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Personal Finance Blog By MoneyRates - May 2010

Ask the Expert: Translating Mortgage Rates Into Monthly Payments

May 31, 2010

| MoneyRates.com Senior Financial Analyst, CFA

Q: If I buy a house in Maine for $320,000 with a 7% interest rate for 30 years, what will my monthly payment be? What about at 8% interest for 15 years?

A: To start with direct answers to your questions, a $320,000 mortgage at 7% over 30 years would yield a monthly payment of $2,128.97. A $320,000 mortgage at 8% over 15 years would yield a monthly payment of $3,058.09.

There are plenty of mortgage calculators online where you can test various mortgage payment scenarios. Before you start doing that, however, you might want to do some research into mortgage rates. Unless your credit score is fair or poor, you should be able to do much better than a 7% or 8% mortgage right now. Average 30-year mortgage rates recently dipped back below 5%, and 15-year mortgage rates are even lower.

There are a couple of other things to think about in your planning. First of all, having a down payment of 10% to 20% will go a long way to helping you qualify for a lower mortgage rate. If you are planning on buying a $320,000 house, the good news is that a significant down payment would reduce your mortgage amount and thus make your monthly payments more affordable. The bad news is that you'd have to come up with that 10% to 20% upfront.

Use a savings vehicle like a money market account to accumulate your down payment -- money market rates are generally higher than savings account rates, and while longer-term CD rates might be even higher, CDs don't give you the flexibility you'd need to accumulate your down payment over time.

If you can't come up with a large down payment for a conventional loan, talk to an FHA-approved lender about FHA loans. You'll pay mortgage insurance, but you can qualify with as little as 3.5% down.

Also, when figuring monthly payments for budgeting purposes, don't forget to figure in the cost of insurance and real estate taxes, because these will be a significant new expenses you'll encounter as a homeowner.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to our home page and look for the "Ask the Expert" box on the bottom-left.

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Play the Savings Game on MoneyRates.com

May 26, 2010

| MoneyRates.com Senior Financial Analyst, CFA

MoneyRates.com recently posted an article called Building Savings Rates, Keeping Score: The Savings Game. This article outlines a system for keeping score on your financial responsibility, and now MoneyRates.com invites you to share your scores with the MoneyRates.com audience.

The system is simple: points are awarded for positive actions such as getting a job, shopping for bank rates, and building savings rates, while points are deducted for negative actions such as exceeding your budget or missing a debt payment. Naturally, people will accumulate different amounts of money based on their professions and incomes, but the idea of the Savings Game is there are ways to score points at any income level. The Savings Game measures financial habits, for better or worse.

So how do you score on the Savings Game? Go through the scoring system based on your financial history, and post your score in the comments section of this blog. We want to get a feel for how our audience is doing when it comes to practicing good financial habits. We'd love to see high-scorers who set a good example, but we're also interested in people who have lower scores and can comment on what tripped them up.

Often, developing good financial habits is a matter of experience, and by sharing your scores and stories we can all benefit from the collective experiences of the MoneyRates.com audience. So, post your score below, along with any comments you'd like to share about how you got there.

Let us know today -- how are you doing at the Savings Game?

Posted in: Miscellaneous

Tagged in: bank rates, investments, savings

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Ask the Expert: Improving CD Rates

May 24, 2010

| MoneyRates.com Senior Financial Analyst, CFA

Q. I am getting 4% on a 3-year CD worth $200,000. Is there a safe way to improve on what I'm doing?

- John

A. First of all, congratulations on having locked up 4% for 3 years. It may not have seemed like a big deal at the time, but nowadays you are unlikely to find anything close to 4% CD rates. Meanwhile, by staying conservative you missed out on a particularly volatile period for stocks. You've also benefited from the increase in the FDIC insurance limit from $100,000 to $250,000 -- though be advised this is scheduled to revert back to $100,000 on January 1st, 2014. You'll want to keep that in mind when it comes time roll over your CD.

Unless bank rates rates rise considerably between now and when your CD matures, you may be in for a bit of a shock if you try to roll over your CD. 3-year CD rates now average just 1.55%. However, as safe investments go, there really isn't a clear-cut alternative, since Treasury bonds of a similar maturity are yielding even less.

The best advice, then, is to shop carefully when it comes time to roll over your CD. Based on the CD rates listed on MoneyRates.com, you should be able to do about a full percentage point better than the national average for 3-year CD rates. Also, given the size of your CD, be sure to inquire about any special rates offered for "jumbo" CDs, which are CDs in excess of $100,000.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to our home page and look for the “Ask the Expert” box on the bottom-left.

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Falling Inflation and Interest Rates Defy Expectations

May 19, 2010

| MoneyRates.com Senior Financial Analyst, CFA

The Bureau of Labor Statistics released the Consumer Price Index (CPI) figures for April, and the results defied the conventional wisdom that a strengthening economy should lead to higher inflation.

This widely-followed measure of inflation indicated that overall prices actually fell in April, by 0.1%. While inflation increased by 2.2% for the 12 months ending April 30th, the recent trend shows prices hitting a wall: the change in CPI for the past three months has been 0.0%, +0.1%, and -0.1%, respectively.

There are plenty of components to inflation, but with oil prices having dipped below $70 a barrel recently, at least one important factor has declined so far in May, meaning that there may be more low inflation numbers on the way -- or even a return to deflation.

Perhaps the greatest significance of the latest inflation release is what it says about the economic recovery. Clearly, retailers do not yet have pricing power in the marketplace. Without pricing power, employers may lack the confidence to start hiring aggressively, and without a pick-up in employment, this economic recovery may be dead in the water.

Ordinarily, deflation holds a silver lining for bank depositors and other savers -- it represents an increase in their purchasing power. Still, even at a modest 2.2%, inflation over the past twelve months has exceeded most savings account rates, money market rates, and short-to-intermediate CD rates. Furthermore, May so far has seen a drop in bond yields, which indicates that super-low bank rates may be with us a little longer.

It's important not to overreact to any one piece of economic data, but when a figure goes against the expected trend, as is the case with the April inflation release, it is certainly worthy of notice.

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Ask the Expert: Teaser CD Rates

May 17, 2010

| MoneyRates.com Senior Financial Analyst, CFA

Q. I've seen banks offering 7% on a 7 month CD with a maximum of $700. Does it make any sense having a CD for only $700 when I'm looking to deposit $50,000? Why would banks do this? What's the point of wasting paperwork for $700 when I want to open an account for $50,000?

- Jacinto

A. The 7% rate is simply a promotion to get your attention--and it looks like it did. However, you are right to question the value of CD rates with a low maximum deposit.

A 7% rate is well above the current level of CD rates, so while the bank wants to have the offer out there for promotional reasons, they want to limit account sizes because they could not afford to pay 7% on large deposits.

You might see similar promotions with savings account rates or money market rates, and in all cases you need to focus more on the rate you would earn on the bulk of your deposits, rather than on the "teaser rate" that is offered to attract attention.

For example, 7% is about 6.5% higher than typical CD rates on a similar instrument. That extra 6.5% would be worth $45.50 per year on a $700 investment (less if it's only good for 7 months, but since interest rates are quoted on an annual basis, this example will used annualized figures). That's not bad, but it only amounts to 0.091% of your intended deposit of $50,000.

So, all things being equal, you might consider the extra $45.50 worth the additional paperwork. However, if you can find other CD rates that are 0.091% higher than the rate you'd be getting on the remainder of your deposit, those other rates would actually be a better deal.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to our home page and look for the "Ask the Expert" box on the bottom-left.

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