Low interest rates have made 40-year mortgages relatively rare in recent years. "Now, as rates trend upward, you will see the re-emergence of that product," predicts Jon Eberhardt, president of the California Association of Mortgage Brokers in Sacramento, California. He notes that 40-year loan terms are usually employed in starter-home situations or used by people who wish to have a reduced payment option. "People use them to lower payments and qualify for houses they would otherwise not be able to buy."
The downside? Longer-term mortgages can be difficult to find, interest rates are .10 to .25 points higher than rates on 30-year loans, and borrowers pay more in interest over the life of the loan. "You wouldn't want a 40-year term if you wanted to pay down the principal," asserts Eberhardt. "Home buyers use it to qualify for more [money] and get the lowest possible interest rate at the outset. Then, after three years, they change over."
Thanks to Eliot Spitzer, it may be time to take a fresh look at your 401(k) plan provider. The New York state attorney general's investigations indicate that employers in all states must ensure employees aren't overcharged for benefits-or risk legal ramifications. A 401(k) plan administrator is required to act prudently and solely in the interest of participants with regard to selecting and monitoring investment options, analyzing fees, and notifying employees of their rights, says Bob Dolan, CEO of Harrisburg, Pennsylvania-based Conrad Siegel Actuaries.
That can be tricky. "One of the key things Spitzer's charges highlighted was that the expenses involved in 401(k) plans are often not clear [on] the surface," explains Dolan, whose company consults on benefits. "Often, employers simply look at the direct expense the company pays and not the buried costs subtracted from participants' returns. The key here is to understand all the expenses."
Hiring an outside auditor or forming a committee of managers and employees to ratify benefits decisions are two potential preventative measures. Dolan also advises taking a hard look at plan fees and commission structures, and putting your plan administration service contract up for bid regularly. "Have a consultant who is fee-for-service rather than compensated through commissions or overrides, pay for that service directly, and strip out as much cost as possible," he says. "Companies also need to shop to make sure they are comfortable with what they have vs. the marketplace offerings."
Jennifer Pellet is a New York City freelance writer specializing in business and finance.
65% ofchief information officers expect to spend more in 2006 than they did in 2005.
Statistic Source: Forrester Research
58% ofconsumers say they would rather put $1,000 into a savings account than invest it in the stock market.
Statistic Source: Experian/The Gallup Organization