AskDong

With the deregulation of the auto insurance industry in Massachusetts, I’ve decided to take a fresh look at my auto and home insurance policies. What dosee as the pros and cons of going through a broker versus a direct carrier? Are the carriers that brokers work with able to offer better rates so that the total cost to the consumer is the same (or less?) when adding in the (undisclosed) broker’s commission? I used to have a negative view of brokers in general (still do for real estate), but recently I had a positive experience with a mortgage broker. I wonder if the same principles of better customer service, flexibility and rates apply to the insurance market as well…

Thanks,
Noah S.

In a perfect world, you should always be able to save money by avoiding a broker. Brokers are in the end just middle men. They take a cut, a cut that could be yours. However, in reality it’s much more complicated. Like Noah, I share his good experience working with a mortgage broker. I ended up getting a much better rate than I could find direct. For that service I indirectly paid $4300, the broker’s cut on the transaction. You would think I should’ve been able to directly talk to the bank and get the same rate. I couldn’t. Most of the time when you talk to the banks directly, they actually give you a fairly non competitive rate. Don’t think just because you’re a good customer, they’ll cut you a break. Banks are often in the business of treating their most loyal customers poorly.

Because the best rates are often not directly available to the average consumer, I’ve found in my own experience that mortgage brokers do often provide a valuable service. This is not to say that one wouldn’t be able to do extra legwork and find a better rate directly from a Bank, but at least sometimes a good broker can uncover rates that you might not be able to dig up. I found this true the last time I shopped for a mortgage. I was recommened a broker, and found he had the best rates I could find. I called half a dozen banks directly, and number of other online mortgage brokers. By far the best rates I found came from the brokers and in particular the broker I was recommened. My broker was great. It wouldn’t suprise me that Noah and I worked with the same guy.

The question is however if this experience can be translated to other brokers, especially in the Insurance world. Given that I have limited experience with insurance brokers, I don’t really know. Complicating the matter is that in the world of insurance is made up to two separate spheres. There is the property and casualty world on one side, and on the other health and life. I would imagine the broker experience really depends on the type of insurance. Given the varied number of insurance providers and products, the competitive landscape is far from clear cut. If a broker truly can shop around amongst many different providers, I would imagine the more useful the broker. If on the other hand there are only a few providers, and or very aggresive direct insurance providers, then it’s likely the cost of the broker does not outweigh the potential savings. That said good insurance brokers (and agents for that matter) are able provide a valuable service not on the basis of just cost, but information. Insurance is a complicated product that people deserve sage advice on.

A Reader asks,
How can I find out what bank or lending institution holds a mortgage to a property that is not mine?

I got this question about 2 weeks ago and at the time I had no idea. However my own real estate travails have made me more knowledgeable. Apparently who holds title to mortgage is publicly available information. As a resident of Massachusetts, I’m fortunate to be access this information online. Massachusetts is on the cutting edge of the online deed information, I didn’t know this until I did some quick research and found that most states do not offer this information online. There are commercial sites such as landaccess.com which offer this information for some areas of the country like Michigan, Ohio, and Texas. Who holds a mortgage is part of the deed and title information and as result needs to be filed with the registry of deeds (or so it seems to me).

Given that this information is required to be accessible by the public, getting it is a matter of convenience. Individuals interested in properties in Massachusetts can easily find information online, but it seems like those in other areas of the country have to either pay to access it online or trudge down to the country registry of deeds. Given my own experience at the registry of deeds, it’s much better when you can do it online.

This certainly has not been a good week. My email account gets hacked. Yesterday the fence blocking my parking spot gets built. I had been silently hoping that our neighbor might have forgotten about the matter, and the fence would not come to pass. To my chagrin, and the greater chagrin of my car, the fence is up. As I’m on vacation in the west coast, I have yet to actually see this fence. I’ve only heard about it through my neighbor.

Over the last day and half, I’ve been battling myself and my worst inclinations. I’m upset over the matter. The removal of the parking space has effectively decreased the value of my condo by about $30,000. Poof! It’s gone. That’s depressing. However, I’m not about to take this lying down. I am seeking legal recourse.

On this second front, I find myself exposed to the some worst aspects of my personality (and everyone else’s for that matter). I’m angry and I want vengeance. The neighbor never bothered to contact me to let me know that the fence was going to be put up yesterday. I gave him my phone number when we first crossed paths. My hackles are raised. It’s amazing how a phone call would’ve made a world of difference.

I don’t like being angry. I don’t like feeling vengeful. While few would mistake me for the Buddha, I’m generally not angry or vengeful. I tend to empathize, and I’m trying very hard to empathize with our neighbor. I do understand his position, especially as a real estate professional. However, at the moment, my reptile brain is getting the better of me. I fantasize about a scorched earth legal campaign against this man and his company. I know this is not a good line of thinking. I will pursue the matter legally, but I need to do so pragmatically and boil it down to a financial number. If it’s going to cost me 40k to recoup 30k loss, it doesn’t make sense. Emotionally right now, I’m willing to spend what it takes to exact my pound of flesh. That’s not good.

With the housing market in a bit of a slump and interest rates low, I thought it would be a good time to buy my first home. I am planning on buying a condo in the next few months.

My question is this — I know the IRS allows you to take out up to $10,000 from an IRA or a Roth IRA to finance a first-time home purchase. Do you have any thoughts on whether it would be better to take the money out of my Roth versus my Traditional IRA?

-s

Hmm, I would say it’s best to do neither. The IRS allows individuals to withdraw funds from the IRA penalty free, and in the case of the Roth IRA tax free (assuming the withdrawal is after 5 years). The withdrawal is considered a qualified distribution - not much different from taking distributions at retirement. Of course if you’re gains in the traditional non-deductible IRA are limited or non-existent, paying taxes may not come into play at all. Sound great, right? The fundamental problem with taking a distribution early even if it’s penalty and tax free is that you can’t put the money back in.

IRAs, and 401k are tax shelters.  By holding money in these vehicles, investors avoid the annual drag of taxes or in the case of the Roth IRA taxes on gains period.  Every year we only get a certain amount dollars we can shelter, and it’s use it or lose it proposition.  It’s not like we can not contribute one year, and contribute twice as much the next year.  For this reason, I think it’s critical especially when you’re young to get those dollars in, and maximize the amount of money you’re sheltering from taxes for the longest time possible.

I would say if you can look to other sources of funding. I would even suggest borrowing from your 401K.  At least in the case of your 401k, you’re actually putting the money back in.  As long as you’re comfortable with job security and or your ability to pay back the loan if you were to switch or lose your job, I think borrowing from the 401k can a good option especially if the payback period is over a short period.  Yes, you lose some period of tax sheltering, but if the loan period is short it shouldn’t be a big deal.  The criticism of paying taxes twice because you’re paying with after tax dollars is generally overstated since the initial loan is tax free and it’s the only the interest (that you pay to yourself) that is actually taxed twice.

My timing has never been the best. I purchased the apartment that I’ve lived in for the last year and half three months ago. Today I learned I might be in a border war. Yesterday, there were a number of trucks from a realty company parked in the back of my building, blocking my parking space. After calling the phone number listed on the truck to have them move the trucks, I learned that the owner of the neighboring building is looking to build a fence. This fence if built would effectively block off access to my parking spot

As can be seen in the image above the fence would block off the route to my parking spot (marked 1). The owner of the neighboring building who is a rental property owner is looking to build the fence to effectively turn what is currently one parking space into two tandem spots for his property. Of course that fence would effectively deprive of me of my parking space. I was not in a good mood yesterday when I learned of this turn of events.  I would say a good 30k of the value of my condo is the parking space.  Losing the parking space would be huge loss personally and financially.

However, I’m not about to go down without a fight. While I still need to consult with the other condo owners in my building, I believe none of us would want this fence built. The fence would also restrict access the parking space next to mine (marked 2). In addition, I need to do further research to determine if the property that my neighbor wishes to build a fence is truly his and not part of the common right of way. Even if it is his property, I still have a few legal weapons at my disposal, an Easment, andAdverse Possesion. I’m no lawyer, but I will be consulting one shortly.