No we’re not insensitive – we’re talking about your last gasp of smoke – have you given up smoking?

Smokers pay up to 60% more for their life insurance cover compared to non-smokers. So, besides the health dividend, life insurance companies will chip in with lower premiums. And the saving isn’t to be sneezed at! It could typically amount to £10 or more per month.

Most insurance companies say you’re entitled to non-smoker premium rates if you’ve not smoked or otherwise used nicotine products, within the last five years. If you’ve only just given up smoking you’ll have to wait for the extra spending money.

But sometimes there’s a way of speeding things up. Some insurers have adopted a more relaxed definition of a non-smoker by shortening the 5 year abstinence period to just twelve months. So if you’ve been fag free for a year, find out whether you can move your life cover to one of these insurers. But you have to be careful. Never cancel your existing policy until you’ve received written acceptance from your new insurer.

How do you swap insurers?

First of all, to get the best price, you need to go on the Internet and find a life insurance broker that provides help, discounts price and searches the whole insurance market for the lowest prices. If you use a web site that provides an on-screen quote, you won’t know whether that insurance company that comes up uses the 5 year or the 12 month smoker definition. Online systems never tell you. To be sure you need to chat on the phone to a life insurance adviser.

Then ask for a quote. If the quoted price looks cheaper than you’re currently paying as a smoker, put in a full application. One of the main aspects that conditions your premium is of course, you age. Therefore, if your original policy was put in place many years ago, the savings could be quite a bit less than the 60% we have indicated. You’ll just have to get a quotation and find out! As all brokers are only too pleased to provide quotations, and these are always free and without obligation, what have you to lose?

Having found an attractive quotation from an insurer with a 12-month smoker definition, you’ll have to complete a full application. Read every question carefully and answer all the questions fully and honestly. Far too many applicants try to ensure a low premium by being “economical with the truth” on questions that might otherwise not read too well for them! Don’t be tempted.

Over the last few years insurance companies have also become far more picky about whom they allow to have standard terms – that’s the first price they quoted you. Their selection rules about weight and health have become far tougher resulting in lots more clients having their premium loaded. That’s why you mustn’t cancel your existing policy until you have got a final acceptance at a price that gives to that saving you’re looking for.

Whilst the switching process may sound a little daunting, it isn’t really. In any case if you end up with big savings, it’ll provide an extra reward for the stress of giving up.

Good luck.

From 14th February, most shops and petrol stations will not accept signatures from customers who use a chip and pin credit card – with one major exception. Tesco’s are planning to continue to accept without pin numbers.

Tesco clients buying at their check-outs and petrol stations can spend up to £60, simply by swiping their debit and credit cards through an old fashioned card reader. Pins and signatures will not be required.

This means that the criminal fraternity can continue to use cloned or stolen cards up to and beyond the 14th February deadline. A spokesman for Tesco’s said “ we see low levels of fraud in these areas and if someone uses a card which has been notified as stolen, it will be rejected”.

Tesco’s have also said that chip and pin terminals are being introduced but it will be the end of 2006 before the process is completed across all their 800 self service stores and 370 petrol stations. It seems as if the 14th February deadline has caught Tesco’s on the hop.

A spokesperson from the Association for Payment Clearing Services said, ”There is no legal requirement for retailers to use chip and pin but if there are opportunities which criminals can exploit they are likely to do so. The vast majority of retailers now use chip and pin”.

Maybe so – the majority it seems, except for the UK’s biggest retailer!

Technocrati Tags[credit] [cards]

By MICHAEL CHALLINER

Limit your Mileage
If you know reasonably accurately the mileage you are likely to drive next year, get a policy which limits the cover to just the number of miles you know you’ll need. You might find that’ll give you a good saving. But remember, if you exceed the mileage limit, you are not insured.

Make sure you protect your no-claims discount
If you’ve built up a decent no-claims discount, don’t put it at risk. Don’t risk losing it after an accident, it’s far too valuable. Add no-claims protection to your policy. It’s unlikely to cost much.

Drive slower
We know it’s hard, especially with all those roadside cameras around, but try your hardest to keep a clean licence. Persuade yourself to drive slower! Even three penalty points are taken into account when the insurance company in calculates your insurance premium.

Shop around every year
When your annual renewal notice arrives, shop around. Just because you got a cheap quote last year it doesn’t mean that the same insurer will continue to be the cheapest. Insurers are constantly changing their rates. So it’s still likely that you’ll find a lower premium. Time spent on the Internet will be well spent. Research shows that the cheapest premium could be half the price of the most expensive.

If you want to cut the hassle, go to our car insurance page where we’ve whittled down the insurers to the cheapest for each category of driver. So, if you want a general quote, or a specialist quote for a young driver, high performance car or a quote for a lady driver, mature driver or careful driver, or a classic car etc, Click Here

We have detected that mortgage lenders are increasingly turning to the well tried marketing technique of “carrot and stick” to attract borrowers and persuade them to remain loyal.

The technique involves offering a mouth-wateringly cheap initial rate of interest and then encouraging the borrower to stay on beyond the introductory period by imposing punitive penalties if the borrower redeems the mortgage within a set number of years.

Take the Portman Building Society for example. It’s offering borrowers an interest rate of just 1.95% fixed for two years – but thereafter, you must stay with the Society for a further four years paying base rate plus 1.99%. This currently works out at 6.49%. If you want to move before the end of the sixth year there are swinging penalties ranging from 7% to 2% depending on when you make the move. This means that a borrower with a £125,000 repayment mortgage over 25 years would start off paying just £530 per month based on the current base rate. Then after the initial two year introductory offer, monthly payments rise to £854. That’s a rise of 62%.

If you prefer an interest only mortgage (see yesterday’s Blog), then the payment hike after the introductory period, is even more savage. Payments rocket by 233% from £203 to £676 per month.

But it seems that the vast majority of borrowers choose to stick with these sorts of deal. According to a spokesman from the Portman, these mortgages suit borrowers who want to defer the full cost of a mortgage for a few years and 90% stay loyal after the fixed rate ends. We think that simply means that 90% of borrowers can’t face paying the swinging penalties!

If you think you’ll find these hikes too much to stomach, you should consider the best of the two year deals without extended penalties. Take a look at the Yorkshire Building Society – they currently offer a 4.38% deal and you can move without a fee.

Technocrati Tags[mortgages] [interest]

According to the Abbey, more than a quarter of homeowners are paying for their homes with an interest-only mortgage. The reason is clear – their monthly payments are much less. For example, a £150,000 interest only mortgage at an interest rate of 5% and repayable in 25 years time, costs £625 per month - but on a repayment basis the same financing costs £875 per month.

These cash flow savings have understandably proved highly popular with first time buyers getting their feet on the property ladder and others working on a tight budget. The problem is that some 37% of homeowners with interest only mortgages are not saving any money towards repaying the capital when the mortgage eventually comes to the end of its term.

The Financial Services Authority (FSA) has not ignored this problem. Last year they ushered in new rules requiring lenders to seek evidence from new borrowers about how they intend to repay the capital in the future. If the borrower says they’ll repay by selling the property, that simply won’t be sufficient. The FSA is likely to judge as miss-sold, any new mortgage that is granted without details of a verified repayment vehicle to generate a sum large enough to repay the mortgage. And, if the figures don’t stack up, the lender will get into deep water with the FSA.

The sort of repayment vehicle they will be looking for will be an Individual Savings Account (ISA) or an existing personal equity plan (PEP). Even the 25% tax-free cash from a personal pension plan (PPP) will do. But you’ll have to provide documentary evidence to the lender that these financial arrangements are in place – just saying you will do it sometime in the future won’t wash.

From reactions so far, it’s quite clear that individual lenders will interpret the FSA’s rules in different ways. Take the Nationwide Building Society for example: their new rules say that you can’t qualify for an interest only mortgage if you plan to repay using future pay rises or an inheritance. Even if you claim you’ll fund an ISA from bonuses rather than from regular income, you’ll be required to prove that such a bonus scheme exists and that the level of bonus relied upon is realistic. However, the Nationwide are prepared to provide an interest only mortgage if you are not a first time buyer, have at least £150,000 of net equity in your existing property and the mortgage you want is less than two thirds of the new property’s value.

Many mortgage advisers believe that interest only mortgages should only be used as a last resort when income is tight. That’s because whichever investment vehicle the borrower decides on, the investment returns are never guaranteed and the investment might not deliver sufficient capital at the end of the term to fully repay the mortgage. This means there’s always an element of risk involved. For this reason, many advisers prefer to be sure and recommend a repayment mortgage where there is absolutely no risk of a shortfall.

Having said that, some mortgage advisers acknowledge that an interest only mortgage can be useful if the borrower plans to simply use the mortgage’s lower repayments as a temporary stop gap of say five years, and then switch to a normal repayment mortgage. Of course, the FSA’s rules will still expect the borrower to show evidence that a suitable saving or investment plan is in place prior to releasing the funds for an interest only mortgage.

However, if advisers do recommend an interest only mortgage, most rightly recommend a scheme where the borrower can make penalty free overpayments. With these schemes, the borrower isn’t committed to making a higher monthly repayment, but as and when spare capital becomes available, lump sums can reduce the outstanding mortgage. There are lots of mortgage packages available like this and most allow the borrower to repay at least 10% of capital penalty free each year but check out the details before you sign up for the mortgage.

Technocrati Tags[mortgages] [interest]

Last year the average premium for Buildings Insurance went up by 1% to just over £205 and the average for Contents Insurance rose by 2% to £151. But within the market we’ve seen some much bigger rises – for example, Norwich Union pushed up its premiums by 6%.

So what’s happening? We seem to see premiums rising year after year. Surely with the home insurance market being so competitive, you wouldn’t expect to see such inexorable price rises?

Lets look at the situation.

The average cost of claims under the buildings part of the insurance always rises in line with the cost of rebuilding your house. That’s a reflection of the rising price of labour and building materials. So as these costs rise, so do your premiums. And there’s also the fact that cost inflation also affects the insurance companies own operating costs. They are bound to add a little extra on for that!

Then there’s the British weather. We don’t live in a hurricane zone as Michael Fish would be the first to point out, but nevertheless it’s a fact that storms and especially floods, are becoming more frequent problems. Flood damage is particularly destructive with the average insurance claim in the £15,000 to £30,000 range. (Source: Association of British Insurers). And during the last 18 months we have seen particularly destructive floods create headline news at Helmsley in North Yorkshire, Carlisle, and Boscastle in Cornwall. Those events cost the insurers multi-millions.

The cost of burglary is also rising with the average claim now around £1,400. The main reason is two fold - burglars seem to find their pickings easier to come by and sell on. It seems to be down to the valuable electronic gismos that families are buying – the laptops, I pods, digital cameras, flat screen TV’s and the like. The other reason is that burglars are increasingly targeting well-off neighbourhoods.

Against this background the insurers are now able to price home and contents insurance by postcode. This means that if their records show up a problem with flooding or an increasing incidence of burglary in you immediate area, their computers will weight your premium to reflect the extra risk.

To a certain extent, any no-claims discounts will help to offset these upward pressures. But don’t forget that your no-claims discount is capped after five years so after you’ve built up the five years, all the increases will land totally in your lap.

So what can you do to lower the amount you pay?

The biggest by far, must be to shop around every year for the best available deal. This may seem a chore, but thirty minutes on the Internet (including this web site!) should yield you results. Online customers usually qualify for an additional 10% discount and you can also agree to pay by direct debit – that can also trim off a bit more.

Then there are other things you can do, especially in the arena of home security. Install security locks on your windows, up-grade the locks on your doors, fit external security lighting, get a burglar alarm and join the local neighbourhood watch scheme. These will all earn you discounts but most will cost you money! Perhaps the peace of mind alone will be worth the expense. Only the local neighbourhood watch scheme comes free!

The good general rule is not to stick with the same insurer too long. Keep them on their toes as the rewards for loyalty don’t seem to last forever and your custom can all too soon be taken for granted.

Technocrati Tags[home] [insurance]

Life and Critical Illness Insurance. Fully disclose your medical history when you apply.

You have been warned!

To help underline some issues, we want to tell you a true story - but we’ve hidden the policyholders’ name to preserve anonymity.

Mr P was fighting a secondary infection following surgery to remove cancerous lymph nodes when he received further bad news. The insurer for his critical insurance policy, which he took out two years earlier, was refusing to pay out the £180,000 he was expecting. To understand why and the issues involved you need to understand how events unfolded.

· In July 2001, Mr P visited his Doctor after discovering a patch of flaky skin on his back. Mr P thought it was eczema. During a brief consultation, his Doctor thought that it should be looked at by a dermatologist and recommended a referral. But soon afterwards the flaky skin healed and Mr P cancelled the appointment. Apparently the Doctor did not express any major concern and some years later admitted that Mr P was probably unaware of the urgency of the referral.

· Eight weeks later a representative from Standard Life made a routine visit to Mr P at his home. As Mr P had a young family, the representative reviewed Mr P’s insurance cover and suggested that he should also have £180,000 of Critical Illness Insurance. Mr P thought it sounded a good idea and agreed. So, he agreed to make an application there and then.

The representative brought out the form and went through it, writing down Mr P’s answers for him. When it came to the question asking Mr P to divulge all occasions his Doctor had recommended referrals for tests or treatments, Mr P asked the representative what Standard was looking for. Mr P alleges that the representative replied that Standard wanted appointments that related to serious conditions. Mr P did not believe that his referral for what he thought at the time was eczema, fell into that category - so he did not mention it. He then signed the form genuinely believing that he had done what Standard Life required.

Standard subsequently accepted his application and issued a Critical Illness Insurance policy.

· Two years later Mr P was diagnosed with skin cancer. Major surgery quickly followed to remove cancer from his groin. As his policy covered cancerous lymph nodes, Mr P then made what he thought was a valid claim.

· Standard subsequently rejected his claim on the basis of “reckless non-disclosure” – the insurers’ jargon for Mr P’s failure to disclose his referral to the dermatologist.

The Issues

It is quite clear that Mr P’s application should have included his referral to the dermatologist. So why didn’t he provide the information?

It seems that two aspects combined to create a situation: Standard Life’s representative interpreted the question on the application form to divulge “all occasions his Doctor had recommended referrals for tests or treatments” as only relating to serious conditions. That interpretation was wrong. The question asked for ALL OCCASIONS. ALL means ALL and is not asking the applicant make a judgement as to what is serious and what is not. The Representative was wrong.

Secondly, the Doctor clearly did not communicate the potential seriousness of Mr P’s referral to the dermatologist. If at the time the application was completed, Mr P did not know it was serious and the representative said the referral question related only to serious conditions, Mr P can hardly be blamed for not disclosing the information.

In our view, on the basis of the information provided to us, Mr P is blameless. The central error lies at the feet of Standard Life’s representative. He gave incorrect guidance on what the central question was asking for. Standard Life should pay out.

The vital lesson to be learnt

Always carefully read each question on an insurance application form - and answer the question ACCURATELY and FULLY. If you don’t, the insurance company can rightfully claim that you mislead them by omission. Don’t be tempted into thinking that by omitting some information, your premiums will be lower – well yes they might, but that’s false economy if it later results in your claim being rejected.

We hope Mr P will get his payout as circumstances beyond his control clearly mislead him. He acted honestly. He deserves his payout and our best wishes.

However, those applicants who deliberately withhold information from their insurer do not.

Postscript: Standard Life has reported that they refuse 5% of all Critical Illness claims due to non-disclosure. Legal & General is much tougher - they say they reject 16%.

If you want to start off 2006 with a new mortgage, hold fire for a few weeks. Cheaper rates are on their way! Cheltenham & Gloucester and Northern Rock have already introduced some lower rates, and more will follow.

The cost of fixed rate mortgages is especially likely to fall. That’s because the mortgage lenders price their fixed rate mortgages according to the money market’s “swap interest rates”. These interest rates reflect how the money market expects rates to move in the future and they’re on their way down.

Two year swap rates peaked at the end of December at 4.75% and in the past few weeks have fallen to the 4.5% - 4.4% range. That means mortgage lenders can afford to trim their rates and with so much competition in the mortgage market, cheaper deals are certain to follow. Great news if you want a mortgage and are prepared to fix your payments.

At the moment the three best 2-year fixed interest rate deals are:

The Portman Building Society 4.3%
The Yorkshire Building Society 4.38%
Bristol & West 4.39%

The Portman and Yorkshire will lend up to 95% of the property’s value whilst 85% is available from the Bristol & West.

When it comes to arrangement fees, The Yorkshire is the cheapest of these three at £495, closely followed by The Portman at £499. Bristol & West charge £599.

If rates do fall as expected, you should see lots more 2-year fixed rate deals at around 4.3% and 5-year fixes are likely to come down below 4.5%. Then if The Bank of England cuts Bank Rate in the February/March period as expected, rates could fall even further later in the year.

If like us, you believe that rates will fall and you can afford to pay a higher rate if you’re wrong, you should consider a discounted variable rate mortgage or a tracker mortgage. Of the two, the tracker is the better during periods of falling interest rates, as the entire interest rate reduction will be passed on to you in full.

Technocrati Tags[mortgage]

Thinking about taking out a loan to pay off all those Xmas excesses? Then check out the cost of the loan you’re offered.

Only recently the Department of Trade and Industry changed the rules forcing lenders to provide clear upfront information to enable borrowers to compare the costs of personal loans and shop around.

The new rules mean that before you sign a loan agreement, lenders have to clearly set out the main elements of the loan: -

· The total amount to be borrowed· The total amount to be repaid
· The frequency of payments and the instalment value
· The APR (Annual Percentage Rate of interest)
· The costs if you pay late or default
· The cost of any early settlement or redemption penalties

It’s worth searching the Best Buy tables to find the lowest APR but remember, if it says APR Typical, it doesn’t necessarily mean that that’s the interest rate you’ll be offered – the rate you’re offered will depend on your personal credit rating. APR Typical simply means that at least two thirds of the lenders new customers can expect to get that rate or cheaper. Your personal credit rating could put you in the one third who are quoted for a more expensive loan!

Although there are more than 30 loans available at the moment with interest rates below 7%, only borrowers with an excellent credit history can expect to qualify for those rates. And as lenders are finding bad debts an increasing problem, it’s becoming even more difficult to qualify for these super low rates. Everybody else will end up paying more.

And if you’re tempted to shop around for the best rates by applying to lots of lenders, take our advice – DON’T.

Most people don’t realise that each time they apply for a loan, a record of each application is added into their credit record which is held by the big credit rating agencies such as Experian. In the lending industry, these loan applications are known as footprints and each successive footprint will reduce your credit rating. This makes it more difficult for you to obtain a cheap loan and in some circumstances, it might mean you are refused altogether.

The other aspect to watch out for is Payment Protection Insurance (PPI). Most lenders will try to persuade you to take out PPI with them but many will fail to point out the full cost of that insurance.

Take a look at the following. The figures show the true costs quoted by each of the lenders for PPI to protect a 3-year loan of £3,000 *

Smile Loan £566.53
Ryanair Personal Loan £486.72
Virgin Personal Loan £486.72
Moneyback bank Personal Loan £417.96
Nationwide Personal Loan £325.44
Northern Rock Personal Loan £228.24

· We’ve calculated these costs by subtracting the full cost quoted for the loan without PPI from the full cost quoted for the same loan but with PPI. Figures provided by Moneysupermarket.

The first point you’ll notice is that the most expensive on this list is almost 150% more expensive than the cheapest - not a lot to Smile about! So is the PPI quoted by Northern Rock, a bargain? We decide to check it out.

We got an independent PPI quote from British Insurance Ltd for a sum to cover the typical monthly loan repayment of £92 per month. The monthly cost they quoted was just £3.63 per month - equivalent to £130.38 over the full 3-year term of the loan we’re comparing. This was a full £97.86 cheaper than Northern Rock.

So even Northern Rock, the cheapest of the 6 we investigated, was ripping us off!

The moral of this story – always buy your Payment Protection Insurance independently and never from your loan provider! And how can you find a really cheap PPI quote from British Insurance? By clicking here of course!

When you take out a mortgage you’re making a long-term commitment to make the monthly repayments for the duration of the mortgage. That will be over many years but you’re making that commitment without knowing what’s going to happen during that time. That’s a big risk. Mortgage Payment Protection Insurance is one of a range of insurances that includes life insurance and critical illness insurance, which you can take out to reduce that risk.

The purpose of Mortgage Payment Protection Insurance (MPPI) is to ensure that your mortgage repayments will continue to be paid if you’re off work for an extended period due to accident, sickness or unemployment.

If you have a normal repayment mortgage, the value of monthly MPPI cover needed equals the value of your monthly repayment. However, if you have an interest only mortgage, then the cover value needs to include the monthly the mortgage interest repayment plus the monthly cost of the savings vehicle you’re using to repay the mortgage at the end of its term. Remember that if your mortgage repayments were to rise due to an increase in interest rates, then you’ll need to increase the level of cover. Oh yes, the good bit – if you have a claim then the income payout is tax-free!

The best bit of advice we can give is always buy an MPPI policy where the premium can be cancelled without penalty at any time. Never, accept a policy where the future cost of premiums is added to the mortgage or loan in any way – those types of policy tend to work out very expensive.

As with most forms of insurance, you’re likely to find it cheapest on the internet. Indeed, this site has teamed up with British Insurance to offer you a superb MPPI deal. Click here for more details.

Technocrati Tags[mortgage] [insurance]

Britains largest group of estate agents, Countrywide, confirmed this week that sales in the housing market in 2005 slumped to their lowest level for 30 years.

Harry Hill, Countrywide’s Managing Director is quoted as saying “It has been a desperately poor year. And anybody who says anything other does not have the information or is telling lies”. He went on to blame the four hikes in interest rates last year for increasing pressure on family finances.

According to the Council of Mortgage Lender, around 1.2 million houses are sold in England and Wales during a typical year, but the Council predicts that 2005 will go down as one of the worst on record with the number of sales falling 19% to 970,000.

Fears about affordability have been highlighted by figures published by the Office of the Deputy Prime Minister. Fewer than 6% of young people paid more than £100,000 for their first home in 1997 but by 2005 the figure has risen to 60%.

With the average house in the UK now costing £180,103 and with the average household income standing at £23,200 pa, this indicates that Mr & Mrs average would have to take a 100% mortgage of 7.8 times their income. This indicates that affordability will continue to put a brake on house price inflation.

Technocrati Tags[mortgages] [prices]

Life insurance companies are forcing fat people to pay dearly for over-eating. Premiums for fat people are regularly up to four times higher than the standard premium.

But over the last year it’s got even worse. In moves to tighten the belts further, the life insurance companies are lowering their weight limits when categorising people. This means that those who are merely overweight and would previously qualified for a normal premium, now are penalised with higher premiums – and the premiums rise rapidly the more overweight you are.

Weight and height are two of the questions you complete when you apply for life insurance. From the answers, the life company will calculate your Body Mass Index and if that exceeds the limits they define as normal, they will often ask for a report from you doctor and sometimes ask you to have a medical examination. If this confirms that your weight is over their norm, then you can expect your premium to be loaded by at least 50% and rising up to 400% if you’re obese. Recent figures show that around a quarter of applicants will experience problems getting life insurance due to their weight. In extreme cases they’ll even refuse to provide cover.

When deciding whether to load you the insurers also take your age into account. If you’re young and overweight, they’ll hit you hardest. They accept that people naturally tend to put weight on as you age. So overweight and 35 will be hit harder than overweight and 55.

A healthy, non smoking man aged 35 looking for £150,000 level cover over 25 years would be quoted £18.77 by Scottish Provident but this could jump to around £35 if he is overweight and £47 if he is obese.

And obesity is a growing problem. In adults, obesity has rocketed over the last 20 years with more than 60% of men and 50% of women being judged as overweight or obese. And the signs are that the problem will not improve. In children aged between 2 and 15, 22% of boys and 28% of girls are overweight.

Check out how you rate on the Body Mass Index

· Take your weight in pounds and multiply it by 703.

· Divide that number by your height measured in inches

· Divide the resulting number again by your height in inches

· The result is your Body Mass Index. (BMI)

Typically, the insurance companies consider a BMI of between 18.5 and 24.9 to be normal. Above 25 classifies you as overweight and over 30 makes you obese.

Medical research indicates that people with a BMI of 35 and over face a marked reduction in their life expectancy. A 35 BMI is equivalent to a 15 stone woman 5 feet 5 inches tall and a 5 foot 10 inches tall man weighing 17 stone 6 pounds.

Technocrati Tags[life insurance] [insurance]

Do you look at the advertisements for loans and savings and wonder what APR, AER and EAR mean? Well you’re not alone. Even bank staff can get confused!

APR is short for “annual percentage rate” and describes the true cost of the money you borrow on loans, mortgages and credit cards. The exact calculation for APR takes into account the interest rate, when the interest is charged (daily, weekly, monthly or annually), all up front fees plus any other costs. The precise mathematics behind the calculation are specified and policed by the Financial Services Authority and all financial institutions have to adhere to it. There are no exclusions! The APR therefore enables you to make direct cost comparisons between the lenders who are offering you money.

So if one lender is offering you a mortgage at 4.8% plus an arrangement fee of £600 and another is offering you an interest rate of 5.2% with a £150 fee, then the APR calculation will show you which of the two mortgages is the cheaper.

When you see the expression X% APR variable, this means that the cost is currently X% but the interest rate is not fixed and can vary.

Then there’s yet another variant - X% APR Typical variable. You’ll almost always see this expression in advertisements for loans. This means that the lender cannot be totally specific about the interest rate they will offer you as the rates they charge varies, normally in response to the amount of money you want to borrow and your personal credit rating. So the calculation for X% APR Typical variable is used to give you an idea of what interest rate you can expect. The addition of the word “Typical” means that at least 66% of their approved applications are offered that rate or cheaper.

Now lets look at EAR. EAR stands for “equivalent annual rate”. It’s used to show the cost of overdrafts and any type of account that can be in credit and also go overdrawn. The calculation shows you the true cost if you use the overdraft facility. Like the APR calculation, EAR takes into account the interest rate and when the interest is charged to the account plus any additional charges. So in most respects APR and EAR achieve the same thing – it’s just that APR’s apply to a product that is entirely a borrowing facility whereas EAR applies to a product, such as a bank current account, that can be in credit or overdrawn.

By the way, both the calculations for APR and EAR exclude any Payment Protection Insurance you’ve decided to buy to run alongside your borrowing facility. That’s because this insurance is always optional and not a cost built in to the lending.

AER is quite different. It’s only used in relation to savings and investments. It’s all about the rate of return you will receive. AER is short for “annual equivalent rate”. It shows the true rate of interest you will have received by the end of the year. It takes into account the regularity of which interest is added to the account as this has a compounding affect upon the interest you receive. The calculation also strips out the affect of any introductory bonuses that disappear after a few months – a popular trick used by institutions to boost their products to the top of the Best Buy tables. AER is a most useful tool.

It’s not easy to remember all this but we hope that the mists of misunderstanding have been removed!

Technocrati Tags[loans] [credit]

If you pushed out the boat a bit too far this Christmas don’t let the interest on your credit card clock up. There are still a number of credit cards out there with good 0% interest deals you can move to.

Whilst a number of cards have scrapped their 0% offers, there are still some good ones out there although in many cases, you’ll have to pay a % fee to transfer your balance from your old card to a new one. If you intend to run an outstanding balance for a month or two, it’ll still probably be cheaper to accept the 2% fee rather than pay interest.

So where are the best deals?

Mint has the longest interest fee period at 10 months. This is followed by MBNA and Virgin Money both with 9 month interest free periods. All these charge the 2% transfer fee.

Alternatively, if a 6 months interest free period will be OK, then try Marks & Spencer’s &More card. This card will accept your transfer without any transfer fee.

If you’ve really racked up the credit card and are unlikely to be able to pay off the balance within the interest free period, then you might consider a low interest rate card as an alternative. Consider the American Express Platinum card. The interest here is just 4.9%. Worth looking at.

Technocrati Tags[credit] [Debt]

Yesterday the FTSE 100 Index closed at 5,731 which represents a gain of around 70% over the last 3 years and virtually its highest point for five years.

Last time we had such a stock market boom was during the technology bubble when thousands of investors got their fingers burnt. At that time many investors funded their share purchases with credit cards, loans and extending their mortgages – and the result was financially catastrophic.

Could it happen again? Yes it could. In fact there are signs that history is repeating itself! In the past month, financial advisers have been receiving calls from aspiring investors wanting to buy stocks funded by credit. This is very dangerous. Stock markets can move down as fast as they move up and if you’ve financed your stock purchases on credit, you can be left nursing large debts you cal ill afford. Gains are not guaranteed. It’s usually novice investors who take these risks and it’s precisely these investors who are often least able to survive a financial setback.

Our view is that you should never borrow money to invest. Yes, you could make a lot of money if the market performs as you are expecting – but have you heard of Sods Law? This basically says that if something can go wrong it will and at the worst possible time.

You have been warned!

Technocrati Tags[credit] [Debt][stocks]

Critical illness insurance again came under fire in last weekend’s press. The basic problem is that a critical illness claim is not as clear cut as, say, life insurance or car insurance. With car insurance it’s clear whether or not you have an accident - the damage is there to be inspected and repaired and with life insurance the insurer can’t easily argue that you’re not dead!

With critical illness insurance, before it will pay out the insurer will want to satisfy itself that the claim is valid in three primary areas:

· Has the diagnosis been made correctly?
· Is the illness/condition included in the schedule of illnesses/conditions listed on the policy?
· Did the claimant correctly disclose their state of health and health history on their original application form?

It’s in everyone’s interests to ensure that the diagnosis has been made correctly - so there’s rarely any conflict between insurance company and policyholder on that matter. It’s the other two validation areas where conflict can arise.

Depending upon the wording on the policy’s schedule of insured illnesses there can sometimes be some illnesses which fall into a grey area – it can be argued that they are insured and it can be argued that they aren’t. Now it’s not an issue if the insurer believes an illness is covered but the policyholder doesn’t - the claim is never made and the issue never surfaces! But the sparks fly when the policyholder thinks he is insured but the insurer disagrees. Such a case comes before the Courts in the next few weeks. David Hawkins from Staffordshire is suing Scottish Provident under his £400,000 policy. Basically, the policyholder’s medical advisers believe his illness is covered by the terms of the policy whereas the insurer’s medical advisers disagree. If Mr Hawkins wins, the press will have a field day and the critical illness industry will suffer a further knock it can ill afford.

Another writ, filed in the High Court last month, points up the problems when an insurer thinks that the claimant mislead them on the original application form thereby obtaining insurance cover on false pretences. Thomas Welch form Kensal Green, north London, is suing Scottish Provident for £206,800. The issue goes back to 2000 when, two years after taking up the critical illness policy, it was confirmed that he had testicular cancer. Scottish Provident refused the claim because of “non-disclosure”, saying that Mr Welch had not been honest about his smoking habit. He admits that he did smoke earlier in his life but insists that he had long since quit by the time he applied for the insurance and as such, did complete the form honestly. We presume that the case in court will centre upon whether Mr Welch accurately answered the questions about smoking. Most insurers define “a smoker” as someone who has smoked or taken nicotine products within the last 5 years. If Mr Thomas had said “yes”, to this type of question, then his insurance premium would have been as much as 65% more than he would have been charged as a non-smoker. We guess that his lawyers may try to argue that he omitted information by simple error and that the past smoking was irrelevant to his testicular cancer. An interesting issue. We shall follow the case and report the outcome.

These first court cases illustrate the problems that can arise when policy documents imprecisely defines an illness or when the technical diagnosis of an illness leaves room for the medical experts to disagree. Both issues are entirely outside the policyholders control and we can well understand their anguish at a most difficult time for them. The long-term solution must lie in the way the insurance company defines and explains the scope of the cover being afforded under the policy.

In the other court case, Mr Welch’s position must stand as a clear reminder to everyone that insurance applications must always be 100% truthful and completed in good faith. We know that this will always leave some room for dispute (and Mr Welch’s case may be one of them), but if applicants fail accurately complete forms they are taking the risk of having a subsequent claim rejected.

The situation now is that the articles in the weekend’s press will, rightly or wrongly, reinforce the public’s impression that insurers cannot be trusted - especially with regard to critical illness insurance. It’s a fact that around 20-25% of critical illness claims are rejected but the rejection rate does vary a little between insurers.

This is a crying shame as 1 in 5 men and 1 in 6 women will be diagnosed with a critical illness before their normal retirement age and as such, this type of insurance can greatly help the finances of those unfortunate to be diagnosed (source Munich Re).

Recent research reveals that it’s becoming harder to find a cheap loan. Almost two in five loan applicants will either be refused or will not be offered the headline rate of interest they thought they were applying for. Of these disappointed applicants, around a third will be offered a loan but at a higher rate of interest.

The Office of Fair Trading says that the advertised typical APR (annual percentage rate of interest) must be offered to at least two thirds of applicants - but the calculation of this percentage excludes those who receive an outright refusal. Our advice is that if you are refused don’t give up. Nearly two thirds of rejected applicants were able to get an acceptance when they apply elsewhere.

But there’s a sting in the tail. Each time you apply and are rejected, the information is sent by the loan company to the credit referencing agencies such as Callcredit, Equifax or Experian. This is then recorded on your credit history file as a black mark. Then, when you make an application to a second loan provider, they check the same files and their assessment of your credit worthiness is downgraded due to the black mark. This signals to the second company that you represent a higher risk and they’re only likely to offer you a loan at a higher rate of interest. If you refuse that and approach a third loan company that company will see both the previous two loan applications and their risk assessment of you gets even worse. In practice you’re creating a downward spiralling credit rating fuelled by multiple credit applications.

So, the moral is take care when you apply for a loan. If you have any reason to suspect that you have a problem in your credit history, always apply through a loans broker. They’ll know which loan provider is likely to accept your application at the best available interest rate. That way you should only have to make one application and avoid damaging your overall credit rating for the future.

You can ask for a loans quotation here on Brokers Online without any obligation. Just click here and we’ll take you to our loans information page. From there you can ask for a quote and a Loans Adviser will sort all the details out for you. It’s a fast and efficient service with thousands of contented clients!

Technocrati Tags[loans] [Debt]

Whilst purchases through the Internet are rising sharply, credit card fraud is rising even faster to more than £117 million a year according to the Association for Payment Clearing Services. This is against a background of falling levels of fraud within the retail market generally, largely due to new chip and pin technology.

The problem is that chip and pin technology does not protect clients buying online as they cannot confidentially provide their pin number. So Visa has come up with a solution.

Known as Token Based Authentication, each time a cardholder wishes to buy over the phone or on the Internet, they slide their card into a small device small enough to be clipped onto a key fob. This device then randomly displays a four-digit code number. The customer then provides this code number along with their card details when confirming the purchase.

At the same time as creating the four-digit code, this cleaver little device automatically relays the same code directly to your bank. Then when the retailer contacts the bank to confirm the card details, the Authentication Code is matched up and this verifies that the purchase is genuine. Goodbye fraud!

Well Visa hopes it’s “goodbye fraud” - that’s why they’re testing it out before rolling the scheme out to all cardholders, probably at the end of 2006. Reports suggest that Token Based Authentication could be mandatory across all banks by 2008.

Postscript
We have recently noticed a marked increase in fraudulent e-mails which, on first sight, come from your bank. The e-mails warn you about the dangers of bank and credit card fraud and then ask you to confirm your banking or credit card details by e-mail. BEWARE - these emails do not come from your bank. They are part of a sophisticated ploy by fraudsters to get hold of your banking details. A genuine Bank will NEVER ask you to confirm details by e-mail. You must always IGNORE these e-mails and report it to your Bank.

In a recent survey, 40% of people with personal debt problems would not tell anyone about their problems. The majority wouldn’t even share them with their partner and fewer still tell their parents. We all know that keeping debt problems a secret from our close ones is a route to domestic disaster, but what should you do?

Well the first thing is you must talk to someone about it - but to whom? A chat with your local Citizens Advice Bureau can point you in the right direction but possibly the best solution is to contact a debt counselling firm. You’ll find plenty on the Internet. Simply search for “debt counselling”. But before you do, gather together the information they’ll need.

Write down details of all your income net of tax and then the full details of your expenses. Don’t leave anything out. Then check your list of expenses against your bank statement. Is there any bank payment that is not covered on your list of expenses? If so add them in. Then list all your debts not forgetting any gas or electricity bills that may be on the way to you. In respect of any loans or HP, note down how much you pay each month, how much is outstanding and how long the loan has remaining to run. If you are a homeowner, you’ll need to do the same for your mortgage. The debt counsellor will also need to know roughly what your house is worth. If any of the loans are secured against you home make a note.

Then consider what expenses can be cut out. Be realistic but ruthless. A survey has shown that smoking, a second car, second holidays and satellite TV are frequently regarded as more important than reducing debt – but if your back is to the wall, there will be no alternative. That’s why it is so essential to be truthful with your partner. The solutions invariably have an impact on all members of the immediate family.

When you’ve done all this you’ll be in a position to make a proper review of your finances and you can see exactly how difficult your position is. You may even be able to work out a solution for yourself. Either way this work is not wasted as all this information will be required by any debt counsellor you talk to.

But, please, whatever you do, seek advice. Don’t put your head in the sand. Debt problems do not solve themselves. You need help and there is plenty out there.

There is also an interesting blog post dealing with debt in the usa - essentially this post is providing links to articles written on other blogs. I checked out some and they really were very good - Carnival of debt reduction

There were 361,000 first time buyers in 2005 and the majority will find it a struggle on their own.

Whilst the average house now coats £170,086, in 2005 first time buyers paid an average of £127,863.

Mortgage lenders will traditionally agreed to lend 3.5 times on one salary and 2.75 on a couple’s joint salary. That means the average first time buyer with a 100% mortgage will have to be earning £36,500 a year. A couple buying together will have to earn £51,000. Not chicken feed!

Of course some lenders will agree higher income multiples, but that will be dependent on the borrowers employment prospects.

In this context, it is not surprising that more and more parents are lending a financial hand by providing a deposit or standing as a guarantor for the mortgage.

Another, route is to buy a house with friends or brothers and sisters. Most lenders are happy to lend to up to four borrowers per property, although some will only lend on the two highest incomes.

However, The Britannia Building Society is a good bet if you want to buy a house with a group. They now have a special “Share to Buy” mortgage. Up to four people can buy and, on this scheme, The Britannia will take all four salaries into account and lend on a three times multiple. Worth considering.