Save Money with 0% Balance Transfer Cards
Dec 22, 2009     post this at del.icio.uspost this at Diggpost this at Technoratipost this at Furlpost this at Yahoo! my web.

Credit cards with low introductory rates on balance transfers or purchases offer many advantages. These cards come with as little as a 0% annual percentage rate and the introductory rate can last up to 12 months, or in some cases, till the balance is paid off.

These cards can give your finances a boost in several ways:

Consolidate High-Interest Debt: Use the money from a 0% or low-interest balance transfer to pay off debts with higher interest rates. You will save money on interest and may lower your total monthly debt payments as well.

Give Your Budget a Temporary Cash Infusion: If you are faced with higher than usual expenditures or need extra cash, a 0% balance transfer can give your budget a temporary cash infusion to tide you over until your economic situation improves. Many cards will transfer the money to your bank account so you can pay off bills and other expenses, or they may send you a check that you can deposit directly into your bank account.

Make Large Purchases Earlier: A card with a 0% APR gives you the option to make a large planned purchase earlier than you would otherwise be able to. It can also help you save money on interest, if the purchase is something you would usually finance, such as a car. Just be sure you have alternative financing lined up when the promotional rate expires.

If you pay the balance off in full before the introductory rate expires, these cards offer many benefits. Pay careful attention to the terms and conditions of the card, however, so you know exactly when the introductory rate expires and what would put you at risk for triggering higher rates.

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A quick romp through the credit crunch
Apr 28, 2008     post this at del.icio.uspost this at Diggpost this at Technoratipost this at Furlpost this at Yahoo! my web.

To say the least, these are wild and uncertain times in the financial world. Consider what’s happened in the past few weeks and months:

  • Gold has hit $1,000 US an ounce.
  • Stock market volatility is back with a vengeance.
  • A major investment bank is brought down two days after its CEO said everything was fine.
  • Central banks slash interest rates and pour huge amounts of money into the financial system.
  • Several hedge funds collapse.
  • Banks write down hundreds of billions in suddenly-troubled assets.
  • U.S. home prices fall faster than the foreclosure signs go up.
  • Investors around the world learn that their supposedly secure money is now at risk — tied up in complex financial products they’ve never heard of.
  • Talk of recession fills the air.
  • And everywhere, people wonder where the next problem will erupt and how bad it’s going to get.

Welcome to the credit crunch. And it really is the financial world’s version of the twilight zone. So how did this all get started? Analysts point to several triggers — poor regulation among them — but the first direct domino to fall was unquestionably the unraveling of the U.S. housing boom.

The boom

And what a boom it was. The U.S. housing market had stagnated after the recession of the early 1990s and was itching for something to goose it higher. After the dot-com collapse of 2000, the U.S. Federal Reserve dropped its key lending rate to a rock-bottom one per cent. Real estate prices began soaring by double-digit percentages. In some cities — like Las Vegas, Miami, and Phoenix, Ariz. — houses were rising in value by 20 to 30 per cent a year by 2004. Americans wasted no time tapping into their home’s skyrocketing worth through lines of credit. The boom in home prices was, in effect, powering a growing share of U.S. consumer spending. Times were good.

The mortgages

Home ownership may be the American dream, but millions of poor Americans were denied that dream. They couldn’t save a down payment, or they didn’t make enough to afford mortgage payments, or they didn’t have a good job, or any job, for that matter.

Not a problem, as it turned out. About 10 years ago, Wall Street invented subprime mortgages. These were loans targeted at people who couldn’t qualify for regular mortgages because their credit records were not good enough (i.e. subprime). They came with higher interest rates. But for the first couple of years, those rates were far lower — “teaser” rates, as they were known. People who took out these mortgages were told they would never have to worry about the interest rate reset two years down the road because they could always just refinance the home. After all, home prices were steadily rising. No down payment needed.

NINJA was the acronym for the people who became some of the biggest beneficiaries of subprime mortgages — No Income, Job or Assets.

The catalysts

Now why, you’re asking, would financial institutions lend to a group of people who would be

extremely unlikely to pay their debts if even the slightest thing went wrong?

For one thing, the sellers got lucrative commissions for each mortgage. But the real selling point for issuers was that they didn’t need to worry if the borrowers defaulted. The issuers sold these subprime mortgages to others in a process known as “securitization.” That took the original subprime loan off the original lender’s books and transferred the default risk to the buyers.

These newly “securitized” mortgages would then be bundled with other loans into complex financial instruments with names like collateralized debt obligations (CDOs). With lucrative commissions at stake, the financial industry demanded more and more CDOs, helping to further drive growth in the U.S. subprime mortgage market. Around the world, companies, financial institutions, pension funds, and investors small and large snapped up slices of these products, which tended to yield a bit more than the traditional savings products.

Investors could often buy these new financial instruments by putting down only a fraction of their worth. That leverage could greatly magnify returns — a good thing when values were rising, but terrible news in a falling market.

The meltdown

Bubbles, of course, always burst. And by 2005, the U.S. real estate party was starting to deflate. Home prices stabilized. Then, they started falling. Subprime borrowers found they couldn’t afford the higher mortgage rates once they reset. They couldn’t refinance, and they couldn’t flip for a quick profit. The great American house party was about to end.

By early 2008, about one in 10 U.S. homeowners owed more on their homes than their homes were worth. Among those who’d bought in the last three years, a staggering 30 per cent were “under water” — in other words, had negative equity.

Foreclosure rates soared, with predictions that as many as two million Americans could eventually lose their homes.

Homebuilders laid off thousands as people stopped buying and the glut of unsold homes reached new highs. U.S. housing starts were in freefall.

The fallout

If the trouble had stopped with the housing markets, that would have been one thing. But this problem had legs.

Many firms found that when they tried to sell their neat little bundled debt product, no one wanted to buy it. The problem was one of transparency. No one knew how much of the subprime junk was bundled into which product.

Credit markets around the world reacted to the problem by making it more difficult to borrow money. Short-term interest rates began to creep above the target rates central banks set. Sometimes, banks wouldn’t lend to each other at any price. Liquidity dried up. Cash hoarding became common.

Bear Stearns — a Wall Street icon that had survived the Great Depression — collapsed in the face of a run by investors and the inability to borrow money. It had invested heavily in mortgage-backed securities.

Total worldwide writedowns and asset losses from the financial crisis reached $230 billion US by March 2008. Canadian banks are responsible for about $6.5 billion US of that, with CIBC and Bank of Montreal taking the biggest hits. There are predictions that once it’s all over, the red ink could top $600 billion US worldwide.

In Canada, the market for about $32-billion Cdn worth of this debt — called asset-backed commercial paper (ABCP) — froze completely in August 2007. More than a thousand retail investors — most clients of Canaccord Capital — are still waiting for their money, and it’s unclear when they’ll get it back or how much they’ll recover. They’re especially angry because the ABCP had a top credit rating.

The rescue

By the fall of 2007, it was clear that the U.S. housing collapse and the resulting fallout had the potential to threaten the global economy. The U.S. Federal Reserve began aggressively lowering interest rates amid signs that American consumers were starting to put away their wallets and purses. The Fed, the Bank of Canada, and several other central banks injected huge amounts of money into the financial system to lubricate a worldwide lending machine that had become very reluctant to lend.

Central bankers and politicians around the world rushed to reassure panicky investors that the underlying financial system was solid. In the U.S., the Bush administration spent $168 billion US on an economic stimulus package to get people spending their way out of what many market observers have already declared a recession.

In Canada, the rate cuts have been more modest, the writedowns not as deep. But there have been other effects. It’s more difficult to raise money now. Market investors were busy discounting the value of the BCE takeover, for instance, because the deal requires a lot of financing. Investors in bank stocks have also seen the value of their holdings drop by 20 to 40 per cent in less than a year as the market fears further writedowns.

Our housing market avoided the pitfalls south of the border thanks to tighter lending standards and an economy that’s still churning out jobs. But analysts forecast that the financial mess and resulting U.S. economic downturn will help to lower the country’s 2008 GDP growth to as little as one per cent.

The questions

The subprime meltdown and the associated credit crunch have prompted a lot of finger-pointing … and some obvious questions.

For instance, how could U.S. lending standards become so lax? How could subprime mortgages be offered — often under fraudulent circumstances — to people who clearly couldn’t afford them? How could these mortgages be bundled with other debt and then sold to investors with so little disclosure about what they were buying?

And there are broader questions that go beyond the subprime mortgage field. Like: How could credit-rating agencies give a “thumbs up” rating to complex structured products that turned out to contain risky subprime debt? Is it time to rein in the complex and largely unregulated financial instruments that gave the financial world such enormous profits over the past decade? Should investment banks be subject to the same degree of regulation as commercial banks? Should derivative products face the same scrutiny as stocks and bonds?

Government, regulators and investors all want answers. Even as it licks its wounds, the financial world finds it has a lot of explaining to do.

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Mortgage rates drop to 11-month low
Apr 11, 2008     post this at del.icio.uspost this at Diggpost this at Technoratipost this at Furlpost this at Yahoo! my web.

Canadian banks have begun to lower fixed mortgage rates to their lowest levels since last spring.

RBC Royal Bank announced Thursday that it would chop most of its mortgage rates by a fifth of a percentage point, effective Friday. TD Canada Trust followed later with similar cuts.

The posted rate for a five-year closed mortgage drops to 6.99 per cent. That’s the first time the posted rate for the popular five-year term has been below seven per cent since last May.

The posted rates for a one-year closed mortgage falls to 6.95 per cent.

The Bank of Canada has cut its key overnight lending rate by a full percentage point since early December as it tries to keep the Canadian economy from following the U.S. into recession.

That’s led to a similar one percentage point drop in variable rate mortgages and other floating rate loans tied to the banks’ prime rate.

But fixed mortgage rates have been much slower to drop. Since the start of December, the posted five-year fixed mortgage rate has fallen by two-fifths of a percentage point, counting Thursday’s rate drop.

Longer-term mortgage rates reflect the cost that banks pay to borrow money in the capital markets. Analysts say the global credit crunch — triggered by the U.S. sub prime mortgage crisis — has made it more expensive for Canadian banks to access funds.

A further cut in the Bank of Canada’s key lending rate is expected when the central bank makes its next scheduled announcement on April 22, so borrowers can look forward to a corresponding drop in their variable rate mortgages then.

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How to Buy Life Insurance
Apr 03, 2008     post this at del.icio.uspost this at Diggpost this at Technoratipost this at Furlpost this at Yahoo! my web.

Those who depend on your income—from young children to elderly parents—also depend on you to have a life insurance policy. Luckily, buying one has never been cheaper or easier. Here’s what you need to know:

Stick with term insurance.
With the exception of a few situations (supporting a special-needs child or sibling; for estate tax purposes), the only kind you need is term. As the name implies, you buy a policy for a set period—anything from a year to 20 or more. Should you die during that time, your beneficiary gets the death benefit on your policy. If your goal is to protect children, choose a term policy that will give you coverage until your youngest is 23 or so; by that time, kids can support themselves.

Shop around online.
Check out term insurance rates on reputable websites such as selectquote.com and accuquote.com.

Buy a generous policy
Specifically, one with a death benefit that equals 20 times your loved one’s annual needs. I know that sounds like a lot, but if a child or parent requires $50,000 a year for living expenses, that works out to a policy with a $1 million death benefit. I suggest replacing 20 times their annual expenses so that your survivors can invest the money conservatively and live off the interest rather than eat into the principal. The amazing thing is that a 20-year, $1 million policy for a 40-year-old woman in good health can cost just $850 or so a year, or less than $75 a month. Make sure your policy is guaranteed renewable: As long as you pay on time, it can’t be canceled.

Never make a minor your beneficiary.
No life insurance company will write a check to a juvenile. If you name your child as the beneficiary, he and his guardian will end up in court, where a judge will become the overseer of the money. Avoid that by setting up a living revocable trust and making the trust, not a person, the beneficiary. Whomever you have appointed as the trustee will be able to use the funds to take care of your child according to the directives you’ve laid out.

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Look Before You Lend
Feb 19, 2008     post this at del.icio.uspost this at Diggpost this at Technoratipost this at Furlpost this at Yahoo! my web.

We would all love to be able to help a friend or relative in a financial fix, but there’s a lot to consider before handing over a check. You should give only money you don’t need, because there’s a good chance it will never be returned. But if you do decide to take that risk, here’s what to ask yourself before lending a single penny:

Why me?
Is this person coming to you for a bailout because every credit card, financing company, and bank turned her down? If you’re the last resort, be wary.

What for?
Are you helping out your daughter who’s raising kids on her own and was recently blindsided by medical bills—or are you bankrolling your daughter who’s having trouble making the payments on her BMW? Think twice before supporting an indulgence.

What if I never see this money again?
Don’t you dare tap your own emergency savings to pay for someone else’s crisis. If something happens to you and you haven’t been repaid, then you’ll be the one having to ask for help.

What terms am I being offered?
When someone asks for money but doesn’t mention how she intends to repay you, that’s a problem. If she respects you, her initial request should come with the proposal of signing a written document, called a promissory note, in which she outlines the agreement. She must commit to a schedule for when repayment begins, the interest rate, how often she’ll make installments, and the penalty for lateness. (It’s also a good idea to get the document notarized. If you wind up in a dispute, you would have an easier time proving the claim is valid.) Sound a bit businesslike? It should. You’re loaning money, not a cup of sugar. To keep things as sweet as possible, put everything in writing.

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