Someone Wants to Steal Your Name

How to Prevent Identity Theft

Identity theft has gotten a great deal of media coverage in the last few years. It is a crime that has a long history, but with modern electronic communications opening so many new ways to obtain information, and the desperation that comes with the current economic malaise, it may be a worse danger than ever. To protect yourself, you’ll need to know what identity theft is, and how criminals go about it.

Identity theft is one person’s use of another person’s personally identifying information, without permission, to apply for credit, get a telephone number, rent an apartment or any number of other transactions where one’s identity and records are checked. This information can include names, social security numbers, and credit card numbers. Often, the crimes go undetected until the victim is contacted by a debt collector, sees unfamiliar charges on a credit card statement, or checks their credit report.

There are, unfortunately, many ways an identity thief can access your information. Some ways have been around a long time, such as rummaging through trash for credit card statements or other papers with your identifying information. Another way of doing about the same thing is by submitting a change of address form at the post office, so that your mail is diverted to them. They can also simply steal a wallet or a purse, or gain access to personnel records at an employer. Using a false pretense can also sometimes get them access from banks, telephone companies, or other sources.

IdentityStolen

Of course, newer methods have cropped up in the internet age. Ubiquitous credit and debit cards have allowed some more technologically-oriented thieves to gather information by attaching special storage devices to card readers. Phishing sites on the internet have also become infamous of late, offering entirely fraudulent services or imitating legitimate providers to trick you out of your information with pop-ups or spam.

What will these villains do with your identity once they get it? They could open a new credit card account and not pay the bills. Any delinquent accounts will appear in your credit report, and collections agencies may come after you. They could also use your existing credit card to make purchases, even changing the address associated with it so you aren’t alerted by the bill. They could also run up charges on your phone or wireless accounts, or get these or utilities in your name. They could open up bank accounts, take out loans, or even simply drain your existing accounts. Indeed, with a few numbers and names, an identity thief could do about anything you could think of requiring that information. Drivers licenses, jobs, renting, getting government benefits, even giving your name to police if they’re arrested are all possibilities. That’s why it’s so important to do what you can to prevent identity theft.

Some steps in this direction are fairly simple. Don’t put documents with essential information in the trash whole. Shred it, if possible, or at least tear it up if you don’t have a shredder. Another common-sense step is being careful with your cards, wallets and purses. Don’t leave such important things unwatched. It doesn’t take long to swipe a purse, or even to extract a single card from it. Look out for unexpected attachments in card readers, as these could have been put on with criminal intent. Finally, never give your personal information to a Website that you have not done some research on first, and watch out for suspicious e-mails from your creditors or others you do business with. Most legitimate businesses will never ask you to send any passwords or account numbers via e-mail. Even if an e-mail seems legitimate, be cautious about following any links. If this is a company whose URL you know, make sure it is correct. Better yet, go to their site directly rather than using the link, to make sure whatever is claimed in the e-mail is legitimate. Some websites can cause harm just by your visiting them.

There are also services now on the market that help protect against identity theft by closely monitoring any activity done in your name. Of course, they aren’t free, but unfortunately, even with the steps mentioned above, it is possible that someone else who has your information won’t be as careful. With the Federal Trade Commission estimating that as many as 9 million people have their identities stolen each year, any protection you can get may really pay off in the end.

Money Market Funds and You

The Advantages, Disadvantages and Varieties of a Low-Risk Investment Vehicle

Having a method that’s open-ended, money market funds invest in short-term debt securities. Offered by many brokerages, they are also an important source of liquidity to the economy. For your personal economy, however, they offer a relatively low-risk investment that will tend to pay higher interest than a savings account would. They are required by law to invest in highly rated debt with short maturities. This debt can be government bonds, corporate bonds, or some combination of the two.
While money market funds are safer than other mutual funds which may be invested in such volatile areas as the stock market, this does not mean that losses are unheard of. Recent failures of large financial institutions have caused a minor panic, and money fled from corporate debt to the perceived safety of government debt. This lowered the value of corporate bonds, increasing the yield needed to sell new issues, while the yields on the in-demand government bonds, particularly U.S. Treasury bills, have at times plummeted to near-zero. Recent events such as the bankruptcy of the city of Vallejo, California, and the well-reported difficulties economic difficulties of the states, widened the yield spread between federal government bonds and the government bonds of states and municipalities.
On a positive note, these changes now offer a wider range of possibilities in terms of risk and return than was present before in money market funds. An investor could at one time put all their money into Treasury bills for what is perceived to be almost zero-risk, but also near-zero interest. In times when inflation is active, such low yields can actually result in a negative real return! However, with the markets so unsettled, in recent times some Treasury bills have had to offer higher yields than even private bonds to attract enough demand.

Bonds and You

Greater returns can be gained with state and municipal bonds, and at one time municipal bonds were seen as an excellent, safe place to put one’s money. Government bonds frequently feature tax advantages, such as the exemption of interest income from state and federal taxation, which effectively gives them a tremendous advantage over private debt. However, because of the previously noted financial scares in state and local governments, state and municipal bonds are now seen as being much riskier than they once were.
Private-issued bonds are traditionally seen as the riskiest and highest-yielding bonds. Not only do companies go bankrupt or otherwise default far more often than governments, but they do not enjoy the tax advantages of government bonds. However, recently some private debt has been sold at lower rates than Treasury bills of the same term, in large part because of the huge amounts of debt the federal government has created to fund various programs for mitigation of the current economic crisis. Similar effects have been seen in some municipal and state bond offerings.

The Money Market Account

Another alternative that should be looked into by investors is known as a money market account (as opposed to money market fund). They are offered by banks as opposed to brokerages, and in their inner workings are not truly related. However, these deposit accounts are created specifically to compete with the money market funds, offering similar interest rates and terms. Like a money market fund, they tend to have a higher interest rate than savings accounts but allow limited check writing and have relatively high minimum balances. While they are not tax-advantaged, they do have the distinct advantage of being FDIC-insured like most bank accounts. Meaning that you are probably no more likely to  lose your money than an investor in Treasury bills; a possibility that even the most pessimistic forecaster sees as remote, at least in the near-term.
As an individual investor, many factors will need to be taken into account when selecting a money market fund. There are different fees each brokerage may charge for investment with them, which can render even a higher-yielding fund less profitable. Debt issued by various governments has historically been lower-risk and lower-yield than corporate debts, which along with their tax advantages have made them very attractive for the conservative investor. Unfortunately, in these troubling times, old expectations of more secured growth have slowly become irrelevant. In money markets, or any investment, it pays to tread carefully. It still stands that bond-holders tend to get top priority among the obligations of the various bodies that issue such debt and money market funds must, with the exception of funds dedicated to Treasury bills and similar large government issues, maintain a well-diversified portfolio. As such, investing in a money market fund remains a safer alternative than investing in equities or commodities.

Can’t Find that Perfect House? Build It!

On Construction Loans and How to Get ThemImage

          A construction loan is quite different from a normal home loan, in no small part because, when the loan is made, there is no house to act as collateral! If you already own the land when you take out the loan, that can represent some equity, but it’s still much riskier for the lender. As such, interest rates are higher, and construction loans are short-term, typically a year. The principal balance will be due at the end of the period, and until then it is an interest-only loan, such that your monthly payment will just go to cover the interest.

          Construction loans aren’t standardized like mortgages. Lenders are deeply involved in the planning and construction process, to ensure that the house built will actually be worth the money they’ve lent. Expect inspections, progress reports, and other monitoring. Not only does the house need to be done in time so you can take out an actual home loan to pay off the construction loan, but if for some reason the builders aren’t paid properly, the lender may find themselves facing a lien that supersedes their claim.

          You should also expect to put a substantial amount of money in up-front, and the bank will examine your personal finances very closely to ensure that you can actually make the monthly payments. As mentioned before, if a borrower walks away from a construction loan, it can be especially damaging to the lender, so the lender will tend to insist that the borrower has a strong stake in the construction being completed.

          Construction lenders are not as easy to find as normal mortgage lenders because of the complexities of the loans. Still, most banks will have some products available. It is important, as with any large loan, to do your homework and shop around. Construction loans are usually one type of “story loan”, where you will need a very solid idea of your plans and goals going in, and how to explain them, in order to get the loan approved. You will also need pre-approval of a home loan to pay off the construction loan at the end of the term.

          There will be closing costs associated with your construction loan, as there will usually be when you take out the home loan at the end of the term as well. To avoid this expense, some people take out rollover or “construction-to-permanent” loans, where the loan is automatically converted by the same lender at the end of the term without new closing costs. However, this may leave you with a home loan which is less favorable than if you had taken out one separately. Some calculations of overall cost versus benefit and the timing of those costs relative to your situation will let you know which option is best for you.

          There are many reasons you might desire a construction loan. You may want to build your dream home instead of settling for one that’s not quite right. You may have found a perfect location with no house on it. Whatever the reason, these loans can help, but make sure you’re ready for the complexities, requirements and expense involved.

Are these Numbers Supposed to Mean Something?

How to Read an Amortization Schedule

    When you go to get a morgage, your lender will present you with a table of numbers detailing each payment over time. This is the amortization schedule, and it details how much of each payment goes to principal and how much to interest, along with related figures. The amount going to interest and principal will vary over time, with a large portion of early payments going to interest. The portion of each payment going to interest will decrease over time, however.
    Because loan payments are structured in this way, equity, that is, the amount of value your home has above the principal loan value, grows quite slowly at first. An amortization schedule can tell you, with a relatively simple calculation, just how much equity you will have over time, given a stable home price.
    Here is an example of a three-month amortization schedule for a 30-year loan of $100,000 at 8% interest:

 
   Payment    Principal    Interest       Cum. Principal    Cum. Interest     Balance       
        1            67.09        666.67                   67.09                     666.67                    99932.91       
        2            67.54        666.22                 134.63                   1332.89                  99865.37       
        3            67.99        665.77                 202.62                   1998.66                  99797.38    

    The “Payment” column states which payment in the sequence of payments (in this case, out of 360), the corresponding row represents. The “Principal” column tells how much of each payment goes to principal. The “Interest” column tells how much of each payment. You can see how the principal payment increases by a tiny fraction each month, while the interest rate decreases by the same amount. In this case, the amount going to principal will not exceed the amount going to interest until payment 257 in the 21st year of the loan. Lower interest rates would result in this occurring earlier. For instance, if the interest rate were 5%, the principal amount would exceed the interest at payment 195, 16 years into the loan.
    “Cumulative Principal” tells you how much total principal you have paid once that payment is made. Similarly, “Cumulative Interest” shows the total amount of interest paid. Finally, “Principal Balance” shows how much of the actual money loaned is still owed back. The principal balance will decrease at an accelerating rate over the life of the loan. The total amount of each monthly payment is omitted, because this doesn’t change. In this case, the total monthly payment is 733.76.
    Not all mortgages follow this pattern. For instance, interest-only loans allow a borrower to make only interest payments for the first 5 or 10 years. This payment does not decrease because the principal amount does not increase. However, calling a chart of such a loan an amortization chart would be something of a misnomer, because technically amortization refers to the reduction of loan principal over time. Another form of loan that was once used was the negative amortization loan, where the borrower actually paid less than the interest alone, and the remainder was added to the balance. Both of these types of loans, but particularly the latter, have become very rare since the subprime fiasco and collapse in recent years.
    With the knowledge of how to understand your amortization schedule, you will be able to make truly educated decisions about what taking out a loan would mean to you, how much of your house you’ll actually own at any particular time, and the implications of such decisions as refinancing. Purchasing a home is a big decision, and it’s important to be able to plan ahead. Understanding your amortization schedule won’t keep surprises from happening, but it’s definitely an important step.

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The Foibles of Fannie Mae

What Is Fannie Mae, and How Could It Affect Your Home Loan?

Fannie Mae was created in 1938, but its current incarnation as a government-sponsored enterprise (GSE) didn’t begin until 1968. It is a financial institution which purchases mortgage-backed securities and provides guarantees on loans owned by others. It has since its inception been a major factor in the home loan market, but its role has expanded greatly since the current real estate malaise struck.

The reason for this newfound importance lies in the fact that it is a GSE, and so, unlike other financial institutions, its decisions are not solely market based. Indeed, since 1999 it has played a major role in creating loan availability for lower-income people in distressed areas, such as inner cities. Indeed, they are the largest entity enabling the subprime loans that have received so much press attention for their role in the current calamities.

To be clear, Fannie Mae is not itself a lender to individuals. The way that Fannie Mae supports lending is instead by either, as mentioned previously, buying the loans from the original lenders, or selling guarantees on loans if held by others. These guarantees shift the risk onto Fannie Mae. In case of borrower default the difference between whatever money the bank received from foreclosing the home plus any payments made and the money it would have received, principal plus interest, had the borrower paid in full, will be paid to the mortgage-holder.

For awhile, this model actually made Fannie Mae money, but with the subprime mortgage meltdown, it went deep into the red, and the government stepped in and took even tighter control over its workings. That said, despite its difficulties Fannie Mae has stayed in business, and indeed is at this point the single biggest mortgage-based financial entity on the market today. Indeed, Fannie Mae now on one way or another supports almost all categories of mortgages, even jumbo loans (loans over $417,000), which they did not in the past.

What does all this mean to you? It is quite possible that, without the presence of Fannie Mae and its companion institution Freddie Mac, home loan lending in the US might have ground to a standstill. It is only the fact that crisis-staggered lenders have institutions to sell or otherwise transfer risk to that convinces them to lend at all. Lending has, despite the presence of Fannie Mae, slowed down tremendously, although this is also affected by the hesitance of a newly cautious public to borrow.

The presence of Fannie Mae keeps loans available and relatively cheap. The future of the institution, however, is uncertain. On September 7, 2008, Fannie Mae and Freddie Mac were placed under conservatorship of the US government to prevent what otherwise was an almost certain collapse. With a mortgage portfolio of over $700 billion, Fannie Mae lost a catastrophic amount of money when the housing bubble popped. Indeed, because of new and very loose accounting rules, just how much value their assets lost is still unknown. Still, at this point, as it is under conservatorship, the federal government can allocate as much money as it wants to stabilize Fannie Mae, so for the time being, it seems that Fannie Mae will be around for some time, keeping what activity there is in the home loan market alive.

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What You Need to Know About Bank Teaser Interest Rates

Are you currently looking into opening up a banking account for the first time or switching to a different financial institution? If so, then you’ve probably already heard about the teaser interest rates that some banks offer in order to entice new customers into opening accounts with them. Before you go throwing all of your money into a new savings account to take advantage of one of those teaser rates, there are some points that you’ll need to consider.

What is a teaser rate?

A teaser interest rate is basically an introductory interest rate that banks will often offer to customers who are interested in opening new accounts. The teaser rate will probably be quite a bit higher than the average bank interest rate. The teaser rate will typically only last for a limited amount of time.

During that time, your new account will earn the higher rate which does mean you’ll earn more. However, after the allotted time, the interest rate on the account will drop to a much lower rate and that is the rate that you will be stuck with from that time forward.

Why do banks use teaser rates?

Financial institutions use teaser rates for one reason and one reason only: to lure in new customers. Teaser rates are given to new customers in order to bring in new business and new money to the bank. And teaser rates are a cheap way for banks to buy new business. Usually introductory rates only last a few months. That’s not enough time for your money to accumulate significant interest, even with a higher rate. After the honeymoon is over, the bank drops the rate but most customers will stick around to avoid the hassle of finding a new bank.

Should you make a grab for a teaser interest rate?

Ever heard the saying “the grass is always greener”?  This can apply to the desire to jump at bank teaser rates as well. If you already have a bank account at an institution that you are otherwise happy with and that earns a decent interest rate there’s no reason to switch. Sure, with the teaser interest rate will earn you more, but only for a short time. After that you’ll be in the same boat interest wise and you may not like the new bank better than your old one.

And the verdict is…

Avoid making the decision to bank with a specific financial institution based on the offer of teaser rates. Teaser rates are like carrots dangled in front of a donkey. They hint at the promise of earnings that they will never deliver.  Instead of jumping for joy when a bank offers you teaser interest rates, you should be wondering why they need to offer those rates to get new business.

Some banks might try to use teaser rates to mask the fact that they don’t offer the same great services that a competing financial institution is offering. Don’t fall for it. When it comes to choosing a bank, your choice should be based on much more substantial things like the level of service offered and long-term interest yields.

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Could a Money Market Account Help to Secure Your Financial Future?

With the recent melt-down of the world’s financial markets looming fresh in our minds, and plenty of signs still pointing to a continuation, perhaps even a heightening, of economic instability, it is no wonder that more and more people are searching for safer and more reliable solutions for investing their money. But how can you gain confidence in the security of your investments in an increasingly uncertain market?

Contrary to what some financial gurus would have you believe, you don’t have to be an investment wizard to plan your path towards more financial security for you and your loved ones. In fact, there are several ways that you can start building wealth immediately with little risk involved and not much money down. One way that you can get started right now with just a small initial contribution is to invest money in a Money Market Account, also commonly referred to as an MMA.


What is a Money Market Account?

A money market account is an interest-earning deposit account in which interest is normally compounded daily and paid to the account owner month. Although a money market account is officially a savings account, you can make a limited number of withdrawals per statement cycle without penalty. You also get check writing privileges with a money market account, although they will be limited. This way, you can invest your money and earn interest, while still having easy access to those funds.

Banks and credit unions benefit from investors who open money market accounts too. Here’s a simple explanation of how it works. You, the investor decide to open up an MMA and make an initial deposit and the banking entity then pays you interest on that amount. The bank or credit union can then use that money to provide loans to borrowers, charging the borrower a higher interest rate. This way, the bank makes enough money off of the loan to pay you interest and earn money too.

When is the Right Time to Start a Money Market Account?

If you really want to make a safer investment to start building wealth, then the best time to start a money market account is as soon as you are financially able to do so. Unlike money market funds, the majority of money market accounts are either FDIC (for banks) or NCUA (for credit unions) insured, making them a safe long-term, if relatively low-yield, investment. Still, not all money market accounts are created equal. Below are a few tips that will help you choose the best one for you.

Compare Interest Rates

You’ll want to compare interest rates at different financial institutions before you settle on an account. Sometimes financial institutions offer higher interest rates on money market accounts to entice new customers and you can easily take advantage of such an offer. Likewise, some banks and credit unions will reward account holders who deposit larger amounts with corresponding higher interest rates.

Your goal should be to find an account plan that offers a competitive interest rate along with an initial deposit and a balance limit that you are comfortable with. Ideally, the minimum balance should be an amount that you can afford to leave in and add to over time. That way, you can maximize your money market account’s earning potential. Just keep in mind that the interest that you earn is subject to income tax.

Determine Accessibility

A money market account is basically a savings account with some of the same special allowances that regular checking accounts have such as check writing privileges and monthly withdrawals. But there are certain restrictions that apply. Federal regulations rule that users are allowed a maximum of six withdrawals and three check transactions per statement cycle.

Certain financial institutions may have stricter limits, so be sure to check the regulations of each institution first before signing anything. You want to be sure that you select an account that fits your specific needs when it comes to how accessible your money is. Also, be sure to compare the minimum balance required each month, as those amounts may vary significantly from institution to institution.

Check Fees and Service Charges

In addition to differences regarding interest rates and accessibility, be sure to read up on and compare fees and other service charges when selecting a money market account. Certain fees may apply if you go under the required monthly balance. Fees also might be connected to withdrawals and other transactions. These fees and service charges can also vary quite a bit from one financial institution to another.

Ultimately, the question of which money market account is best for you can be answered by knowing your specific needs. It is up to you to decide which factors will be most important in your selection. But educating yourself thoroughly before you decide is the surest way for you to pick the right money market account and be on your way towards a more secure financial future.

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