stated that a short sale, while it is not a foreclosure, will still put a mark against your credit. After all, the lender is going to be on the losing end of the deal and, with the high rate of foreclosures and short sales, they are taking too many big hits. In fact, the combination is why the government stepped in to bail out some of the lenders out. These lenders, when it comes to retribution, are not going to let the borrower get away without any concerns.

With this in mind, borrowers must realize there will be a consequence to their credit when choosing a short sale to sell their home. In fact, a recent study that was completed by VantageScore, a credit scoring company, revealed that there is only a difference of an approximate 10 to 20 point drop between someone going through a foreclosure and one going through a short sale. Both drops are significant, foreclosure causing a credit score to lower as much as 130 to 140 points, while a short sale was between 120 and 130 points drop.

Along with a lowered credit score, individuals who choose the short sale may also be responsible for paying the difference to the lender. This depends on which state you live in and whether or not the lender is pushing to get the money back. In truth, many lenders are choosing not to employ this option. However, this is something that you should not count on. If it is demanded and it is not paid back, this, too can mar the credit score and prevent one from financing another home in the future.

Borrowers will also find they are responsible for paying taxes on the difference between what the home sold for and the amount they owed on their loan. In many cases, the difference could be as much as $100,000. If not prepared for this outcome, individuals could find themselves in trouble with the IRS, as well as their lender. This is the last thing that anyone in this circumstance needs to add to their situation.

Anyone who finds themselves suddenly having difficulties trying to keep up with their mortgage payments may immediately think their home is going to be foreclosed on. This process actually takes several months to get underway and this may leave you time to consider a short sale on your home. While the short sale will cause some damage to your credit score, and even less if you keep your payments current, the records will also state that you did try to prevent your home from being foreclosed on. This, of course, will look much better than sitting back and doing nothing to stop it.

Whether the bank cares about that later on is anyone’s guess. Many advisors say that as long as you pay your bills on time for 24 months after any major credit damage, you should be able to get a loan. As your credit score plays a very important role in your life, do the research on your own particular situation to help you make the right decision for you and your family. As around to friends who have gone through similar problems and speak to a financial advisor.

Have to Buy Your Own Health Insurance? Here’s How.

New federal legislation signed by President Barack Obama will provide increased opportunities for uninsured people to buy health insurance.

Most people still obtain health insurance as a benefit from their employer. However, the number of people required to purchase their own insurance has increased with the recent recession. Consumers can buy insurance through their employer, directly from private companies, through subsidized government programs, or through the Medicaid program.

Employer Group Insurance Plans

Many companies allow you to purchase health insurance at special rates through group plans. In most cases, such insurance is offered as a benefit usually once the person becomes a permanent employee. However, some companies offer such insurance plans as an option that the employee must pay for with their own funds. If employer insurance is offered as a benefit, the employer pays the insurance premium without any impact on the employee’s pay.

As the company offers many customers to the insurance company, they qualify for lower rates as an incentive for their business. The health insurance companies also know that by having many customers they distribute the risk since the chance of multiple employees getting sick at the same time are low.

Private Health Insurance

If the employer does not offer an insurance plan, or a person or family is self-employed, then they must find private health insurance plans on their own. Blue Cross is an example of a company that offers health insurance plans directly to consumers.

Since these are most likely not group plans, the premiums will be higher for the same services offered at group rates. Also the deductibles will tend to be very high. However, as health insurance companies recognize that self-employed people can have limited budgets, they usually offer a wide range of programs, so that everyone can have at least some minimal coverage. Some insurance plans work together with a health savings account that provides tax-free funds to pay for health-related costs.

Finding health insurance plans is not difficult and can easily be done online where many websites offer comparison services. Such sites allow you to sort different policies based on criteria that you select. Most insurance companies also offer free online quotes to help you when shopping around for the best deals.

Subsidized Government Health Insurance

The new federal health care bill will allow Americans to obtain low cost health insurance through special markets known as “exchanges.” In order to qualify for these exchange programs, the person or family must not earn more than 400 percent of the federal poverty level.

Although these exchanges will not be available until 2014, there are some special programs available now to seniors and children. Seniors at least 65 years old, and certain other individuals like the disabled are eligible for Medicare health coverage. Children are covered by a federally-mandated state program known as the Children’s Health Insurance Program (CHIP). CHIP coverage is available for families who cannot afford private health insurance.

People who belong to certain high risk categories such as those with pre-existing health problems can take advantage of a special high risk pool. The pool was established by the new health care bill and will stay in existence until 2014 when the exchanges begin operation. People who qualify as high risk will have out-of-pocket medical costs capped at $5,950 for individuals and $11,900 for families.

Free Medicaid Health Insurance

Each state has its own Medicaid program that provides coverage for families who do not qualify for other types of coverage, or who otherwise need additional coverage. In order to qualify, families must meet specific limits on income and assets. Some families may also qualify for Medicaid with a spend-down, a monthly deductible that must be paid before coverage begins. Medicaid is a federally mandated program, but each state is allowed some leeway in how they run the program.

Starting in 2014, the new healthcare legislation will expand Medicaid coverage to anyone who earns less that 133 percent of the federal poverty level. In 2009, the federal poverty level for a four-member family was $29,327. The program’s reimbursement system will also be brought up to par with that of Medicare in order to encourage more doctor participation.

Mortgage Rates at All Time Low…Expected to Continue

The mortgage market has been going through a deflationary cycle recently. Since the housing bubble first started to burst in 2007, interest rates on mortgage loans have been falling like rocks.  Mortgage rates have hit fifty-year lows. Demand, however, remains very weak.

There are various questions about this phenomenon running through the financial and business sectors. There is much confusion about how demand could be so low with such attractive rates. According to the standard supply-side formula, low interest rates should spur borrowing and investment. What’s really happening is that the savings rate has risen higher in the past eight years. In fact, in the second quarter of 2009, the personal savings rate hit five percent.

Low mortgage rates plus an increased sense of frugality combined with tighter lending standards results in homeowners who either cannot refinance or buy a home, or they are afraid to take the risk on buying a new home and prefer to live frugally within their current dwellings. The tighter lending standards mean that even borrowers who would have previously qualified for refinancing may not be able to do so. Many borrowers have found their financial situation worse off, due to factors such as a reduced credit rating, lowered income, and other negative factors that make it more difficult for homeowners to refinance because they cannot meet the stricter standards.

It is not surprising that the credit crunch brought down mortgage rates. The fact that the Federal Reserve was purchasing mortgage-backed securities from Fannie Mae and Freddie Mac helped to keep rates down. During the height of the financial crisis, the money market was suddenly gutted as depositors withdrew their funds. Since banks essentially create credit by lending out large loans such as mortgages, the expansion of credit was abruptly halted and in fact drastically reversed within a short period.

The sudden contraction of credit resulted in interest rates nose-diving because there was a sudden decrease in the amount of mortgage debt owed as the rate of defaults rose. The defaults were largely the result of falling home prices and high levels of consumer debt. Mortgage defaults decreased the overall debt load because the massive waves of foreclosures effectively wiped out hundreds of mortgage loans. This made the credit contraction even worse, and the rapidly shrinking money supply spurred the Federal Reserve’s lowering interest rates in order to keep the money supply from shrinking even further.

Unfortunately, the money supply continues to shrink due to deflationary trends despite the Federal Reserve’s efforts. The newly risk-averse banks simply do not lend out the money generated by the Reserve. Nationally, especially in the hard-hit areas of California and Florida, mortgage defaults continue to increase. Although the money market has appeared to recover, the contraction of credit continues to shrink the overall availability of currency.

This has resulted in low mortgage rates because of incredible deflationary pressures, not necessarily because of decreased risk. Even once the Federal Reserve stopped buying mortgage-backed securities from Fannie Mae and Freddie Mac, interest rates continued to fall. The deflationary trends have resulted in positive effects, however; the increased savings rate combined with the tighter standards have resulted in more consumers paying off their debts, with the salutary result that overall consumer debt levels in the United States have started decreasing.

In addition, there is a talk of a second wave of recession on the horizon. Whether the predictions are true or not, the negative sentiment makes already nervous lenders even tighter with their money. Why lend money at a risk when they can invest in government bonds and have a guaranteed profit?

All of the above notwithstanding, the low mortgage rates are continuing to stay low due to the continued credit contraction. Once the contraction bottoms out, mortgage rates should level off. They expected to remain low because of continued deflationary trends as the accumulated citizen and government debt is slowly paid off.