Personal Finance

First Margin Call

This post was originally published on Mr. Cheap’s original blog.  When he brought over all his posts – some of them didn’t make it so I’m planning to publish a few of them over time.

I recently got my first margin call from E*Trade for about $3K. It scared the hell out of me, not because I could pay (I had the money sitting in a cash account and just transferred it over), but the call was unexpected and I was worried that I misunderstood the system to the degree that I had triggered it.

The day after the call, I got on the phone to E*Trade and admitted that I’d had a margin call, told them that it was no problem paying it (and I’d already transferred the funds), but that I didn’t understand what had put me into a margin call situation. The man on the phone didn’t apologise, but it turns out that the problem was on E*Trades end and they considered a bunch of “safe” stocks (which they’ll loan 70% of the stock value on) as “riskier” stocks (which they’ll loan 50% on). He told me the call wouldn’t be enforced, and after checking my account assured me I was fine (even if I hadn’t transferred the cash in).

I used the situation to get more details about margin calls and what would have happened if it had been a real call. Apparently the speed on which they’ll sell your stocks depends how far over the line you are (he said they’ll give you 3 or 4 days if you’re just a little over, bit will sell immediately if you’re significantly past your limit). I asked him for good customers with a conservative portfolio if they ever will waive a margin call or increase their loaned %, and it turns out that its actually a law how much they can allow people to buy on credit (so short answer, no).

In the end I was happy to have my understanding of the margin account challenged (and happy that it was a problem on their end and not in my understanding). I learned some new things about my account, which is always a good thing.


When Will You Get Your Early Economic Stimulus Rebate Check?

“When will I get my economic stimulus rebate check?” is one of the big questions that Americans are asking themselves at the moment. Actually I’ve been asking that question as well but I’m not holding my breath for it!

The economic stimulus checks started on April 28 and will continue through to mid-July of 2008.

The schedule for people who filed their taxes by April 15 is based on the last 2 digits of their SSN – Social Security number. If you filed jointly then the payments will go out based on the person listed first on the return.


Last two SSN digits: Payments will be transmitted no later than:
00 through 20 May 2
21 through 75 May 9
76 through 99 May 16


Last two SSN digits: Payments will be mailed no later than:
00 through 09 May 16
10 through 18 May 23
19 through 25 May 30
26 through 38 June 6
39 through 51 June 13
52 through 63 June 20
64 through 75 June 27
76 through 87 July 4
88 through 99 July 11

If you couldn’t get your act together to file your taxes by April 15 (but you did file since then right?) then you will get your rebate about 2 weeks after the scheduled date. You need to file your taxes by October 15 in order to get a rebate this year.

Here is the IRS online calculator to figure out how much your rebate will be.

If you are confused about whether this rebate is actually a loan then this post should clear things up.

Personal Finance

The “Myth” of Weekly Mortgage Payments

When I bought my first house way back in the beginning of 2000, I set up the mortgage payments to be withdrawn from my account every week. I had heard and read that making payments more frequently would reduce the time necessary to pay off the mortgage significantly. Instead of keeping the money in my account and paying a monthly payment at the end of the month, you would save on interest by paying the weekly amounts ahead of time.

So what happened? Well, I hated the weekly payment because at the time I was being paid twice a month so every few months there would be three mortgage payments in one pay period which would mess up my budget. I decided to switch the payments to semi-monthly to match my pay cheques.

Does this mean I’m paying thousand$ more in interest costs? Not a chance! I had a conversation with a good friend of mine around the time I switched from weekly to semi-monthly payments and he explained to to me that the reason that “weekly” payments (as promoted by the banks) pay the mortgage down quicker is because you are paying more to the principal, not because you are making more frequent payments.

For example if your monthly mortgage payment is $1200 then if you want to do weekly payments, the bank divides the monthly payment by four which means your weekly payment is $300. The problem is that there are more than four weeks per month so by paying one quarter of the monthly payment each week, you are in effect paying more money into your mortgage.

Over the course of one year, $1200 per month total $14,400. $300 per week totals $15,600 over the year which is $1300 per month which is a $100 more than our original monthly payment. This is why the “weekly” payment method pays down the mortgage faster.

What does all this mean?

Don’t worry about the frequency of your mortgage payment, just set it up so it fits your budget and pay schedule.

Increasing your total payments along with occasional extra payments will result in a mortgage that is paid down quicker. Whether you pay daily, weekly, bi-weekly, fortnightly, semi-monthly, thrice monthly or once a month (as I do) you should consider the total amount you pay each month and try to keep that as high as possible.