Tags: finance


online personal finance

Yesterday, I found myself wondering if there were personal finance cloud-computing services. I already keep my mail on GMail, my calendar on GCal, and my records in Evernote. Shifting finances online seemed like a good idea, too.

Turns out that there are quite a few; I had time to try out the most popular ones: mint.com, wesabe.com, and geezeo.com.

Mint.com is by far the most polished. The site looks nice, with rounded transitions and flash animations. While in most cases, the interface simply makes the experience a bit more pleasant, their spending trends visualizer is great, letting you drill down into a pie chart of spending categories and see the corresponding transactions. (It also feels more responsive than Quicken on my computer, but that's saying more about Quicken than about Mint.com.) Wesabe.com seems to have pretty good visualizations, too, though it feels less polished and responsive overall. Geezeo is the least pleasing to the eye, and I actually could not find any visualization tools.

The coolest feature of the online sites is that they can automatically download the financial data from your accounts. It's been my job to regularly download transactions from all of our banks and put them into Quicken. With the sites, they will actually do this automatically and will always have up-to-date information. So with the Quicken method, it was pretty infeasible to check our budget progress more than once a month (in fact, I'd often go many months without the downloads, even when I wasn't in the hospital), with the online sites, you can really check your budget progress weekly or even daily.

The process of linking accounts is slightly different for each site. Mint.com has a large list of financial sites it supports and you simply enter your login credentials. They don't have a login for our home bank; I'm starting to suspect that this is because it uses a (world's dumbest) CAPTCHA at login time. But they seem to support every other bank in our area, as well as every other financial institution (loans, IRAs, mortgages) we use. Wesabe.com can download transactions from a limited number of sites; for everything else, you can get a Firefox plugin that can record your login and download interactions and upload data to Wesabe. Clever, though more cumbersome than simply supplying your credentials (and it still won't work with our home bank). Geezeo's solution for unsupported banks is simply to let you upload an .ofx file manually, which might be the best approach.

Once the transactions are imported, the sites let you categorize them, with some automation built in. Mint.com has the best automation right off the bat, classifying probably 80-90% of our transactions automatically. Wesabe requires that you enter your own tags, but will apply them to similar transactions in the future. Geezeo follows a similar system.

The tag structure in Wesabe and Geezeo is free-form: you enter as many tags as you want for a transaction, and Wesabe will even display all your tags in the familiar tag cloud format. Mint.com, on the other hand, has a more rigid structure, with some user extensions built in (reading online reviews, it looks like the extensions are a recent addition). It has a fairly detailed two-level category hierarchy. You can add your own categories, and it even comes with a large bank of suggested ones, but you can't delete the built-in ones. It also allows you to assign tags to transactions; tags can span multiple categories and a transaction can have multiple tags. So in the end, you can get a similar structure to Wesabe and Geezeo, but there's a separation of primary and secondary properties of a transaction.

You can then use these tags and categories in visualization tools, or to set up a budget of spending targets. Here, all three sites leave a lot to be desired. Mint.com allows to create a spending target for a category or a sub-category. Wesabe lets you use a tag, and Geezeo lets you combine two tags (using an OR). So, for example, Mint.com allows you to tag things as Reimbursable (it's even part of a default tag set), but you can't create a budget for non-reimbursable travel expenses. (Though you can query them in the visualizer.) And in Wesabe and Geezeo, I was hoping to create separate budgets for "clothing nikita" and "clothing lenore," but neither will let me do that. (I'd have to basically tag things as "clothing clothingnikita" and "clothing clothinglenore.") My hope is that, given that all of these sites are fairly recent, at some point at least one of them will get around to implementing some decent search operators.

We finally settled on Mint.com as our main site. It has a nice interface, it painlessly supports all of our accounts except for the checking one (we actually looked into switching banks and found a better deal at another bank in town that is "minty"), and it has an iPhone interface which looks pretty slick. It seems like it would be pretty useful for day-to-day planning. One nice thing about the budget display in Mint.com is that it not only shows you how much of the budgeted amount you have spent so far, but also a line that shows where you should be given how far into the month/year/etc. you are, so we can see, for example, that our food expenses for this month have actually been lower than expected.

I'll have to see how well it will work for a monthly evaluation of spending, but I'm pretty sure it will save me time over using Quicken. And it's pretty cool to see all of our financial accounts added up in one place to calculate our "Net Worth" (which is heavily negative, since it includes our mortgage).

world's dumbest Really, check out the login page. It uses a simple font on a static background, with 5-letter dictionary words where some letters are substituted by (I kid you not!) the corresponding phone digit. I'm half-tempted to spend an afternoon writing a script to break it and sending it to mint.com so that they could support my bank.

why rate locks are a bad idea

One of the loan officers I talked to recently tried to convince me to get a 90-day lock. The rate he was offering was 6.5%, compared to the 6.25% for a 30-day lock (which in itself was 1/4% higher than their competitor, but nevermind.) He suggested that he might be able to talk his boss into getting it for me for only 6.375%, and since it looked like the mortgage rates were going up, this was a good deal I should jump on.

I don't buy it, though. If it was that certain that rates were going to go up, that would be already factored into the rate of the loan. No one would sell me a 90 day lock for 6.375% if they thought long-term interest rates would be at 6.5% in June. In fact, they probably wouldn't sell me a 30-day lock at 6.25% either, because the long-term lenders would not want to fund my loan for 30 years at 6.25% if there was an upcoming rate hike.

Initially, it didn't even make much sense to me why a rate lock for 90 days would make much of a difference at all. I mean, what difference is it for someone to loan me some money from April 2006 till April 2036, vs. June 2006 till June 2036? I think the reason here must be that the person offering me a 90-day lock makes money on the margins. Someone who is actually funding my loan is happy to sell me a 30-year loan at 6.25% today, since according to their best projections, they will make money on it. However, everyone I'm dealing with is planning to keep my loan for a very short time and then resell it. (In fact, I'm dealing with brokers, who deal with resellers, who in turn deal with people who actually fund mortgages. I think.)

So my current model is that there is a reseller, who offers me a rate that's some amount higher than what they expect they can get from someone else, say, half a percent for the sake of argument. (I have no idea what this is in reality, though I'd be surprised if it's more than 1% because there's a fair bit of competition in the mortgage industry. Just check your spam folder!) Now, according to the best predictions of the funders, they will make money on loans at 5.75%, so the re-seller offers me 6.25% today. However, there is a chance that these best predictions will change based on new information. For the funders, this is not a big risk, since they're in it for the long haul. But for the resellers, it can be night and day. If the predictions cause the mortgage rates to shift by 0.5% over the next two months — unlikely, but could happen — they go from making a bunch of money on my loan to breaking even. And if the rates go higher still, they risk losing money on me.

So of course, even if the expected value of mortgage rates over the two months is flat at 5.75%, they will want to charge me a big premium so that they can assume this risk, which is pretty high for them. For me, the risk is closer to what the funders have. I may not keep the loan over 30 years, but I'm still in it for the relatively long haul. Half a percentage point difference translates to something like $80 dollars a month extra in house payments. It's not something I'd be all that happy about, but it wouldn't make me no longer able to afford the house, either. (If it did, I wouldn't be buying it!)

My wild guess is that the premium the seller is willing to pay to guard from risk is actually higher than the premium I would be willing to pay, since their risk is in some sense higher. Therefore, whatever extra amount they charge on the 90-day lock is almost by definition not worth it for me. However, writing this post, I realized I don't know as much about mortgage finance as I thought I did, and I definitely don't know enough about risk quanitification to back up this conclusion with solid reasoning.

There is a simpler argument against the 90 day lock, though. Getting a 90 day lock is effectively insurance against the long-term mortgage rates going up over the next 90 days. As I outlined in the last paragraph, increased rates are a cost that would be unpleasant, but one that I'd be able to bear. And there's a general principle that says that you should never buy insurance for something you can afford. ("Extended warranty? How can I lose?") So no 90-day lock for us.