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AUTOMOBILE LOANS

Publicado por sam - 10/09/07 a las 01:09:50 am

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A loan for the purchase of an automobile is similar in most respects to an unsecured personal installment loan but the interest rate is likely to be lower—perhaps by as much as two or three percentage points. The percentage rate is lower because the automobile serves as collateral and can be repossessed by the lender in case of default.

As automobile prices have continued to escalate the term of an automobile loan has been from the traditional three years to four and as long as five years for new models. Used-car loans are available for shorter terms and at rates as much as two percentage points higher.

Interest and Other Costs

As is true of all loans, the longer the term, the lower the monthly payment but the higher the interest cost. For example, on an $8,000 loan at 11 percent, the total interest charges would amount to $1,429 for a 36 month term but would rise to $2,436 for a 60 month term. Obviously, the most economical plan is to take the shortest loan term you can afford and use as much of your own for as big a down payment as possible, since you are unlikely to earn nearly as much interest on your cash as you are being charged for the loan. Continue reading …

Creative Financing-Shared-Appreciation Mortgages and Balloon Mortgages

Publicado por sam - 06/09/07 a las 12:09:56 am

Shared-Appreciation Mortgages
The adjustable rate mortgage, as we have seen, makers the borrower share the risk of fluctuations in the interest rate.  The shared appreciation mortgage makes the borrower and the lender partners in the appreciation of the mortgaged property.  In return for a lower interest rate, which may permit the purchase of a more expensive home, the borrower agrees to give the bank as mush as 50 percent of the increase in the value of the property when it is sold, or five years later.  Thus, if in fiver years the value of a $125,000 home increases to $175,000, the borrower would owe the bank one half of the $50,000 appreciation. 

This type of mortgage is likely to appeal to borrowers who foresee a rising market and plan to sell the home within the five year period.  There is, however, no certainly that within this period the value of housing in general or the mortgaged home in particular will appreciate.  If for any of a variety of reasons, you are forced to sell the property below market value, you will have to make up the shortfall from other funds in order to meet your obligation to the bank. Continue reading …

Creative Financing

Publicado por sam - 05/09/07 a las 04:09:19 am

Creative financing, which differs radically from the conventional types of home financing, tends to become popular when there are high interest rates, high housing prices, a recession, or a population shift and potential buyers cannot afford housing or potential sellers cannot find buyers.  In such situations, creative financing, although hazardous, may be the only route to home ownership.  When interest rates and the housing market are normal, it is wise to avoid this option.

Creative  financing is available in the four distinct forms describes below, all of them in one way or another linked to change in interest rates or property values.  They promise the borrower some very attractive advantages if interest rates should fall or housing prices should rise.  But, unfortunately, interest rates are almost completely unpredictable over the long term, and the value of a specific community may, for a variety of reasons, fall sharply even though housing in general is appreciating steadily. Continue reading …

Adjustable-Rate Mortgages Loan

Publicado por sam - 04/09/07 a las 09:09:45 am

The fixed-rate conventional mortgage as discussed in previous blog is almost always preferable to any other kind.  But, alarmed by wild fluctuations in interest rates during the past two decade, many banks prefer to offer a mortgage with rates that are adjusted every year, three years, or five years to reflect changes in market interest rates.  Whether the longer or the shorter adjustment period is preferable depends entirely on the direction of market rates.  If rates begin to climb shortly after you have taken the mortgage, a long adjustment period locks you into a low rate, but just the opposite occurs if rates begin to drop when your mortgage is only a month old.

Regardless of the adjustment period, most banks do not change the rate arbitrarily.  Instead, the mortgage specifies that rates will be based on some widely publicized index—for example, the rates paid on one-year U.S. Treasury securities—plus an additional or so percentage points. Continue reading …

Conventional Fixed-Rate Mortgage Loans

Publicado por sam - 04/09/07 a las 12:09:40 am

There are several type of mortgage loans and understanding of each will help you determine the right one to choose from when financing your homes. The first in the series about loans we’re going to discuss is conventional fixed rate mortgage loans.

While the conventional fixed rate mortgage has to some extent been replaced by other types, it has by no means disappeared.

Although the fixed rate mortgage may appear to be more expensive than some of the alternatives, it is in many ways the most desirable kind of mortgage for most home buyers.

Interest rate and Terms 
As its name implies, this type of mortgage carries a fixed interest rate for its term, which may be as long as 30 years.   Generally each payment remains constant and includes interest and a portion of principal.  As the payments continue, the proportion applied to interest diminishes and the proportion applied to principal increases correspondingly. Continue reading …

ARE BANK INVESTMENTS THE BEST FOR YOU?

Publicado por sam - 30/08/07 a las 12:08:48 am

There are several reasons why banks are the first alternative that people choose for the deposit of their savings.  To begin with, banks provide many people with their earliest experience with any form of savings account.  In addition, on the basis of a personal relationship with a pleasant teller or a friendly manager, some people develop a loyalty to their bank that discourages a cold, objective comparison of interest rates and investment options.  Moreover, because they are reluctant to deal with strangers and mistrustful of the U.S. mail, many people prefer a relationship with a local bank they can visit at any time.  And, finally, banks tend to emphasize the safety that FDIC or FSLIC insurance offers their depositors.

All of these factors predispose many depositors toward banks and cause them to overlook some attractive alternatives instead of considering them carefully and objectively.  Before assuming that bank offers you the best all possible vehicles for your savings, you ought to consider the alternatives discussed in chapter 5 and in chapter 17 through 22.

CLOSE-UP:
LEGAL PROTECTION FOR DEPOSITORS

Deposit Insurance

Federal insurance coverage for bank deposits-through the federal Deposit Insurance Corporation for commercial banks and many savings bank and the Federal Savings & Loan Insurance Corporation for savings bank and savings-and-loan association—protects depositors to a maximum of $100,000 at any one bank.  All federally chartered banks are required to be members of the FDIC; state chartered banks need not belong, but most do.  Continue reading …

CERTIFICATE OF DEPOSIT

Publicado por sam - 29/08/07 a las 08:08:49 am

A certificate of deposit (CD) is a promissory note that you receive from the bank.  In return for your loan, the bank promises to pay you a fixed rate of interest (or, sometimes, a variable rate) for the term of the loan and to return your principal and interest at the end of that period.  While CDs pay higher interest rates than do regular  savings accounts and provide the security of FDIC protection, they tie up your money for the term of the certificate.

Interest vs. Liquidity
The fact that the interest rate on a certificate of deposit is fixed and unchangeable may turn out to be either an advantage or a disadvantage.  When interest rates are at a peak, a bank will have to offer certificate at a fairly high interest rate to attract buyers.  If you buy a long term certificate at that time, you will lock in a high rate, and continue to receive that the rate even if interest rates drop precipitately.  Conversely, if interest rates are low at the time of your purchase, you will lock in a low rate for the entire term of the certificate. Continue reading …

MONEY MARKET ACCOUNTS

Publicado por sam - 29/08/07 a las 03:08:52 am

The money market accounts offered by banks can be confusing for three reasons.  First, the same basic account is given a wide variety of names by different banks.  Money Management Account, Market Plus Account, Investor’s Choice Account, and so forth.  Second, the money market account is easily confused with the Super NOW accounts, an interest-paying checking account.  Third, the money market account is also easily confused with the money market mutual fund, which is similar in some respects but is not offered by banks.  Regardless of its name, however, the  money market account available from banks has the following characteristics.

Like a regular savings account, a money market account  typically earns interest at 5.25 percent up to a specified balance—usually  $1,000 to $2,500.  Beyond that level, the interest rate rises to what banks call the “market interest rate”—a rate that fluctuates but normally is about one percentage point higher than the rate paid on Super NOW.

Like a savings account, the money market account is federally insured, and there is no limit to the size or the number of deposits or withdrawals that you can make.  But while you are entitled to write three checks per month on the account, exceeding this limit can cost you a penalty of $5 to $10 per check.  And, because its interest rate is higher than that of a regular savings account, some people use the money market account as a temporary parking place for funds awaiting other kinds of investments.  Keeping such funds in a regular savings account or Super NOW account would earn them less, and depositing them in a non interest paying checking account would earn them nothing. Continue reading …

PASSBOOK AND STATEMENT SAVINGS ACCOUNTS

Publicado por sam - 28/08/07 a las 08:08:53 am

The traditional savings account—whether its activity is recorded in a passbook or a monthly statement—is safe and liquid. As a result, it pays the lowest rate of interest offered by banks. Prior to the changes brought about by the Depository Institutions Deregulation Act of 1982, the interest payable on such accounts was limited to 5.25 percent for commercial banks and 5.5 percent savings banks. Although banks are now free to offer whatever rates they choose, these rates have not much. Instead, banks offer their customers higher rates for larger or less liquid forms of deposit, as discussed below.

With passbook accounts, all deposits, withdrawals, and other transactions are recorded in a book that the depositor holds and presents with each transactions. (Passbook account transactions are, of course, also recorded by the bank’s computers). Before the advent of computers, this was the standard type of savings account. Some consumers still prefer the passbook account—perhaps because it represents tangible evidence of their savings balance—even though the passbook are easily lost or misplaced and passbook depositors do not have access to automated teller machines. (Some banks no longer even offer passbook accounts.) Continue reading …

SAVINGS ACCOUNT

Publicado por sam - 28/08/07 a las 08:08:37 am

Savings may be defined as the money that you set aside from your disposable income for future use instead of spending it immediately. The future use you anticipate may occur at the end of the month, when your mortgage payment falls due, at the end of the year, when your need to buy a new car, or 10 years from now on, when your child’s first college tuition bill. You may intend part of your savings to protect you against an unspecified rainy day –to pay for unforeseen emergencies like medical expenses or the loss of your job or to allow to take a vacation or redecorate your home.

Whether you are saving for the short term or the long, however, you should be concerned with three factors. You want your savings to be protected against total or partial loss; you want them to grow by earning interest; and you want them to be readily available.

Unfortunately, there is no investment that will simultaneously satisfy your concerns for safety, yield, and liquidity. Whether you invest your money in a savings account, stocks, or real state, the higher the safety, the lower the yield, typically—and the higher the yield, the lower the liquidity. This is why bank savings account, for example, which are both safe and liquid, Continue reading …

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