The Handy Investing Answer Book. Paul A Tucci

that I can take?.

      The next step is to analyze how much you can afford to pay each month, and make it a priority to pay both the monthly payment and a part of the balance each month so that you may reduce the balance that is accruing interest and fees as fast as possible. Never believe that you can get out of debt by paying the minimum monthly payment on your credit card.

      What is the average amount of credit card debt for a typical American family?

      Approximately $15,788.

      How many credit cards exist in the United States?

      There are 609.8 million cards being used in the United States.

      What is the average number of cards owned by each person?

      The average number of cards that people carry is 3.5.

      How many credit cards should I have?

      You probably should have not more than two cards, in case you absolutely need to use one, and have one as a backup in case your primary card does not work.

      When in deep credit card debt, the first step to take is to cut your cards so you won’t use them anymore.

      Why use credit cards?

      Credit cards give you access to cash immediately so that you may pay for many different expenses, from food to utility bills, without having to carry large amounts of cash. Consumers only have to write one check each month to cover many monthly expenses. Some credit cards allow consumers to earn points for using the card, which are later redeemable for products or services.

      What is the first rule of using credit cards?

      Do not use a credit card unless you can pay off the balance in full each month.

      Why pay off the balance each month?

      You want to pay off your balance each month to avoid paying interest on your balance, which can be exorbitant, depending on your credit history and interest rate calculation.

      What does my credit history have to do with my credit card interest rate?

      Card issuers look at your credit history to see what kind of risk you might be to them, what chance you will default, and how much debt you can handle. Depending on this, the card issuers decide on an interest rate that will cover the costs of defaulting accounts, fraud, and profit, and this number is the rate that they then charge the consumer.

      So if I have a great credit rating, I might get a card with better terms?

      Yes, if you are less of a credit risk, have a higher steady income, and own other assets, you will likely be approved for a lower-interest-rate credit card.

MORTGAGES

      What is a “mortgage”?

      A mortgage is the amount of money loaned from a bank for the agreed-upon price of a house that is financed by the bank in the form of a loan to the buyer, less down payment and closing costs at the closing of the transaction.

      What about interest rates and their effect on housing prices?

      The higher the interest rate for a mortgage, the more the demand for mortgages is suppressed, since buying a house becomes more unaffordable to many potential buyers. As interest rates or the price of money decreases, the more demand there is from buyers, and this makes prices more buoyant over time.

      How low are today’s mortgage interest rates?

      Interest rates on loans for houses are lower than nearly any time in the past 50 years. They may go even lower before we see a bottom in the interest rates for mortgage loans.

      Why are there fewer potential buyers for houses today?

There are fewer potential buyers for houses because many fear employment loss, an inability to obtain a loan, an inability to manage current expenses, and expectations that prices will further decline. Potential buyers would rather wait out a decline in price than jump in now. Sellers are holding out for the best price because they need to pay off their mortgages, and pull as much value from their house as possible in order to buy another house.

      While mortgage rates have risen slightly in 2014, they are still around 4.5% for a 30-year fixed mortgage, which is a great deal for investors and home buyers.

      What does the term “underwater on a mortgage” mean?

      When you are “underwater on a mortgage,” you cannot sell your current home because you owe more on the balance of your home mortgage than you can make when you sell the house today.

      How does increasing my down payment help protect me from going “underwater”?

      Increasing your down payment provides some protection to you because if you put more money down to purchase the house, you owe less money on the mortgage in the future, and when it is time to sell, you will be able to sell at the market price with less risk of owing more than the house is worth.

      What tax advantages does home ownership provide?

      One of the great benefits of home ownership is the tax-shielding aspect of having a mortgage. Essentially, the government allows you to deduct, or not count, the amount of mortgage interest against your income that you pay in one year. Another sizable advantage—and one of the principal benefits of home ownership—is that up to a certain capital gain ($500,000 for a married couple), you do not have to pay taxes on the gain in the value of your house. If you itemize deductions, you may also deduct your property taxes when you file your income tax returns.

      What is the general rule for obtaining a home loan?

      The general rule is that a good borrower can afford monthly payments—including principal, interest, insurance, and taxes—equal to 25% of his gross income. Some experts believe that you can have a debt income ratio as high as 28% to cover your mortgage, insurance, and taxes. You should also have a total debt income ratio (of all of your debts plus the mortgage payment) of less than 36% if you wish to qualify for a mortgage.

      What is “mortgage fraud”?

      Mortgage fraud involves a crime committed in order to secure or grant a mortgage, falling into two categories: misrepresenting information on a mortgage application (59% of all cases), and appraisal-related misrepresentation (33% of all cases).

      Which states lead the nation in mortgage-related fraud?

      According to a report issued by the Mortgage Asset Research Institute, Florida, New York, California, Arizona, and Michigan lead the nation in mortgage fraud.

      What percentage of buyers ultimately pay cash to purchase an existing house?

      In 2010, more than 25% of all existing houses sold were purchased by cash buyers, who didn’t need or want to obtain a mortgage.

      Why do mortgage companies, banks, and finance companies require homeowner’s insurance?

      Mortgage companies, banks, and finance companies require homeowner’s insurance because they technically own your home, and want to be sure they get paid for the mortgage loan plus interest, even in the event the house burns down. The insurance will cover the costs to replace the house, and ultimately the homeowner will be able to continue to pay the mortgage or sell the house.

      What types of mortgages are available to consumers for a home purchase?

      There are many types of mortgages available to consumers to purchase a home, depending on your financial situation, including fixed-rate mortgages, FHA loans, interest-only loans, and adjustable-rate mortgages.

      What is a fixed-rate mortgage?

      A fixed-rate mortgage has a fixed interest rate for the period of the loan, and allows you to pay