04.01.26 Adjustable Rate Mortgages - A Waning / High Deductible Health Plans
The Clark Howard Podcast Podcast Recap
Published:
Duration: 26 min
Summary
Clark Howard discusses the potential risks and benefits of Adjustable Rate Mortgages (ARMs) and high-deductible health plans. He provides insights on when these financial products may or may not be suitable for individuals.
What Happened
Clark Howard humorously opens the episode with an April Fool's joke about financial advice, before diving into the serious topic of Adjustable Rate Mortgages (ARMs). He explains that ARMs are experiencing a resurgence as people seek lower initial mortgage rates amid high fixed-rate mortgage costs. However, he warns that these loans can become financially dangerous once the fixed period ends.
Howard describes how ARMs are fixed for a period, typically three to seven years, and then their rates can increase significantly, which could be risky if home values do not rise enough for refinancing. He suggests that ARMs may be more suitable for individuals who have significant equity and can handle potential future rate increases.
In a listener question, Howard addresses the misconception about using a Home Equity Line of Credit (HELOC) to pay off student loans for tax deductibility, clarifying that such interest is not deductible unless used for home improvements.
Howard provides advice to a listener considering whether to sell or rent out their current home. He outlines financial scenarios, including tax implications and potential rental income, ultimately suggesting selling as the more straightforward financial decision.
The discussion transitions to high-deductible health plans, where Howard criticizes the U.S. healthcare system's high costs. He argues that monopolistic practices by hospital systems drive these costs and that high-deductible plans, often unaffordable even for routine bills, are not a solution for most people.
Howard warns that many high-deductible plans are not eligible for Health Savings Accounts (HSAs), which offer tax advantages. He stresses that these plans are only suitable for those with substantial assets who can handle large out-of-pocket expenses.
A listener question highlights the issue of receiving old medical bills, which Howard explains may result from poor medical billing practices or practice acquisitions by larger companies. He advises verifying the legitimacy of such bills before paying.
Finally, Howard shares a listener's experience of saving money by using Mark Cuban's Cost Plus Drugs for prescriptions, emphasizing the importance of comparing prices across different pharmacies to avoid overpaying.
Key Insights
- Adjustable Rate Mortgages (ARMs) offer lower initial interest rates compared to fixed-rate mortgages, but they come with the risk of significant rate increases once the fixed period ends. This can be particularly problematic if housing market conditions prevent refinancing.
- High-deductible health plans are often presented as a cost-saving option, but many are not eligible for Health Savings Accounts (HSAs) and can lead to substantial out-of-pocket expenses. These plans may only be suitable for individuals with the financial means to cover large medical bills.
- The U.S. healthcare system's high costs are driven by monopolistic practices of hospital systems, which inflate prices and contribute to poor health outcomes compared to other developed countries. Politicians often focus on insurance issues, overlooking the fundamental problem of cost.
- Medical billing errors and delays are common, often resulting in unexpected bills for patients. These issues can be exacerbated by practice acquisitions or poor billing management, and patients should verify the legitimacy of such bills before paying.