Archive for October, 2011

Teach Your Kids About Finaincal Planning

October 29, 2011 at 10:36 pm · Filed under Uncategorized ·Tagged

A recent study showed 50 percent of teenagers were interested in learning more about CD rates, opening a certificate of deposit or savings account and managing money. Many more, 76 percent,  said they wanted to learn about financing large purchases such as a home what mortgage rates today are and 70 percent said they wanted information about investing like how to use a CD calculator.

Whatever the reason for this lack of knowledge, the results are plain to see why too little savings, too much spending, and poor choices when it comes to loans and credit cards. Savings accounts, savings account rates and financial education and helping consumers get larger tax refunds through volunteer work at tax assistance sites.

Linking credit and other products to savings through, for example, credit cards with an automatic savings component which is the challenge faced by banks—aswell as by government agencies and community organizations partnering with financial institutions.

To expand efforts in each of those areas through innovative and creative new programs and have one company that has made a substantial commitment to financial education.Consider the issue of automated savings plans,which help consumers put money aside by essentially taking the decision to save out of their hands.

Fortunately many are making such an effort, and in addition to the federal programs mentioned earlier, a growing number of programs are also offered by the private and non-profit sectors specifically aimed at helping young people to become better stewards of their money. Many more young people do not know how to shop for the best auto insurance rates especially since people under 25 pay the most on auto insurance premiums.

Considering all of the things people learn in their formative years, it is perhaps surprising that so many grow up understanding so little about money.They would have traditional banking products, but their main offering would be non-traditional services that include fee-based check-cashing, basic savings accounts with access to low-cost money orders, deposit secured loans for those with bad credit histories, and budget-management and credit-repair seminars.

The non-profit National Endowment for Financial Education provides lessons onmoneymanagement directly to students through two programs. Another study revealed that approximately 88 percent of surveyed teens want to learn how tomake theirmoney grow.

Two-thirds believe learning about money is “interesting,” and 88 percent indicate they are motivated to learn about money matters to pay their bills and stay out of debt.Reaching the unbanked will require proactive efforts not just by banks.

Non-profit groups and government—and a deep commitment by all to educating consumers aboutmoneymanagement.Many young people have a strong appetite for financial knowledge.

Employers can play a big role in financial literacy.Employers are often in the best position to make sure their employees have the skills needed to make these decisions.The need for smart decisions has become ever more apparent with the rapid shift away from employer-directed defined benefit plans and toward retirement plans directed by the employees themselves.

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Refinance Your Mortgage With Up to 120% LTV

October 20, 2011 at 11:12 am · Filed under Uncategorized ·Tagged

Many home owners who want to refinance because current mortgage rates make a refinance worth while can’t refinance because their home has fallen in value to the point where they are underwater, owe more than the home is worth or don’t have enough equity. Most mortgage lenders will only lend up to 80% of what your home is with, aka 80% LTV. There is a government program that allows you to refinance with up to 120% LTV. Making Home Affordable is helping ordinary people stay in the home.

Many homeowners go an adjustable mortgage because mortgage rates today that has reset higher because of some unscrupulous lenders. If you can decrease the term of your mortgage by refinancing to shorter-term mortgages. For example, a 15-year mortgage instead of a 30-year mortgage–generally have lower mortgage rates.What will refinancing cost but you might just as well take some of your savings from certificates of deposit and pay down your loan since the best CD rates ratesorama.com/cd-rates are not that high right now.

If your monthly payment on a fixed-rate mortgage loan includes escrow amounts for taxes and insurance, your payment each month could change over time due to changes in property taxes, insurance, or community association fees.

Amortization shows that the proportion of your payment that is credited to the principal of your mortgage loan increases each year, while the proportion credited to the mortgage interest decreases each year.With this kind of mortgage, your payments could increase or decrease.

The mortgage rate on your mortgage is tied directly to how much you pay on your mortgage each month–lower rates usually mean lower payments.But before deciding, you need to understand all that refinancing involves.A lower mortgage rate also may allow you to build equity in your home more quickly.

You may be able to get a lower rate because of changes in the market conditions or because your credit score has improved.You may be able to get a lower rate because of changes in the market conditions or because your credit score has improved.

Or do you expect them to go up.You may even decide to combine both a primary mortgage and a second mortgage into a new mortgage loan.Have mortgage rates fallen.Remember that, along with the potential benefits to refinancing, there are also costs.You may even decide to combine both a primary mortgage and a second mortgage into a new mortgage loan.Why consider refinancing.

However, this will also increase the length of time you will make mortgage payments and the total amount that you end up paying toward mortgage interest.What is “no-cost” refinancing.Plus, you pay off your mortgage loan sooner, further reducing your total mortgage interest costs.

A lower mortgage rate also may allow you to build equity in your home more quickly.For example, compare the total mortgage interest costs for a fixed-rate mortgage loan of $200,000 at 6% for 30 years with a fixed-rate mortgage loan at 5% for 15 years Changing from an adjustable-rate mortgage to a fixed-rate mortgage.

If you have an adjustable-rate mortgage, or ARM, your monthly payments will change as the mortgage rate changes.Lowering your mortgage rate The mortgage rate on your mortgage is tied directly to how much you pay on your mortgage each month–lower rates usually mean lower payments.For example, the new mortgage loan may start out at a lower mortgage rate.For example, compare the monthly payments.

For example, the new mortgage loan may start out at a lower mortgage rate.Tip: If you are refinancing from one ARM to another, check the initial rate and the fully-indexed rate.You may choose to refinance to get another ARM with better terms.Would you like to switch into a different type of mortgage.By paying a little extra on principal each month, you will pay off the mortgage loan sooner and reduce the term of your mortgage loan.How do you calculate the break-even period.

Refinancing may remind you of what you went through in obtaining your original mortgage, since you may encounter many of the same procedures–and the same types of costs–the second time around.In this case, you may want to consider switching to a fixed-rate mortgage to give yourself some peace of mind by having a steady mortgage rate and monthly payment.Are you eligible to refinance.

Or the new mortgage loan may offer smaller mortgage rate adjustments or lower payment caps, which means that the mortgage rate cannot exceed a certain amount.Decrease the term of your mortgage: Shorter-term mortgages–for example, a 15-year mortgage instead of a 30-year mortgage–generally have lower mortgage rates.

When you refinance, you pay off your existing mortgage and create a new one.With this kind of mortgage, your payments could increase or decrease.You also might prefer a fixed-rate mortgage if you think mortgage rates will be increasing in the future.

The difference each month adds up, you will have saved after adjusting the length of your mortgage Increase the term of your mortgage: You may want a mortgage with a longer term to reduce the amount that you pay each month.Have mortgage rates fallen.Getting an ARM with better terms If you currently have an ARM, will the next mortgage rate adjustment increase your monthly payments substantially.

Or do you expect them to go up.Would you like to switch into a different type of mortgage.In this case, you may want to consider switching to a fixed-rate mortgage to give yourself some peace of mind by having a steady mortgage rate and monthly payment.Changing from an adjustable-rate mortgage to a fixed-rate mortgage If you have an adjustable-rate mortgage, or ARM, your monthly payments will change as the mortgage rate changes.

Has your credit score improved enough so that you might be eligible for a lower-rate mortgage.However, this will also increase the length of time you will make mortgage payments and the total amount that you end up paying toward mortgage interest.Refinancing may remind you of what you went through in obtaining your original mortgage, since you may encounter many of the same procedures.

The same types of costs, the second time around.It will take time to build your equity back up. Improved enough so that you might be eligible for a lower-rate mortgage.The trade-off is that your monthly payments usually are higher because you are paying more of the principal each month.You also might prefer a fixed-rate mortgage if you think mortgage rates will be increasing in the future.

If you currently have an ARM, will the next mortgage rate adjustment increase your monthly payments substantially.Plus, you pay off your mortgage loan sooner, further reducing your total mortgage interest costs.The answers to these questions will influence your decision to refinance your mortgage.The answers to these questions will influence your decision to refinance your mortgage.

The trade-off is that your monthly payments usually are higher because you are paying more of the principal each month.Your home may be your most valuable financial asset, so you want to be careful when choosing a lender or broker and specific mortgage terms.Monthly payment.

Refinancing is not the only way to decrease the term of your mortgage.By refinancing late in your mortgage, you will restart the amortization process, and most of your monthly payment will be credited to paying mortgage interest again and not to building equity.You might choose to do this, for example, if you need cash to make home improvements or pay for a child’s education.

Mortgage shopping includes a prepayment penalty is a fee that lenders might charge if you pay off your mortgage mortgage loan early, including for refinancing.You may choose to refinance to get another ARM with better terms.

In the later years of your mortgage, more of your payment applies to principal and helps build equity.Increase the term of your mortgage: You may want a mortgage with a longer term to reduce the amount that you pay each month.If you are considering a cash-out refinancing, think about other alternatives as well.

Your home may be your most valuable financial asset, so you want to be careful when choosing a lender or broker and specific mortgage terms.Compare a home equity mortgage loan with a cash-out refinancing to see which is a better deal for you.But before deciding, you need to understand all that refinancing involves.

This means that if you need to sell your home, you will not put as much money in your pocket after the sale.Or the new mortgage loan may offer smaller mortgage rate adjustments or lower payment caps, which means that the mortgage rate cannot exceed a certain amount.

When you refinance for an amount greater than what you owe on your home, you can receive the difference in a cash payment (this is called a cash-out refinancing).Remember that, along with the potential benefits to refinancing, there are also costs.Getting cash out from the equity built up in your home.

Home equity is the dollar-value difference between the balance you owe on your mortgage and the value of your property.When you refinance, you pay off your existing mortgage and create a new one.When is refinancing not a good idea.You could shop for a home equity mortgage loan or home equity line of credit instead.Also ask about the rate adjustments you might face over the term of the mortgage loan.

You may find yourself uncomfortable with the prospect that your mortgage payments could go up.You may find yourself uncomfortable with the prospect that your mortgage payments could go up.Remember, though, that when you take out equity, you own less of your home.

Refinancing calculators How can you shop for your new mortgage loan.

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Interest Rates Commerical Paper and Investing

October 2, 2011 at 11:15 am · Filed under Investing ·Tagged

Issuance to the CPFF was either secured by collateral or subject to an additional surcharge, which was calibrated to protect the Federal Reserve from any potential credit losses regardless of where interest rates are on refinance rates or mortgage rates.

In light of these strains, the Federal Reserve announced the creation of the Commercial Paper Funding Facility (CPFF) on October 7, 2008, with the aim of supporting the orderly functioning of the commercial paper market in response to the program interest rates and CD rates were on a downward sprial to hitting new lows in 2011. Right now bank deposit rates are extremly low in many countries including the United States, the best CD rates are originating in many different rates. You’d be lucky to find U.S. CD rates higher than 1% on most bank CD rates.

Unsecured commercial paper is not backed by collateral, which makes the credit rating of the originating institution a key variable in determining the cost of issuance.This liquidity backstop provided assurance to both issuers and investors that firms would be able to roll over their maturing commercial paper. You can still invest in certificates of deposit though current CD rates on 5 year certificates of deposit are less than 2.00% these days.

The facility was explicitly designed to protect the Federal Reserve from potential credit losses.In the United States, commercial paper is cleared and settled by the Depository Trust Company (DTC).Mortgage rates today are tied to U.S. Treasuries. Indeed, a large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and the difficulties they faced placing commercial paper further reduced their ability to meet the credit needs of businesses and households.

The SPV then issues the ABCP, which is backed by the assets in the 2 An SPV is a legal entity created to serve a particular function—in this case, purchasing or financing specific assets.In traditional bank-intermediated financial systems, borrowing institutions obtain loans from commercial banks, which in turn are funded primarily by deposits.Historically, senior tranches of asset-backed securities (ABS) have served as collateral for ABCP as a result savings account rates move higher in tandem. This paper offers an overview of the Commercial Paper Funding Facility.

It effectively extended access to the Federal Reserve’s discount window to issuers of commercial paper, even if these issuers were not chartered as commercial banks.1 Initially, the CPFF was set to expire on April 30, 2009, but it was extended to October 30 and subsequently to February 1, 2010.

Registration for the CPFF began October 20, 2008, and the facility became operational on October The CPFF operated as a lenderof- last-resort facility for the commercial paper market.It expired February 1, 201 The goal of the CPFF was to address temporary liquidity distortions in the commercial paper market by providing a backstop to U.As a result, an increasingly high percentage of outstanding paper had to be refinanced each day, interest rates on longer term commercial paper increased significantly, and the volume of outstanding paper declined sharply.

All commercial paper is traded in the over-the-counter market, where money market desks of securities broker-dealers and banks provide underwriting and market-making services.Unsecured commercial paper consists of promissory notes issued by financial or nonfinancial institutions with a fixed maturity of 1 to 270 days, unless the paper is issued with the option of an extendable maturity.

We explain the economic role of the commercial paper market as a source of funding for various financial intermediaries.The facility enabled issuers to engage in term lending funded by commercial paper issuance, which in turn enhanced the ability of financial intermediaries to extend crucial credit to U.Institutions that issue ABCP first sell their assets to a bankruptcy-remote special-purpose vehicle (SPV).There are two main types of commercial paper: unsecured and asset-backed.

In addition, we discuss the economics of the facility in the context of the financial system and in relation to the Federal Reserve’s role as lender of last resort.We briefly review the events surrounding the turmoil that led to the creation of the CPFF.Since the early 1980s, however, the U.Asset-backed triggered by the bankruptcy of Lehman Brothers.

The CPFF did not address the solvency of issuing firms.One way to gauge the degree to which this process of disintermediation affected the commercial paper market is to compare outstanding commercial paper with the money stock.Some sections of this paper are based on notes prepared by James McAndrews and Joshua Rosenberg in October 20 Hoai-Luu Nguyen and Jordan Winder provided outstanding research assistance.

Treasury, Federal Reserve Banks, and the vaults of depository institutions; travelers checks of nonbank issuers; demand deposits; and other checkable deposits.The sharp contractions of commercial paper in 2007 and 2008 led the ratio of commercial paper to M1 to fallDTC is a subsidiary of the Depository Trust and Clearing Corporation.

These broad investor flows within the money market sector severely disrupted the ability of commercial paper issuers to roll over their short-term liabilities.Background on the Commercial Paper Market The commercial paper market is used by commercial banks, nonbank financial institutions, and nonfinancial corporations to obtain short-term external funding.

The commercial paper market experienced considerable strain in the weeks following Lehman Brothers’ bankruptcy on September 15, 20 The Reserve Primary Fund—a prime money market mutual fund with $785 million in exposure to Lehman Brothers—“broke the buck” on September 16, triggering an unprecedented flight to quality from high-yielding to Treasury-only money market funds.If the sponsoring institution enters bankruptcy, the assets of the SPV do not become part of the sponsor’s pool of assets.

M1 consists of: currency outside the U.Our study also presents operational details of the CPFF and documents its usage and effectiveness.As redemption demands accelerated, particularly in highyielding money market mutual funds, investors became increasingly reluctant to purchase commercial paper, especially for longer dated maturities.

Commercial paper represented only 30 percent of the money stock measure (M1) in 19 It overtook M1 in mid-1998 and, at its peak, was 60 percent larger than M1 in August 2007 (Chart 1).These market disruptions had the potential to constrain the economic activities of commercial paper issuers.Also considered are issues associated with the risk of moral hazard that have been raised following the launch of the CPFF.

Asset-backed commercial paper (ABCP) is collateralized by other financial assets and therefore is a secured form of borrowing.The views expressed are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.As such, ABCP is a financial instrument that has frequently provided maturity transformation: While the underlying loans or mortgages in the ABS are of long maturity (typically five to thirty years), ABCP maturities range between 1 and 270 days.

Commercial paper provides institutions with direct access to the money market.Unlike the discount window, the CPFF was a temporary liquidity facility that was authorized under section 13(3) of the Federal Reserve Act in the event of “unusual and exigent circumstances.

 

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