June rate hike? Too late for Americans’ to refinance their mortgage?


Mortgage rates have been historically low for several years, but a surprising number of American borrowers are still not taking advantage to refinance their mortgage. The Fed raised rates in early December and the common expectation was that mortgage rates would raise in 2016.

The release of the April’s Fed’s minutes indicates that a June rate hike is on the table. Market expectations for a June rate hike moderated to a 28 percent chance Thursday afternoon. The probability for a July hike was 52 percent, a touch above Wednesday’s 51 percent chance.

Are Americans not aware that mortgage rates are on the rise? This could be their last chance to lock in some low mortgage rates.

Being Canadian, I am by no means of an expert on the American mortgage market. It is much more complicated than the Canadian market. What I do know is paying down mortgage debt can save thousands of dollars in interest.

Reducing your interest rate and decreasing the amortization period are the two easiest ways to achieve debt free-living. The decision is not that simple for Americans because mortgage interest is tax-deductible in the U.S. so the savings really depends on your marginal tax rate. Individuals in the lower brackets will benefit the most. Credit scores and the amount of equity that you have in your home are other factors which will affect your ability to refinance your mortgage.

I used an on-line amortization schedule calculator to run some different mortgage refinancing options. Keep in mind, the amount of the interest savings depends on the size of the mortgage.

If you can handle an increase of $200 to $300 a month in mortgage payments  than refinancing a 30 year fix to a 20 year fix could save you a bundle in mortgage interest. For example: refinancing $300,000 from  4.5% (30 yr. fix) to $3.25% (20 yr. fix) would save the borrower $138,839 in interest.

One of the blogs that I follow How to stuff your pig posted “How I Made a $665,680.41 Mistake!”

Here is a portion of her post:

It Was Bitter Pill to Swallow

I still find it hard to believe that I had agreed so readily to pay $405,820.74 in interest on a home that cost only $259,859.67. It’s even harder to believe that I signed a loan where the interest alone was higher than the agreed purchase price by 56%! To top it all off, I put zero down and was stuck paying that dreaded PMI (Private Mortgage Insurance).

Was I on something? I did go through a brief addiction with Oreo cookies. Maybe I could blame this on a sugar high.

Seriously. What was I thinking to sign my life away to the tune of $665,680.41 for a house I had agreed to buy for a cost of $259,859.67?

To read the entire post click here: “How I Made a $665,680.41 Mistake!”

I do recommend doing some on-line research on mortgage rates in your area. Take those numbers and compare them at http://www.amortization-calc.com/ to see if mortgage refinancing makes sense. Remember that the cost of refinancing is tax-deductible but it would be spread out over the length of the new mortgage. You have nothing to lose but time.

Disclaimer:  Mortgage refinancing is very complicate, do your own research and shop around for the best deal.






Beware of deferred interest credit cards & deferred financing plans

black  black1

The holiday shopping season officially begins with Black Friday. Retailers are not only ready with sparkly merchandise and door buster deals but also with a certain kind of credit card offer. These offers, promising no interest payments for months or even years, can be enticing, especially for shoppers making big-ticket purchases for the holidays and retailers are busily rolling them out.

Deferred interest programs are a popular choice for consumers who need to purchase expensive items like refrigerators and dishwashers but don’t have the money or savings. They allow them to make the purchase when they need to and spread the payments over time without having to pay any interest. The overwhelming majority repay within the deferred interest period and benefit from a free loan.

But as with many promising deals, there is a catch. A single late payment or a failure to pay a balance by a certain deadline can trigger sizable financial penalties. If a balance remains, consumers will owe full interest from the purchase date on the original purchase amount.

“These offers are traps for the unwary,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center. The terms are “confusing to the point of, we think, being a trap.”

“Consumers may believe when they take out these cards that they will pay off their balance in the time allotted, but that is not always the case, said Wu. Retailers issuing deferred interest cards “prey on this tendency in human beings to be optimistic about these things,” she said, but “life happens.”

Amazon, for example, offers six months of interest deferral on some purchases with fairly similar terms. Users will pay no interest if the balance is paid within six months, but those who do not pay the balance in full will owe interest from the purchase date. In addition, the annual average percentage rate (APR) is 25.99 percent.

Dell charges even higher rates. It has a 12-month deferred interest financing plan on certain products where interest, as high as 29.99 percent, is charged from the purchase date if a balance remains at the end of the deferral period.

According to rules and regulations enacted since the financial crisis, “any retailer offering deferred interest plans has to say the interest will be assessed from the purchase date. They have to have the APR in there,” said Jill Gonzalez, an analyst at WalletHub. “But there is no stipulation on where or how that is told to the consumer.”

Shoppers standing in a long line on Black Friday may feel pressure to sign up for a deferred interest deal without reading the fine print. Many retailers’ standard cards offer a so-called first purchase discount. Some discounts can be as high as 20% on purchases made the day a card is approved and the following day.

red flag

Deferred interest cards and deferred financing plans may look like a great way to keep down the final tally. Remember, there is no such thing as free interest! Some shoppers who are not careful will end up paying interest for everyone else. Make sure that it isn’t YOU!

Happy Thanksgiving to all my American readers!


Does Your Debt Die With You?

death of credit1

My daughter asked me this question while having dinner at her house.  It started with me complaining about how some of my boomer friends were living beyond their means and had mountains of debt. I had to reassure her that we were not in that situation. (It is not uncommon that your family dinner conversations included some financial topics)

I explained that she and her brother had nothing to worry about. Children are not responsible for any debts belonging to their parents.

Generally, the estate pays off debts, as long as there’s enough money in an estate to pay them all off. Any remaining money goes to beneficiaries. There is an order to how debts must be repaid. Funeral expenses, income & estate taxes and secured debts are the top. Unsecured debts, such as credit cards, lines of credit are near the bottom. If the estate does not have enough money to pay back all the debt, creditors are out of luck.

Remember that jewelry, antiques and other valuables must all be added to the total value of the estate. You might be forced to sell some of them in order to pay back creditors. Very important, the executor of the will could be liable if he or she pays money out to the beneficiaries from the estate before all the debts are settled, creditors could make a claim against the executor personally.

Creditors could also go after an individual’s retirement account and proceeds from a life insurance policy if no person is named as beneficiary. Those funds would automatically be included into the total value of the estate. However, in Canada, retirement accounts can to transferred tax-free to the surviving spouse.

Joint ownership or loans that have been co-signed are different. You will be responsible to pay them back. You don’t inherit your parents’ or your children’s debts unless you guaranteed them.

It is very important for young people to check their own credit report periodically to make sure you are not still holding debt for someone who isn’t in your life anymore. Credit cards that you have co-signed years back may still be active and you could be also on the hook for apartment leases even if you moved out.

Estate laws vary depending upon where you live and can be very complex. Get some good legal advice, talk to a tax specialist and pick a knowledgeable executor. You can’t take it with you! However, avoid giving it to the tax man and leave something to your love ones instead.


death of credit



The Inevitable Grexit

Why are the markets going crazy over 11 million Greeks who refuse to live within their means. No surprise, it is about time for them to leave!


So it appears the Eurozone crisis has finally crossed the Rubicon. Greece is going to default on Monday and this bloglikely will put in motion its departure from the currency union. The Eurozone as we know it may soon cease to exist.

Was this breakup inevitable? Many observers would say yes. The Eurozone, after all, is not an optimal currency area and therefore likely to create problems. Martin Feldstein, for example, in 1997 wrote this in Foreign Affairs:

Monnet was mistaken…

If EMU does come into existence, as now seems increasingly likely, it will change the political character of Europe in ways that could lead to conflicts in Europe…What are the reasons for such conflicts? In the beginning there would be important disagreements among the EMU member countries about the goals and methods of monetary policy.

View original post 481 more words

Part 1: Are U.S. Millennials Destined to be Worse Off Than Their Parents?


Millennials are the second largest age group surpassed only by their boomer parents. The road a head is anything but smooth.  Millennials, born in the early 1980s, entered adulthood just as the dotcom bubble burst and terrorists took down the World Trade Center. Just a few years later the housing market crashed and the country plunged into the Great Recession. Even the youngest Millennials are entering a job market that is still recovering.

More than 70 percent of students leave college with school debt and the average loan balance is growing. The class of 2014 graduated with the most debt in history estimated at $33,000 per student and this year’s graduating class is on track to top that. Millions of college graduates are facing big loan payments and it may feel like the end is nowhere in sight.

A new study finds that Millennials, who will dominate the U.S. labor market, may face another problem. They’re less prepared for today’s job market than many of their international peers, putting them at a distinct disadvantage in an increasingly global economy.

A recent report by the Educational Testing Service (ETS) examined data from the Programme for the International Assessment of Adult Competencies (PIACC), which showed that American Millennials are badly lagging behind in numeracy, literacy and problem-solving skills. The study shows that even the top-performing Millennials are not measuring up to their counterparts overseas.

“We did not do well across the board in all three of the skills that we looked into, particularly in numeracy,” said Madeline Goodman, director of research at the ETS and one of the study’s co-authors, adding that the report presents troubling implications for the future of American competiveness.

Nearly two-thirds of Millennials scored below the minimum standard in math. “If these individuals are going to be trained for jobs that have remuneration … then they need to have basic skill level” she said.

Among the 22 participating countries, U.S Millennials 18 to 34 years old ranked 21st in numeracy — only Spanish Millennials had lower scores. In literacy, half scored below the minimum proficiency level, ahead of only Spain and Italy. For problem solving in technology-rich environments, 56 percent of American Millennials met the minimum standards, behind every other nation.

One of the central paradoxes of the ETS study is that the millennial generation is the most educated and the study’s authors make the case that many post-secondary institutions are not adequately providing students with the skills necessary to be successful in the job market. The skills from a liberal arts / general studies grads are not marketable.  Another problem facing Millennials is their baby boomer parents are postponing retirement, working longer because of lack of retirement savings, which limits older Millennials  access to higher paying jobs.

One-third of employers said they plan to offer higher pay than last year, according to a new CareerBuilder.com survey of 2,175 hiring managers. While 26 percent said they plan to offer salaries under $30,000, another 26 percent said they do plan to offer at least $50,000. (Certified nursing assistants, teaching assistants and bank tellers are among the worst-paying entry level jobs, according to an analysis by Wallethub.)



“Millennials are facing strong headwinds in securing satisfactory careers,” said Peter Miller, certified financial planner and president of Zoe Wealth Management in Charlotte, N.C. They’re also entering the workforce at a time when pensions are fading away, and unlike their parents, they’re wary of depending on Social Security payments to cover expenses later in life, he said.

Their pessimism has prompted many to start saving earlier and to participate more in their retirement savings accounts than baby boomers did at their age. Millennials have been less inclined to take on consumer debt, perhaps because many have seen their parents struggling with massive debt loads. It is difficult to take on more debt when they are already carrying the burden of large student loan debt.

Millennial investors have trust issues even though the stock market is booming and the economy continues to grow, the 2008 financial crisis is having a lingering effect on many young adults’ willingness to take risks. They have seen the executives of major banks continue to receive eight-figure salaries and bonuses even as they were belittled before Congress for causing a worldwide financial crisis. Millennials have avoided putting money into the stock market after watching what happened to their parents’ retirement portfolios in 2008.

They are equally wary of financial advice from the mainstream media and traditional “experts.” Millennials are more likely to form opinions based on what they hear from friends, social networks and their own research. They want tutorials and an interactive website with links, videos and smartphone-capability. They’ll consider all the information in making their determination.

A Bankrate  report showed that Americans age 18 to 29 are more likely to choose cash as their favorite long-term investment over any other age group. In fact, 39 percent said cash was their preferred way to invest money not needed for 10 years or longer.

No surprise that Millennials have been forced to delay moving out from their parent’s homes. They are not getting married or starting a family until much later than their baby boomer parents. They are avoiding  home ownership due to their inability to save enough for a down payment.

Canadian Millennials face the same challenges as their U.S. counter parts. Their student debt load maybe a little less based on provincial differences in tuition fees and living expenses.                   ($20,000 – $27,000)

Why should you care if  Millennials are delaying adulthood? A recovery in housing depends on first time home buyers. Your house in the suburbs may take longer to sell and sell for less. If you invest in  stocks, lower retail sales and slower wage growth could lead to years of below normal economic growth. Slower growth means future  stock market returns could be in the single digits.

Ignoring the “ME” Generation could be hazardous to your financial well-being.

Next Post

 Part II : Top Ten Stocks Owned by Millennials





How Will Dividend Stocks be Effected by Rising Interest Rates?


Today’s blog post was a suggestion from another blogger “Fumbled Returns”, you can find him at Bear with the Bull. He asks a very interesting question, for the record, not all dividend stocks are alike. There are a multitude of variables that influence the value of a dividend stock and their dividend payout.

That being said, raising interest rates are a big factor in causing the average investor to adopt a negative view on dividend stocks. They tend not to distinguish between the good and the really bad dividend stocks. In the past, many of my good quality dividend stocks have been trampled by the herd of sacred investors running to the exits.

Utilities carry a lot of debt and interest rate worries weigh heavily on their share price. Power generators and pipeline companies require large sums of funds in order to expand their growth. Many utilities can’t raise prices immediately if their interest costs go up, plus higher borrowing costs could delay projects or make certain projects under construction less profitable. Just the mere mention of the possibility of a rate hike by the Fed in 2015 has already reduce the value of utility stocks by 10% since the beginning of February. Below is the year-to-date chart of the utilities ETF (XLU)



Telecommunication companies require a lot of debt financing in order to expand or upgrade their networks. They are typically slow profit growers so the majority of investors buy these stocks for the dividend yield. Telecommunication companies have to compete with long-term bond rates in order to attract investors. Verizon Communication looks attractive with a 4.5% dividend yield when the 10 year bond yield is under 2% but less so if the bond yield goes back to the 4% level.

Real Estate Investment Trusts (REITs) is another sector that carries a lot of debt and higher borrowing costs could affect their ability to expand their holdings. However, raising interest rates are also an indication of strong economic growth which allows Reits to raise rents and reduce vacancy rates of their rental units. Another factor that investors sometimes miss is that Reits have long-term mortgages which are staggered so they don’t all come due at the same time. I have picked up some real bargains once the herd has run to the exits.

High yielding Master Limited Partnerships (MLPs) in real estate mortgages is an area that investors should head for hills in a raising interest rate environment. These are highly leveraged partnerships with dividend yields over 12% which look extremely attractive today but are very risky!!!!

Banking used to be good dividend sector prior to the financial crisis. If long-term rates rise and short-term rates remain near zero, banks that lend long (mortgage lending) and borrow short will benefit. But if short-term rates rise with long-term rates, banks with balance sheets covered with assets sensitive to short-term rates (home-equity loans, credit cards, business lines of credit) could be in trouble.

Commodity stocks will suffer if raising interest rates cause a strengthening of the U.S. dollar. Weaker commodity prices will reduce a company’s revenue and lessens their ability to maintain a dividend payout.

red flag

Warning signs of a possible dividend cut:

  1. Payout ratios of over 100%,
  2. Dividend yields higher than junk bonds
  3. Stocks with higher dividend yields than their competitors
  4. High debt to equity ratios
  5. A long string of quarterly financial losses
  6. A recent cut to dividends

Not all dividend stocks are created equal. Some sectors like consumer staples, health care and technology have relatively low debt levels. They have a tenancy to generate a lot of cash and have a history of increasing their dividends. Raising interest rates will have little effect on their dividend payout. For example; Microsoft has a dividend yield of 2.9% and Pfizer yields 3.3%, in my playbook, their dividends are much safer from a cut than say, American Electric Power yielding 3.8%!

caution Raising interest rates usually causes FEAR levels in investors to surge. Stock values in all sectors could experience a temporary fall in value.

Do you have a question that you would like answered or a suggestion for a blog post? Leave a comment or email me ricodilello@rogers.com

Am I Liable if I Marry Into Debt?

I just received a wedding invitation and one of my best friends’ son just got engaged. Laura’s excellent research applies to Canadians and well worth a read.

OMG I'm Thirty

The other day a friend of mine and I were having dinner and she was discussing buying a house with her boyfriend. They’d been together for some time and were hoping to get married within the next few years.

“I’m wondering though,” she said, “if I’ll take on his debt when I marry him. ”

For the last two or three years, the number of people I know who are engaged, about to be engaged, or married has skyrocketed. This definitely corresponds with the thirties- many people hitting their thirties are (possibly) beginning to settle down and find others they want to be with for the rest of their lives. Not everyone, of course, but it’s definitely been a trend.

Which is why I was surprised that I didn’t know the answer- I felt like I’d researched this before, and the answer was no, but I couldn’t be positive. I actually…

View original post 453 more words

Suggestions for President Obama & the Republicans on Tax Reform

white house                 gop


Today, I was watching CNBC while eating lunch. The President talked to business leaders about issuing facing America. One issue was corporate tax reform which to me doesn’t make sense, when 70% of economic growth comes from consumer spending. U.S. corporations have so much cash that they are buying back shares instead of expanding their businesses. Giving them more cash by lower taxes will not lead to more economic growth.

On the other hand, student debt is crippling the American economy, young people are putting off starting a family and buying their first home. Middle class families are also suffering with additional debt because they make too much income to get government aid for their kids but not enough to pay tuition fees. Interest payments on debt doesn’t create jobs or economic growth.

Any tax policies that increase student aid, lower interest rates on student loans or larger tax deductions will put more cash into young people’s pockets. Family formations leads to spending and economic growth. The problem is the government still has large annual deficits, so how can they pay for these changes.

I have two suggestions:

  1. Increase the tax on corporate stock options, fat cat executives’ pay low capital gains tax on options. Image making a million dollars in stock options and only paying tax on half of it. Hold the options for over a year and pay the lower long-term tax rate. These same executives take company cash to buy back shares to artificially increase the price of their stock.
  2. Mortgage interest deductibility has to have a limit. U.S. tax payers are bankrolling the cost of mansions and second homes. Imagine that a yacht is classified as a second home and is eligible for mortgage interest deductibility.

The outstanding student debt levels in the U.S. is over 1.2 trillion dollars and still climbing! It is time for the 1% to help give the next generation the opportunity to succeed!