Are mortgages a risky business?

Written by Jenny Barclay


Continued from page 1

Is a bank safe? There is also a common belief among lenders that their capital is safe. Inrepparttar absence of a government or similar state authority providing such a guarantee, this can be far fromrepparttar 112406 case. At university one ofrepparttar 112407 cases we studied, was that of a particular savings bank. A rumour went aroundrepparttar 112408 city thatrepparttar 112409 bank was in trouble. A great number of people went torepparttar 112410 bank to withdraw their savings. Those that representedrepparttar 112411 first few % ofrepparttar 112412 total deposit had no problem. Whenrepparttar 112413 percentage rose to 6%, which in this case wasrepparttar 112414 amount decided by “the owner ofrepparttar 112415 box”,repparttar 112416 rumour became fact in that there was no cash to pay out to depositors. As this was in a country in whichrepparttar 112417 owners of allrepparttar 112418 boxes were members of a club,repparttar 112419 aim of which was to protectrepparttar 112420 undeserved, but perceived, reputation of said members,repparttar 112421 members sent round security vans with sufficient cash to pay out all those who people who “had taken notice of an unfounded rumour.” Things quietened down after a while, andrepparttar 112422 government decided to introduce legislation to create a minimum liquidity level.

Another case we studied was that of one ofrepparttar 112423 world’s largest banks,repparttar 112424 board of which was mainly composed of greedy souls. They had decided thatrepparttar 112425 stock market was a good place to keeprepparttar 112426 liquidity margin, so that inrepparttar 112427 event of a bear market, they could create more profit forrepparttar 112428 shareholders. A sudden bear market wiped outrepparttar 112429 liquidity margin, andrepparttar 112430 bank came within a hair’s breadth of going belly up.

Oncerepparttar 112431 bank has reached a substantial size,repparttar 112432 liquidity should be sufficiently large to cater for all such panic withdrawals, unless of courserepparttar 112433 panic is as great as 1929.

Forrepparttar 112434 borrower it provides a necessary service, and apart from penal conditions imposed on borrowers, is a vital service to our society. Fromrepparttar 112435 investor’s point of view, it depends firstly onrepparttar 112436 mentality ofrepparttar 112437 treasury function withinrepparttar 112438 bank, and secondlyrepparttar 112439 legislation that governs their actions and accountancy practices. Fromrepparttar 112440 investor’s point of view, considering investing inrepparttar 112441 stock of such an organisation, it depends entirely on an analysis ofrepparttar 112442 bank’s net worth and profitability. Bothrepparttar 112443 examples mentioned above have since gone from strength to strength, and have since been bought for more billions that most of us can count.

© Jenny Barclay

Jenny Barclay majored in math. and economics, and obtained a masters in viability of banking institutions. She is currently studying Spanish in Andalucia, Spain. This article may be reproduced on websites subject to credit being given to the author, and a link to her website.

http://www.regent-estates-group.com/s/apartments-for-sale-fuengirola/index.cfm


5 Tips for Savvy Use of Your Home Equity Line of Credit

Written by Tim Paul


Continued from page 1

Tip 4: First Pay With a Rewards Credit Card! If you're contemplating using your HELOC for a major purchase, you should consider whether or notrepparttar merchant your dealing with accepts credit cards. Why? Because it makes a great deal of sense to pay first with a rewards credit card and then pay offrepparttar 112405 card with your HELOC check. On a recent $14,000 bathroom remodel, I was able to charge plumbing services, cabinets, and almost everything else to my Fidelity/MBNA 529 College Rewards Mastercard. This card pays you back by putting 2% of everything charged into a 529 college savings plan. Result: $280.00 in college savings that would have been missed if I paidrepparttar 112406 bills directly with home equity credit line checks! Whatever rewards credit card you favor, it's sensible to pay first withrepparttar 112407 card whenever possible. Keep in mind, though, you must promptly pay offrepparttar 112408 balance and not incur finance charges.

Tip 5: Replace Your 1st Mortgage with a HELOC! According to Money Magazine, if you have more equity than debt and plan to stay in your home for 3 years or less, you should consider replacing your first mortgage with a home equity line of credit. HELOCs are currently available aroundrepparttar 112409 country at rates of 4% or lower. Even if rates increase a full percentage point each year, they'll still be low when you pay offrepparttar 112410 loan. Best of all, there are no closing costs with most HELOCS so you won't have to worry about recouping them through interest savings as you do with a traditional mortgage refinance. A savvy person - using tip 3 in conjunction with tip 5 - might even move a portion of his mortgage to a 0% credit card thanks torepparttar 112411 flexibility of a home equity line of credit.

Tim Paul has more than 25 years executive financial management experience. His current areas of focus are developing strategies to maximize the benefits of HELOC loans and free college savings programs. His websites are HELOC Loans - Tips for Savvy Users and 529 Plan Rewards - Helping Parents Maximize College Savings


    <Back to Page 1
 
ImproveHomeLife.com © 2005
Terms of Use