Pod Insights The Clark Howard Podcast 04.01.26 Adjustable Rate Mortgages - A Waning / High Deductible Health Plans About this episode Adjustable-rate mortgages (ARMs) are booming again, but Clark has a major warning: this "oldie but baddy" could be a financial time bomb. Clark breaks down why banks are pushing ARMs, who they actually work for (a narrow group indeed), and the "reset" risk that could cost you your home. Also, health insurance has become insanely expensive. Many Americans are skipping meals just to pay for healthcare. Clark discusses why catastrophic-only plans are a dangerous gamble and identifies the real culprit behind our skyrocketing medical bills. Danger: Adjustable Rate Mortgages: Segment 1 Ask Clark: Segment 2 High Deductible Health Plans: Segment 3 Ask Clark: Segment 4 Mentioned on the show: Adjustable-Rate Mortgages Are Popular Again – Here’s Why You Need To Be Careful NYTimes: A Third of Americans Have Cut Spending or Borrowed Money for Health Care NYTimes: New A. C. A. Plans Could Increase Family Deductibles to $31,000 What Is an HSA Account and How Does It Work? - Clark Howard How to Deal With Medical Debt - Clark Howard Will Mark Cuban's Prescription Company Really Save You Money? 10 Ways To Save on Prescription Drugs - Clark Howard Clark.com resources: Episode transcripts Community. Clark.com / Ask Clark Clark.com daily money newsletter Consumer Action Center Free Helpline: 636-492-5275 Learn more about your ad choices. Visit megaphone.fm/adchoices
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0:27 Speaker 01 Your sausage McMuffin with egg didn't change, your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5. Only at McDonald's for a limited time.
0:40 Speaker 02 Pricing participation may vary. Promotion pricing may be lower than meal pricing.
0:47 Speaker 03 It's my pleasure to welcome you here to the Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you so you make terrible financial decisions in your life. Today, I'm going to tell you how I've been so wrong encouraging you to save money. Don't do that. Spend, spend, spend all the time and make sure you pay too much for everything. Actually, you know what today is? April Fool's Day. So, just had to do that. Today, I want to talk about something that an unusually large number of Americans are
1:30 Speaker 03 doing when they go to buy a home. And it's how they're financing that home. Just laying it out here, you're freaking me out. And later, if you have to buy your own health coverage, or you're a small business owner trying to navigate this, it's tempting what's out there in the market that saves you money upfront, but is bad, ugly when you get sick. I'm going to tell you what you need to know, who it works for, more important, who it doesn't. But right now, I want to talk about something in the mortgage market, an oldie but baddie that is booming.
2:12 Speaker 03 You know, even as mortgage rates have moderated somewhat, they're not back where they were when they were being artificially manipulated lower through the housing bust and the time period after it. And so now we're looking at mortgages that start with a five, look at a six, start with a six. People are like, hey, that's too much money I'm having to pay per month. And so they're being advised by the banks to take out ARMs. An ARM is where you take out a loan that's fixed for a period of time, usually three or five years, but most often five years, occasionally seven. Then after that, the loan blows up on you.
2:57 Speaker 03 And so they're dangled before you because you get an upfront lower mortgage rate. But then you have no idea what they're going to be in the future. So just trying to get into a loan at the lowest possible cost, people are doing the ARM, they're typically saving one percentage point versus a fixed rate loan. And so, yeah, it's looking awesome for that three, five, or seven years, right? You know, I would have been paying X number of dollars a month, paying this much more interest, but I don't have to worry about that until the day you do.
3:37 Speaker 03 So what happens if home values kind of stall out over the next many years? And you can't refi. What happens? You're at the mercy of whatever that rate resets to based on the index that's in your contract.
3:58 Speaker 03 Who is it okay to do an arm? So often, it's the people who aren't doing them. Here's a circumstance where an arm can work. So let's say you're trying to get the best deal on the loan. And right now, that's the arm. And you have sold a prior home and you've got huge money you're paying down on the new home. You've got, day you move in, you've got huge equity. You've got flexibility there. You're not in a position where you financed, you know, 95, 97% of the purchase. And you're dependent on values of homes going up over that five or seven year period. Let's just call them five or seven year arms.
4:42 Speaker 03 In order for you to have enough equity to have a chance of being able to refi. But again, if those homes don't go up in value, you may be boxed out of doing a refi. So the people who need the flexibility the least, people who have huge money they can put down on a down payment are the very ones that can benefit the most from doing an arm. Because the risk to them is so much lower. Otherwise, you don't use an arm as a way to stretch into a home that really you couldn't afford otherwise. Krista?
5:19 Speaker 04 Okay. Gregory in California says, Anna Clark stinks. I was watching recently, there was a letter from somebody about how she was able to get out of debt. But one of her things that she mentioned was she paid off her student loan with her HELOC since the interest is then deductible. But the interest isn't actually deductible, is it? If it's not used for home improvements and fixes?
5:40 Speaker 03 You are completely right. And I don't remember the circumstances of the particular episode you watched. But when somebody takes a student loan and moves it to a HELOC, they're putting their house at risk. The deductibility. Is something that is subject to audit, but seldom is. So people do deduct the interest a lot, even if they're not even aware they're not supposed to.
6:11 Speaker 04 Allison in Utah says, my husband and I are looking to build a larger home and trying to decide if we should rent our current home or sell. Our current home rate is 2.9% and we still owe about $110,000. Similarly sized homes in the area are renting for around $2,800. Our same floor plan down the street recently sold for around $560,000. The new home would likely be 4.99% rate and the price is $675,000. We would put down at least 20% to avoid PMI and probably more with savings. Unless we sell, in which case we would put all equity toward the new home. Is there an obvious better option in this scenario?
6:55 Speaker 03 Okay, so first of all, your finances are in great shape. I mean, I'm, I'm hearing everything you're saying. This is absolutely wonderful, Allison. I mean, you, you've got so much equity in that home. You've got so much available cash that even if you keep that home and turn it into investment property, you are in a position to avoid PMI and have instant equity in that new home. Right? So a couple of things here. You said the home now, even though you only owe $110, is worth $560,000 or somewhere in that territory. But the rent you can get for it is about $2,800 a month.
7:36 Speaker 03 If you go with a traditional back of the envelope, return on investment on a rental property, you would want to be able to get rent more like $5,000 a month to justify tying up money. In a property that's worth now around 560. Now, you do have the advantage, though, that that covers some of that, that the remaining mortgage balance is at a crazy low interest rate at 2.9. And that is a very valuable opportunity. And then, on the other hand, if you sell the property, the gain you've had over the years, you are allowed to exclude tax-free,
8:20 Speaker 03 quarter million, single individual, 500,000 as a couple in your case. So the sale of that property would be completely tax-free for you. So 100% of that money would go to your pocket. If you turn it into a rental property, eventually you lose the tax-free shelter in the sale of the property. So, all those things considered, it's not a slam dunk to sell it, but I would encourage you to sell the property. Then, think about this. You're able to put so much more down on that $675,000 home that the fact that you're going from 2.9% to 4.99% on a mortgage
9:02 Speaker 03 becomes less relevant because the mortgage would be so much lower on the new property. The other case, though, is this is a method of long-term wealth, turning that original property into a rental property because you will generate decent cash flow even from the very beginning, all through the years on it.
9:26 Speaker 04 Okay, David in California says, "It's my understanding that the New York Stock Exchange and NASDAQ have been electronic exchanges for some time now. Why, then, are there still traders on the floor of the exchange? Are they trading in commodities or other assets with less liquidity?"
9:42 Speaker 03 So, the advantage you have with traditional exchanges, even though most transactions are so simply done and they're electronic and they're instant and all that, is there, the whole architecture of how traditional exchanges work is there are what are known as market makers. So, the stock markets work well electronically normally, but there are times of financial panic or whatever where humans involved in the process
10:17 Speaker 03 Deal better with freeze ups in markets in a particular stock or in a particular range of stocks in a part of the exchange. So everyday routine, yeah, all electronic. But the advantage that remains by having very experienced traders and having market makers making sure that a stock stays as liquid as possible is part of the underlying architecture that keeps financial markets stable, even in a time that would be unstable otherwise. So that's my case for it. And I have an automatic bias because my late father,
11:02 Speaker 03 as a young man, worked on the floor of the New York Stock Exchange and was a big believer in his lifetime in having humans involved in the process because of the what ifs that can occur. So Dad, that's for you. Coming up ahead, I'm going to talk about high deductible health plans and when the pitch for them makes sense and when it's flat out dangerous for you.
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12:17 Speaker 02 Pricing participation may vary. Promotion pricing may be lower than meal pricing.
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13:50 Speaker 03 So we're in a pretty serious push to shove with healthcare costs in the United States. Our trend lines have been and stay ugly compared to everywhere else on earth. And yes, I'll say that thing I say that upsets some people in medicine. Our life expectancies are really poor in the United States compared to any other developed country and a lot of middle income countries.
14:19 Speaker 03 So we're not getting a lot for the outrageous amount of money we spend on healthcare in the United States. And there's a lot of arguing among the politicians about coverage, about insurance, ignoring the big problem, which is cost in our system. So they're all looking for a short-term magic pill and something they can say in like 10 seconds to people if they're asked a question about healthcare. The reality is, the problem we've got is out-of-control spending by monopoly hospital systems, city by city. If you look at where
15:00 Speaker 03 the money is going for healthcare in the United States, the core of the problem is how hospital systems, both profit and nonprofit hospital systems, but mostly nonprofit, have strategized to create semi-monopolies or monopolies in metro areas. They don't need to monopolize the country. They just need to monopolize the area they're in, own medical practices, own imaging facilities, and feed people into this outrageously overpriced system that they've created. So we're all arguing about insurance, when the real issue
15:44 Speaker 03 is the politicians lack the guts to do something about the problems the hospitals are causing all around America with poor health outcomes and crazy high costs. And remember, if you are a hospital administrator and you're furious at me right now, Clark.com/ClarkStinks is where you post your rebuttal. So people can disagree about all that I said, but look at this. New survey finds that a third of Americans are having to borrow money for medical care they need, doing without that medical care, or not being able to pay their
16:24 Speaker 03 other bills because how expensive it is. And so going back to the politicians, a lot of them are acting like having catastrophic-only health coverage would solve all. The problem is, if people can't afford a regular, routine bill, how are they going to afford
16:48 Speaker 03 A health plan that the first $20,000 to $30,000 of cost comes out of your pocket. Let's be realistic here. The premiums may be lower on one of these catastrophic things, but they're generally not even HSA eligible because in order to be able to have these wonderful accounts called HSAs, a high deductible health plan has to meet certain criteria. And these snake oil things, these high deductible plans, most of them aren't even eligible for HSAs.
17:25 Speaker 03 So I'll be asked by people, so I can't afford normal insurance. Is this better than nothing? Here's the answer to that. If you have a lot of assets, let's say you own your own business. It's throwing off a lot of income, all that. You're the person who can handle an ultra-high deductible health plan. On the other hand, if you're someone who is doing it because you can't afford anything else, I'm not sure that it's better than nothing. We are in a, we're in a real bind right now with health coverage. So I would say if you want to buy something that would qualify as a high deductible health plan, it's not going to have a $20,000 or $30,000
18:10 Speaker 03 deductible. It will be substantially lower and it will make you HSA eligible. Health savings accounts are so phenomenal because you get an upfront tax benefit. The money grows tax-free and you can use that money to pay out-of-pocket medical expenses. So beware, be wary of ultra-high deductible health plans. And if you elect me, no, I'm not running for office.
18:43 Speaker 03 But I mean, we need some people in Washington who will actually attack the problem and not come up with half solutions. If we don't deal with the cost side of healthcare, we're going nowhere.
18:59 Speaker 04 Okay. David in Alaska says, twice in the last six months, I've been surprised by invoices from doctor's clinics saying I owe them money from two years ago or longer. They call it an account review. I called and they said it's due to some sort of oversight in previous billing. But when pressed for an explanation, the billing department rep says she can't answer about lapses or errors since she wasn't working there at the time. There's a big warning at the bottom of the notice that it'll be referred to collections if I don't pay. The amount this time is $176.55 for a visit in April of 2024. I'm tempted to pay it just to get it out of the way, but is there a different recourse advised? And I'm going to do something I don't usually do, but I'm going to read the second question because
19:43 Speaker 04 I feel like the answer, you might be able to just sort of do them one after another. Dan in Ohio says, I got a bill from a date of service two years ago from doctors I've never heard of. It's from online care network, which I've not heard of either. Do I need to pay this? So lots of people have been writing in saying they're getting these bills, sometimes from doctors they know, sometimes they don't, and threatening collections.
20:06 Speaker 03 Right. So we got a couple of things here. One, if a bill is a legitimate bill and you owe it, the fact that they bill you late doesn't eliminate that it's a bill. But the reality is, an old bill is very hard to ever collect. And at a certain point, varying by state, they don't even have a right to sue you against it anymore. It doesn't prevent them from turning it over to a bill collector, but then what you do is you, you exercise your rights to dispute the validity of the debt. Now, let's go to your thing, David. If you had insurance, you hopefully would be able to process this through insurance
20:48 Speaker 03 since it's not ultra old. If you're talking about back in 24. If you don't have insurance and you know the bill to be legit and you can afford to pay it, I would say you just pay it. If it is a legit bill. In the case of Dan, though, it's different. Because these are bills from doctors you don't even know. Now, there can be circumstances where we get billed by doctors we've never heard of. Could be a radiology practice, or an anesthesiology practice, or something like that. But other than a circumstance like that, if it's like, you know, a primary care doctor, internal medicine doctor.
21:29 Speaker 03 In your case, Stan, you say, "I don't recognize these providers or these bills." And then you have them provide you documentation to your satisfaction, if they can, that you owe the bill. In the event that it went to collections, and these are bills that you don't recognize as yours, you dispute the validity of the debt with the collector. And then they are putting themselves at risk if they were to put it on your credit report. You also have the right, once you do that, to tell them they can't contact you further about the debt. There is a problem in medicine. A lot of medical providers are better at providing medical care than they generally
22:14 Speaker 03 are at the back office functions. And medical back office billing being messed up is a common problem. Somebody new will come in, and they'll go back and they'll do forensic accounting and say, "Hey, we never billed for all these things." They send out a big drop of bills from, could be years ago, like we're talking about in Alaska.
22:37 Speaker 04 And then these, these practices getting bought up by these bigger companies?
22:41 Speaker 03 They could get bought up by-
22:42 Speaker 04 And then those people are going back?
22:44 Speaker 03 Right, by private equity buying up practices. Right. They pay for part of the cost of buying out the practice from going back and doing forensic billing.
22:55 Speaker 04 Gosh, okay. Gary in North Carolina says, "I haven't heard you mention them, but I went to Walgreens to pick up a generic prescription med that was over $200, my cost. I asked the doctor's office to submit the same generic prescription to Mark Cuban's cost plus drugs. My cost was $22, not going through insurance and through this online pharmacy."
23:15 Speaker 03 Okay, say the numbers again. 200 from Walgreens, 22 from Mark?
23:19 Speaker 04 Mm-hmm.
23:21 Speaker 04 Pretty significant cost difference. I'm learning to not always accept the first price you get. I will say Walgreens told me before running the medicine through insurance, how much the medicine was going to be. Thanks for everything.
23:32 Speaker 03 And that's a really good practice at that Walgreens you went to because they know how likely you would have abandoned the prescription at the counter when they told you it was going to be 200 bucks. So different operators price differently. Mark Cuban has copied what Costco does where they market up prescriptions a certain percent. Don't know what Mark's markup is, but Costco marks up no more than 14% on prescriptions. And most pharmacies discount from the brand name price to the generic. So they might say,
24:14 Speaker 03 well, the brand name is 300, we'll sell the generic for 200, even if the generic only cost them $8. So, or in this case, let's say 20. So that's why you've got to be aware that the price really does matter. And if you use something like GoodRx, you're able to see what it will cost at different places for a med. And know that the pharmacy business is very opaque. It's very hard to know upfront what something's going to cost you. I always go up to the counter. I kind of feel like I don't play lotteries. I don't gamble. But
24:55 Speaker 03 I go up there and it's time to ring up the med and I have no idea what's going to pop up on the register.
25:03 Speaker 04 We've also heard from some people about Amazon Pharmacy.
25:06 Speaker 03 That's right. Amazon, I should have mentioned them. Walmart, because you can't mention Walmart without mentioning Amazon.
25:13 Speaker 04 Yeah. And again, the Mark Cuban one is cost plus.
25:17 Speaker 03 Mark Cuban's cost plus drugs.
25:19 Speaker 04 Yep.
25:19 Speaker 03 So there are massive differences on the same script, one place to another. And your example, Gary, is not unusual, but I'm glad you just didn't pay the 200 and you got it for a 10th the cost. Good for you. And thank you so much for joining us today. We're so glad we had you on our April Fools edition.
25:46 Speaker 03 Of our podcast and YouTube show, and I hope you pull a good one off over on somebody. What's the best April Fools joke anybody ever pulled on you?
25:58 Speaker 04 I think my parents told me there was no school one day and it was a lie.
26:03 Speaker 03 Oh, that would hurt.
26:06 Speaker 04 So cruel.
26:07 Speaker 03 In my broadcasting career, one of the funniest things that happened was a competitor station did a fake Clark show that day.
26:17 Speaker 04 Oh, wow.
26:17 Speaker 03 Because people wouldn't know in a market necessarily what radio stations tune into. And they gave all bad advice.
26:24 Speaker 04 Oh, so wrong.
26:26 Speaker 03 Yeah. People thought I'd really been giving the bad advice. Oh, well, anyway, have a great rest of your day and Friday is going to be Clark stinks. And look forward to hearing the ways I can improve to serve you better. So you can learn ways to save more, spend less, and avoid getting ripped off.
26:56 Speaker 00 Are you ever shopping online and suddenly a discount that helps you save pops up? It makes your day, sometimes even your week. Want that feeling month after month? Well, new customers who save by switching their home and auto insurance to Progressive save hundreds. Cue your happy dance. Get your quote today at progressive.com. Progressive Casualty Insurance Company affiliates and other insurers not available in all states.
27:22 Speaker 01 Your sausage McMuffin with egg didn't change, your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5.00 only at McDonald's for a limited time.
27:34 Speaker 02 Price and participation may vary. Promotion pricing may be lower than meal pricing.
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