On a $250,000 home purchase, a good rule of thumb is that you may be able to negotiate a discount on the sale of around three to five percent. At five percent, that’s a saving of $12,500. A great deal, but nothing compared to the savings, or wasted money, that can happen with your mortgage.

Last week, a listener e mailed me, and he was rather choked, to put it mildly. Last year, he signed a five year variable rate mortgage with his bank, with an option to convert to a fixed rate at any time. Seems like a good idea on the surface, doesn’t it? He had the benefit of the low interest rate, but when it started to move up, he had the chance to lock in a fixed rate for the rest of the four years left.

Well, it seemed like a good idea at the time. I’m very proud of this listener, because, before he went back to his bank to convert this variable rate mortgage to a fixed one, he got two other quotes. Very smart. So he knew that he could get a 3.9% five-year fixed rate in the market.

Yes, this listener also knew he was locked into the other four years with his bank. His shopping around wasn’t to move his mortgage, because the penalties would eat him alive. It was to be ready to negotiate the fixed rate on the last four years left!

But, and it’s a big but: He didn’t read the fine print when he signed the five year mortgage. Yes, he could convert at any time to a fixed rate, but it was at the POSTED rates! Let me put that another way: There is no negotiating when you choose to switch the variable rate to a fixed one. It will be at full sticker price. And like car purchases, who pays sticker? Well, he did!

The difference between the negotiated rate in the market and what the posted rate was with his lender is now costing him $19,000 in extra interest for the next four years! The banks will offer a very attractive variable rate on a five-year mortgage, with the option to convert to a fixed rate. But the catch, and it’s an expensive catch, is that the conversion will be at the full posted rates. A discount now in return for huge additional profits later.

$19,000 is a staggering amount of extra interest that was totally unnecessary if the listener had asked the question and read the documents he signed with the renewal. If your mortgage is up for renewal, you need to get at least three quotes and ask a lot of “what if” question. If you’re buying a home, you’ll need to spend more attention to your mortgage options and choices than negotiating on the purchase price. After all, you buy the home once, but have to pay interest for decades!

The story was about a young lady from Edmonton, who had her wallet stolen out of her car, and became a victim of identity theft.

When her wallet was stolen four months earlier she has simply called her credit card company to cancel her card and also had her drivers’ license replaced. But that was just the beginning of her nightmare of identity theft.

Along the way, she was actually investigated for fraud, and went through a virtual hell in having her bank accounts cleaned out. She discovered her identity theft while trying to make a purchase at Walmart. When she used her debit card, the cashier told her no, there wasn’t sufficient money. She tried her credit card next, and it was also declined.

When she called her bank from the parking lot, they asked her if she had just opened a new account at another branch? No, she hadn’t. But someone had, and used her identity. It got worse, since the crook deposited empty envelopes in the ATM machines, and stole another $10,000 out of her accounts from these phony deposits, off this new and fraudulent account.

The credit bureau wouldn’t help her on the phone, and I’m stunned she was even able to reach a human being at Equifax Canada. The only thing they told her was that SHE was now under investigation for fraud.

Then came the calls from the collections departments of Esso and Shell, Home Hardware and Sears, the financed van, and more – none of which were hers. And that was in between the trips to the police station and banks. All in all, the crooks used her identify to run up more than $100,000 in charges. The lenders and banks absorbed the losses, but you have to believe that a break-in at home would be less scary or frightening than identity theft.

As this lady found out, studies have shown that it takes an average of more than 30 to 150 hours of work for someone who has been a victim of identity theft. And that doesn’t include the anger, fear, credit hassles, and psychological trauma.

Oh, and one more thing that you probably don’t want to hear: It didn’t apply to this lady, but the vast majority of identity theft is committed by someone you know. While you can’t entirely prevent identity theft, you can take some easy steps to make your odds pretty tiny:

-Do not give anyone your PIN numbers
-Don’t use the same PIN number everywhere, and do change it every six months or so
-Have as little ID as you need in your wallet. You do NOT need your Social Insurance -Number in your wallet every day, and don’t need all your credit and debit cards with you every hour of every day
-Do not leave any I.D. in your car – ever.
-Empty your mailbox every day. Junk mail or credit card mailers have a lot of information on them
-Get a shredder. Do not put your personal information in your garbage.
-Check your credit report. You are entitled to a free report once a year. Pay for it if you need it more often to see if there is something weird happening
-Know your credit card statement dates. If it doesn’t show up, make the call. It may have been re-directed by the crooks
-Always check the transactions on your credit card and bank statements
-Never give out personal information on the phone or on an e-mail

And if you have been a victim of identity theft, your first visit is to the police station to file a report. No matter who it was, if you know, you will be liable if you do not file the report. Don’t protect a crooked friend or relative, because you will be liable if you haven’t taken the first step of proving these were not your transactions.

I want to read you a section of the interview, and then translate it to you and me:

Kroft: So you were digging yourself into a hole?

Dryer: Very much so. You start with something that is manageable and small. You know it’s wrong, but you think you can fix it and you can’t get out of it. It becomes quicksand. I had to keep meeting obligations that became bigger and bigger. (I was) creating an illusion, all mortgaged to the hilt.

I recognized in the last couple of years that what I saw as a $20 million mistake had grown into a mistake of a few hundred million dollars. And then, I did some increasingly irrational things, because I wasn’t thinking clearly…(and) I’ve lost everything.

Now, let’s translate that to the financial situation so many people face:

So you were digging yourself into a hole?

Very much so. I started with some borrowing that was manageable and small. You know it’s wrong, but you think you can pay it off soon, but can’t get out of it. It becomes quicksand. I had to keep meeting obligations and payments that became bigger and bigger each month. (I was) creating an illusion of a lifestyle that was all mortgaged to the hilt.

I recognized in the last couple of years that what I saw as a small mistake had grown into a mistake of (however many dollars).

And then, I did some increasingly irrational things, because I wasn’t thinking clearly. Like taking cash advances, stretching my car loan, getting a line of credit, living on my overdraft, going to a Payday lender, getting behind on my bills…(and) I’ve lost everything.

That’s millions of families that don’t or won’t do a budget. Families that refuse to live on less than they earn, and still kid themselves into thinking that loans and borrowing are a blessing and part of a solution.

Or, as we talked about a month or so ago, when rates keep climbing, we’re in the same trouble. Don’t forget, consumer debt, other than probably our fixed-rate car loans, most everything else from lines of credit to credit cards are on variable rates. That means, rates go up, you’re paying that increase the following month.

Yesterday, the Bank of Canada raised interest rates another quarter of a percent for the second time. On each $100,000 of debt that is not on a fixed rate, these two rate increases will cost you $500 a year and rising.

Behind the scenes, the federal government is taking steps to clamp down on our debt loads. A few months ago, the Federal Finance Minister announced changes to the down payments for mortgages, and the total that can be refinanced on a home.

The next wave of pressure, and nobody has talked about this, yet, is your credit cards. Starting in a few months, your minimum payment will be going up. The good news: you’ll have it paid off faster. The bad news: It’ll hit your budget to pay more as a minimum payment.

Starting with MBNA, the largest issuer of MasterCards in Canada, August will see a new and higher minimum payment. They will be the first, but not the only ones, to change the way the payment is calculated.

Why? Remember that I always say what happens in the US will come here? Well, their new credit card regulations require a box on your statement to show how long it would take to pay off the balance when making minimum payments. That will happen in Canada this fall, too. So when they increase your payment, the staggering time it’ll take to pay it in full won’t look quite so ugly when you see it in a few months.

The third reason, and it’s a big one, is that our debt load has started to increase the arrears and write offs that card issuers are having. So if they increase your payment, they get paid back faster, and have less risk. But we can also start to look for limits to be cut back for a ton of people in the next wave of clam downs. In the US, $1.5 trillion has been cut from credit limits and they’re not done yet.

Over the last couple of days I came across a number of things that are brand new, and that we all need to know:

-Scotiabank has changed their credit card agreement. That means others have, or will, follow soon. Starting in September, if you miss, or are late, on three payments in any 12 month period, your rate will go through the roof. The statement I saw jumps it by 7%.

-The two-tier interest rate charges started in the U.S. and is now here. Along with that, you will no longer receive credit limit increases automatically. You will now actually have to OK them. And that’s a good thing. Almost none of us NEED a bigger limit. The card issuers will send you the limit offer and you can accept or decline. Of course, you can still contact them to request one, if you need to.

-Scam phone calls are something that happens to millions of people. But you can no longer rely on call display for the accuracy of the number popping up. With internet calling, fraudsters can now spoof phone numbers being displayed to read almost anything they choose. You THINK you’re getting a call from your bank, because that’s what it reads on the call display, but it’s not. Always, always, get their name and department, hang up, and call the number on the back of your credit or debit card. It is the ONLY way you know you are actually reaching your bank.

Millions of us deal with Shaw, as do I. But I found out two days ago how nasty they get with one month past due. My company pays the bill, but there wasn’t a statement in April. May got paid, June got paid, July got paid, but it was always dragging by a month. My fault – no doubt. But they simply went in to disconnect my internet one morning.

All companies love you when you pay – and I’ve paid them close to $30,000 over the years, but don’t care when there’s a slight problem – no matter what the reason. Media relations chose not to respond to my inquiry, but their computers can only tell I’ve dealt with them since September 2008, instead of April 1995. Whether it’s Shaw, your bank, or your mortgage company – they’re ruthless on any past due amount, no matter what the reason, track record, etc. So, as the kids say: Don’t go there.

Firstly, an overdraft will almost certainly become a permanent debt, because it now pretends you can go to minus $500 or minus $1,000 – forever. But it’s not something most people really consider “debt.” And it also gets used almost every month, because we never seem to get out of it, kind of like quicksand.

The convenience comes at a high price of around 20% interest. That is one of the biggest reasons banks aggressively sell it. Yes, it does protect you from an NSF charge, but can’t you simply learn that zero in your account is the end of spending, instead of going in the hole over and over again?

About six months ago, I started working with someone, OK, more like bugging him, to get his $1,000 overdraft cut off. But it was, and will be for you, very hard to get yourself out of that hole. A great plan, if you finally want away from this almost permanent debt, is to do it in stages. The plan was to get it down to below $500 and then go to the bank and cut the limit of the overdraft to $500 as well.

That was a great way to assure the overdraft was being reduced and not going up again. Yes, the teller will claim they cannot do that, you have to see a loans officer, etc. That’s nonsense. It’s one press of the button to reduce it. The reason they want you to see a loans officer is because they want to SELL you on keeping it way up there. That’s how they make money! Their job is not to help you, but to help their financial statement. If you get that push back, tell them: Fine – just close the account then. At that point, they’ll blink and cut the overdraft down. It’s YOUR money and you are the customer. It’s what YOU want and not what the bank wants!

On that same issue, the Bank of Canada says that, by 2012, one in 10 households will be spending 40% or more of their household income just paying debt. What does that leave to live on? Already 32% of households have no savings. So it stands to reason that, the more we pay towards our debts, the less money we have to live on, or save.

The National Foundation of Credit Counseling just released a study that, last year, the average person had over $2,000 in unexpected expenses! I keep talking about how critical it is that all of us have a basic emergency fund with two weeks of pay set aside – that’s another reason why. We all know there WILL be an emergency. We just don’t know when, what, or how big it’ll be. What an emergency fund does is to turn a panic and crisis into a minor inconvenience, because we have the money! If not, here we go again…using credit, and thinking that’s a solution, and going further in debt once again. Find a way to have two weeks worth of your pay in an emergency account that you don’t touch for anything else.

According to a company called RealtyTrac, foreclosures in the US, in the first quarter of 2010, are UP 35% over the same time period of 2009. And the credit bureau, Trans Union, found that mortgage arrears are rising, and not falling. In Nevada, 16% of homeowners are in arrears, it’s 15% in Florida, and 11% in Arizona and California.

In Canada, according to a report by the Canadian Association of Accredited Mortgage Professionals, there are about 375,000 people with mortgages who are challenged by their current payments. I don’t know what their definition of challenged means, but it sounds like a problem. If rates increase by just one percent, they expect another half million people could be in trouble. That goes back to what we talked about in the security of a fixed rate, instead of a variable rate mortgage.

Yes, there is a difference in insurance coverage for our debts. But it’s something most of us would rather not think about. When we do have to deal with it, in the event of a death or serious illness, it will always, always be too late.

One of the big debts most of us choose to insure is our mortgage. But it should never ever be mortgage life insurance.

That type of coverage is convenient, because we just sign up at our mortgage lender, but that coverage only pays off the balance of your mortgage. Essentially, it protects the lender so they get paid, it does not protect the family by giving them any financial freedom, or breathing room with other bills. It’ll give your family a free and clear home, but what good does that do when they have to sell the house right away to raise money for other bills, debts or financial needs?

A much less expensive, and way more flexible policy, is to get an equal amount of term insurance. It’s also for a fixed period of time but now lets your family decide what to do with the money and not the lender. The money is paid to your family. Sure they might pay off the mortgage, but that should be their choice not that of the lender.

What happened to this family in Illinois is that their home was paid off, but they were now forced to sell it to have any money at all to live on. You can bet that was not what the plan was when they paid the overpriced premiums for all those years, thinking they were protected.

Another common insurance for loans is optional accident and sickness insurance. Yes, it’s ALWAYS optional. If you were told different, you were lied to – simple as that.

Most of these policies have a 90-day elimination period. Elimination means it starts on day 91 – long after most short-term accidents or illnesses are over. This puts you three months behind on your payments and will not pay out a dime. But they are the least expensive, since they don’t cover the first three months at all.

Something called a retro policy means the coverage is retroactive to the first day you were off work. There is a big difference. The time to discover it is NOT when you have no income and no chance of making a claim.

As with anything else, ask the questions, get informed, and get the “what if” answered before signing on the bottom line.

Each fall J.D. Powers conducts a very comprehensive credit card survey. It rates overall satisfaction, along with how happy cardholders are with their rewards, payment processing, problem resolution, customer service, and fees.

This year, American Express rated five stars, head and shoulders above other national card issuers in all categories. At the bottom of the bottom, with the worst score on customer’s satisfaction with their credit cards were Capital One, along with GE Money. GE is a surprise, as they handle the Wal Mart cards, and Wal Mart prides itself on great customer service! As to Capital One – what’s in your wallet? I hope it’s not one of their cards!

But the scary response to the survey was that 53% of us did not know the interest rate on their card, even though it is printed on every statement. Not knowing that we are paying around 20% on our credit cards is not good news!

Scotiabank can’t be happy with a bunch of national press recently. But there’s a great lesson for anyone over age 59 to learn! All banks offer seniors a no charge service banking packages, or greatly reduced service charges at various ages, but for most it’s at age 59. Barry Ashpole, a 66-year old college teacher, had the TD and Royal automatically lower his fees, because all the banks have your birth date on file. But Scotia kept charging him the full service charges for seven more years! When he discovered the huge overcharges, he hit a wall of no help to get this reversed, and fought it all the way to their Ombudsman’s office. At that point, he received a six month refund of $71. They wouldn’t refund the other six and a half years! You need to make sure you know when you are entitled to a break of the huge service charges, or you’ll get taken, as Barry Ashpole found out the VERY expensive way.

And a final update on your credit cards: Time and time again, I point out how critical it is to check your credit card statement line by line. Stuff shows up that’s not yours, merchants who accidentally, or because of a kinky staff member, charge things twice, and all kinds of errors can and do happen. But less than 10% of us look at our statement items – and that number is way lower if you get your statement on-line!

There is a phrase you need to know. It’s called post transactional marketing. You buy something from a retailer on-line, or join a web site. Often you’ll get a pop-up asking you to join a loyalty program for deals, alerts, or whatever. Be careful, because in many instances, these pages look like they come from the retailer, but they’re third parties, and deeply buried in the fine print is a note that you’re actually going to have a monthly fee charged to your credit card! And it’s not small business, but the 1-800 Flowers, Barnes & Noble, airlines, Priceline and buy.com sites!

Be careful, as these marketers have scammed people out of over $1.5 billion so far, Facebook has now been hit with a class action lawsuit, alleging that they allow, promote, or profit from these post transactional marketing, and the U.S. Congress is holding hearings on the issue.

A number of years ago, in Michigan, some dealers experimented with a system that had a computer chip installed in vehicles which were financed. If the payments were past due, the owner would get a warning from this electronic signal in the car. It warned that the vehicle would become inoperable if the payment was not made within three days. Another warning came through the car the following day. Then, on day three, the car’s electronic system was automatically shut down, and wouldn’t start. Talk about a way to get someone’s attention to make their payment!

The dealerships were able to finance the vehicles with this software for a lower interest rate, because the risk of arrears was much lower on these loans. It resulted in a lot less repossessions, but the backlash was so huge, the technology didn’t take off to any large degree. Very bad idea, or would you buy it with the mindset that it’s reasonable not to drive something you can’t afford to pay?

Last year, in the U.S., between 700,000 and one million people walked away from their homes – but not in a typical foreclosure.

Strategic defaults are foreclosures of homes were the mortgage holder HAS the money, and HAS the ability to pay, but chooses not to. These people owe more on their home than the value, and make a conscious decision to stop making the payments. It will give them six months or so free housing until the bank comes to foreclose. At that point they walk away, reasoning, they’re saving themselves tens or hundreds of thousands of dollars paying a debt that is way more than their home is worth. They literally trash their credit, but reason that they are still way ahead, financially, by now being able to walk away from their home. In many interviews, on various programs, a lot of these homeowners were asked if they didn’t feel guilty, or some moral obligation to pay the mortgage that they CAN pay and voluntarily signed. The answer has always been no.

If you have the financial ability to pay, would you walk away if you owed $10,000 more than your home was worth? What about $50,000? What about when the value of your home has dropped by 50% or more such as many places in Arizona, Florida, or California have experienced?

Before you answer that, you should know something else. The biggest apartment complex in the world is Stuyvesant Village in New York. We’re talking 11,000 apartments and 18 highrises. In January, they defaulted on a $4.4 billion mortgage and voluntarily walked away. And who was one of the big five investors? The Church of England.