Despite mortgage mess, consider tapping home equity

YONKERS, N.Y. (9/26/07)--Given the turmoil in today's mortgage market, you might not think it's a good time to take out a loan against the equity in your home. But despite the risks, tapping home equity may be a viable--and timely--option for some homeowners (Consumer Reports Money Adviser October 2007).

Higher interest rates and lower home values are reasons cited for not tapping home equity. In some cases, that concern is warranted: If your home value drops, you could owe your home equity lender more money than your house is worth. And if you run into tough times and can't pay back the loan, you could lose your home.

Similarly, it may not be wise to use home equity to consolidate or pay off large credit card bills. Although card rates are about five percentage points on average above a home-equity loan, the lower monthly payment by tapping home equity still might not make sense if it takes longer to repay the new loan, resulting in higher interest charges over the long term. Worse, you might run up new charges on those cards in the meantime.

It makes sense to take out a home equity loan in today's volatile housing market if:

• You've lived in your home long enough to build up significant equity.
• You don't plan on moving soon and can weather a downturn in the housing market.
• You have a stable job.
• You're facing an unavoidable expense but don't have cash to cover it.

Bottom line: Review your budget and understand the difference between luxury and necessity expenses. Tapping home equity for big-ticket purchases like a car may not make sense right now, but using the money to finance household repairs and additions might increase your property's value.

For more information, read "Lenders, Counselors Help Homeowners Avoid Foreclosure" in Home & Family Finance Resource Center.

courtesy of cuna.org

Mileage stickers get major overhaul with 2008 models

NEW YORK (9/25/07)--If you're in the market for a new car, the 2008 models all have an important and long overdue overhaul--located on the window sticker (The Wall Street Journal online Sept. 10).

Until now, all new-car stickers published mileage estimates that were widely recognized as bogus; they were based on driving tests that didn't come close to resembling real-world driving behavior by motorists.

Environmental Protection Agency (EPA) fuel economy tests were based on a top speed of 60 mph, average test speed of 48 mph, temperature of 75 degrees, and no use of accessories such as air conditioning. Even after adjustments to account for discrepancies between test conditions and real life, the estimates were far from accurate, disappointing many car buyers who didn't get the mileage posted on the sticker.

Beginning with 2008 models, EPA is using a more rigorous approach to testing. Tests now take into account high-speed driving, hard acceleration, effects of cold, and the use of air conditioning.

The good news is the posted mileage is more accurate, but that also means the posted mileage is lower than they were for the same car in 2007. Estimates for city mileage are expected to drop by about 12% on average, according to EPA, with highway mileage estimates declining 8% on average. Expect a city estimate drop of as much as 30% for some models. Estimates on a few models won't change much at all. And car makers of large sport utility vehicles--those weighing more than 8,500 pounds--aren't required to display the new mileage estimates on their stickers until 2011.

For more information, read "Trying to Find Happiness With Higher Gas Mileage" in Home & Family Finance Resource Center.

courtesy of cuna.org

Consumer Brief

NEW YORK (9/27/07)--The next time you give out your name and address to a company, count on that information being copied, distributed and backed up--many times. Companies are keeping backups of your sensitive data for years. That could result in your personal information being distributed around the world. Although some databases are necessary and save lives--such as those for medical prescriptions so you don't get two medicines that interact badly--others only increase your risk from company negligence or criminal breach. Even if you've just given your name and address to a company once, it's estimated that information could be copied a thousand times within a year (http://www.Forbes.com Sept. 10) ...

Don't turn homeownership dream into nightmare: Read fine print

BOSTON (9/24/07)--Borrowers who signed but neglected to read their mortgage documents--particularly the fine print--are wishing they had. The American dream of homeownership has turned into a nightmare as more consumers experience higher mortgage payments, huge prepayment penalties and painfully high fees for missed mortgage payments (Boston.com Sept. 16).

A recent HSH Associates survey revealed that only 38% of respondents actually read all their mortgage papers, and 9% admitted they didn't read any of the documents they signed (MarketWatch.com Sept. 11).

Reading, though, doesn't necessarily translate to understanding. Complicated language confuses even those who are in the mortgage or insurance business. Worse, some mortgage ads now are under attack for deceiving consumers by not telling the whole story (Associated Press Sept. 11). Some advertised low rates and payments apply only for a short time and increase substantially after the loan's introductory period, giving consumers a false impression of the true cost of their loan.

Industry experts urge home buyers to be suspicious of very low rates and payments. Ads with deceptive claims have appeared on the Internet, in newspapers, in magazines, in the mail, in e-mail messages, and in faxes. If it sounds too good to be true, chances are good you're not being told the whole story. Low rates and payments often apply only for a short teaser period.

Mortgage experts advise you to carefully scrutinize and understand four key documents during a mortgage closing.

• Truth-in-lending statement. This shows how much you're borrowing, how much the financing will cost over the life of the loan, what your payment schedule will be, what your interest rate will be, and whether there are additional costs such as points and fees.
• HUD-1 settlement statement. This outlines all the settlement costs, such as origination fees and title insurance. Some--but not all--costs listed on this statement are negotiable.
• The note. This contains important financial information, such as interest rate and payment schedule. If you have an adjustable rate mortgage, the note will spell out how your rate will adjust in the future.
• The actual mortgage document. This contains clauses and conditions that--when signed--you agree to but likely will never review. Examples include clauses on hazardous waste, required occupancy of the property and ways to communicate with the lender.

For more information, read "What to Do When Your ARM is Due" in Home & Family Finance Resource Center.

courtesy of cuna.org

Tell College Students NOW How to Use Credit Cards Properly

NEW YORK (9/19/07)--You can't prevent college students from getting credit cards, so the most important message for students at the beginning of the semester is to use those cards wisely. The next most important message: Not having any credit--or having poor credit--has serious long-term consequences (CBS News Sept. 12).

Like it or not, college students get applications in the mail, in bookstore bags and at registration tables. According to Nellie Mae Corporation, 46% of students reported that they obtained their first card during their freshman year. By the time they graduate, 91% of students have at least one card, with an average credit card balance of $2,850.

Telling a college student to avoid credit cards altogether not only will fall on deaf ears, it's not in the student's best interest.

Here's why. If a student uses a credit card wisely before graduation--that is, makes relatively small purchases and pays those charges back on time--chances are good the student will have good credit when entering the real world. Without good credit, the student may get turned down for a job, may not get a loan or insurance, and may not get approved for an apartment or mortgage.

Use these credit tips for college students:

• Shop around. The cards offered on campus may not be the best deal in town. Compare features and look for a card with no annual fee, a reasonable interest rate below 18%, a grace period (the time in which you have to pay the bill before you incur interest), and online account management. Check out cards issued by the local credit union, or go to Bankrate.com, lowcards.com, and creditcards.com for lists of cards available to students.
• Avoid the minimum payment trap. This is the absolute minimum amount you can pay without incurring a late payment fee and to keep your account current. If you can't pay in full, try to pay two to three times the required minimum payment--you'll pay off the balance sooner and save money.
• Steer clear of cash advances. If you use the credit card for emergency money, you'll pay a cash advance fee that's typically 4% of the cash advance amount. That's not all--there's a higher interest rate for cash advances, so you're "hit" twice.
• Don't use credit cards for tuition. Interest rates typically are higher on credit cards than for other education loan options. If you need to borrow money for tuition, use education loans with lower rates, built-in deferment of payments, and consolidation options after graduation.

For more information, read "Ant and Grasshopper Graduate From College" in Home & Family Finance Resource Center.

courtesy of cuna.org

Look for Buyer Incentives and Deals at Crowded Car Lots

Look for buyer incentives and deals at crowded car lots
NEW YORK (9/17/07)--Despite higher interest rates and tougher credit standards, now is a terrific time for people with good credit to negotiate prices on cars at crowded automobile lots (The Wall Street Journal Online Sept. 11).

Industrwide sales have plummeted throughout the year, leaving leftover 2007 models on dealer lots just as 2008 models start rolling in. Bottom line: You win--as long as you do your homework, take advantage of your strong negotiation position during the current glut and watch out for secret markups.

Edmunds.com offers tips for buying a new car:

• Don't get swept away by the incentive. Some dealers offer the best incentives on slow-selling cars, which may not include the model you really want.
• Watch for caveats on financing offers. The best financing incentives often are reserved for car-buyers with stellar credit. If you don't qualify, plan on paying a much higher rate.
• Beware hidden markups. If the dealer arranges your car loan through a finance company owned by the car manufacturer, you may wind up paying a higher rate than the one you qualified for, with the dealer and the finance company--in cahoots--pocketing the difference. These hidden markups could be as much as $5,000 over the life of the loan, according to a recent Consumer Federation of America report.

Finally, get preapproval for a car loan before you step foot on the dealer's lot. Don't give that dollar figure to the dealer until after you've completed price negotiations, and don't be swayed by 0% financing. You may be able to get a better deal by taking the rebate and getting a loan through the credit union.

courtesy of cuna.org

Consumer Brief

NEW YORK (9/13/07)--Need a good wedding or graduation gift for a young adult son, daughter, niece, nephew, or grandchild? Consider giving time with a financial pro. Financial planners are seeing a large increase in the number of clients walking through the door with gift certificate in hand. Experts advise you get buy-in from the intended recipient before you pay in advance. Then back off. Don't hover over the process; your goal should be to get young adults to stand on their own two feet financially--not rely on you (Money September)...

courtesy of cuna.org

Employees' financial woes hurt workplace bottom line

McLEAN, Va. (9/12/07)--Financial worries--mainly from the recent surge in foreclosures and defaults on credit cards--are spilling over into the workplace. The result: An increase in absenteeism and decrease in productivity. The good news, though, is that the problem has opened the doors for much-needed workplace financial education (USA TODAY Sept. 5).

Most workers can't leave financial stress at home--they may bring it to work in the form of anxiety and different degrees of depression, with significant negative effects to a company's bottom line.

Financial education at the workplace is not a new concept but has grown more popular in recent years. Studies during the past decade--by American Express and by Deloitte and Touche--revealed that 85% of employees want to receive financial information in the workplace, and four of workers' top five benefits concerns relate to financial planning. Another study by the Principal Financial Group revealed that more than a third of employees are concerned about being able to pay for basic necessities in retirement.

The workplace is perfectly positioned to host financial education--such as lunch 'n' learn seminars--particularly for busy adults who can't find time to attend evening seminars.

Check whether your employer offers financial education and, if so, take advantage of it. Suggest topics that are of interest to you and your co-workers. If there's no one on staff to facilitate seminars, suggest that your employer or Employee Assistance Program representative contact the local Extension office or Consumer Credit Counseling Service for unbiased financial education.

For more information, read "Lenders, Counselors Help Homeowners Avoid Foreclosure" in Home & Family Finance Resource Center.

courtesy of cuna.org

Kids.gov safe site for kids to surf

WASHINGTON (9/11/07)--After days of summer sun, swimming and relaxing, and with the beginning of a new school year, kids will spend more time on the computer. Take steps to make sure your kids stay safe online. Check out a newly designed family-friendly site from the U.S. government (Federal Citizen Information Center Aug. 28).

Roughly 30 million children use the Internet today, according to the Pew Internet & American Life Project. While the Internet is a valuable resource for schoolwork and learning, parents must use caution about what sites their kids visit--the Internet also is a place where sexual predators and identity thieves lurk and kids bully other kids. Involved parents can minimize the risks to keep their kids safe.

Kids.gov, a website from the Federal Citizen Information Center, Pueblo, Colo., is one site that parents can be sure is safe. The site has links to more than 1,200 Web pages from government agencies, schools and educational organizations. The site features 20 topic areas--from arts and music to space and history--as well as activities for children from kindergarten to eighth grade.

"When it comes to children, parents and the Federal Citizen Information Center share a common goal--to keep youngsters safe while they learn and have fun online," says Mary Levy, director of the center's consumer information and outreach area. "Parents and caregivers can trust that the sites on Kids.gov are safe, educational and fun. We even have a special message, 'Just for Kidz,' put together by the Federal Trade Commission to help children stay safe while they're surfing."

To help keep your kids safe online, CUNA's center for personal finance urges parents to:

• Keep the computer in a busy room so you can monitor your child's use.
• Set clear rules about computer use and enforce consequences for misuse.
• Tell children to never give out personal information such as name, age, grade, school, address, phone number, photos, e-mail address, or credit card information without your permission.
• Keep an eye out for changes in your child's behavior, such as secretiveness, inappropriate sexual knowledge, or difficulty sleeping. Address concerns right away.

If you discover that someone is attempting to exploit, entice, or threaten your child online, contact your local police and the Cyber Tip Line at (www.cybertipline.org) or 800-843-5678.

For more information, read "Keep Kids Safe Online" in Home & Family Finance Resource Center.

courtesy of cuna.org

Use with caution: No-interest loans for medical bills

NEW YORK (9/5/07)--One of the fastest-growing segments of consumer credit stems from high medical bills not covered by insurance. To fill the gap, more doctors and dentists are offering no-interest loans. Before you jump at the option, understand the risks (The New York Times Aug. 30).

No-interest financing--available to the creditworthy--is a tool that allows you to string out your payments for a period of time--say, six, 12, or 18 months--without incurring interest. However, if you don't pay the loan in full by the stated term, interest accrues from the date of purchase.

No-interest loans now are helping many cash-strapped consumers who are stuck with high out-of-pocket medical expenses. However, unpaid loans can carry interest rates of 20% or more, similar to those on a credit card. In one online example, a plastic surgery clinic states: "Rates for our program range from 1.99% APR to 23.99% APR" to be determined by the term for which you apply and your credit standing.

If you apply for a no-interest medical loan, first get a handle on your budget. Agree only to terms you can afford. If you can't afford to stretch medical payments over 12 months, check out personal loan options at the credit union, or look for credit offers for zero-interest loans payable over several years--some of which ultimately may have interest rates of 12% or 13%. However, arrange these no-interest loans at the outset of your medical expense; don't expect to convert a 12-month, zero-interest plan to a multi-year program simply because you haven't paid in full within 12 months.

And in light of the subprime mortgage mess, expect your credit history to be scrutinized more closely if you apply for these or other loans.

For more information, read "Will Insurance Consumers Benefit from Modernization?" in Home & Family Finance Resource Center.

courtesy of cuna.org

Survey: Consumers give high marks to credit union-issued cards

NEW YORK (9/4/07)—When it comes to credit cards, service and low fees matter most, according to a survey released last week by Consumer Reports (CNNMoney.com Aug. 31).

More than 36,000 cardholders ranked the best and worst cards. Credit unions fared exceptionally well, with survey respondents putting credit union-issued cards in the top tier.

At the top of the list was USAA Federal Savings, followed by Navy Federal Credit Union and other credit unions. Cardholders ranked five of the largest MasterCard and Visa issuers as mediocre, citing headaches and other problems with JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC. Together, these issuers control roughly 80% of the credit card market.

Interest rate matters: The top three issuers charged interest rates between 9% and 11%, with the lowest-ranked issuers charging 17%.

Stick with issuers that have a reputation for good service and low fees, and pay attention to your own credit card habits:

• Watch for rate increases. About one-quarter of survey respondents reported that their interest rate jumped to more than 25% because of a universal default clause, which allows an issuer to bump up your rate if you pay late on other accounts in your name—your mortgage, car loan, or other credit cards. If you see an unexpected interest rate increase, check it out.
• Pay on time. Late payment penalties more than doubled in the past 12 years. The average fee is now $28, up from $13 in 1995. The survey reported fees as high as $39.
• Demand prompt customer support. Cardholders gave high marks to USAA Federal Savings and to credit unions for customer service and access to representatives. Survey respondents cited several problems attributed to issuers in the lowest tier: unreasonable waits, difficulty navigating voice systems, and having to make multiple calls to speak to representatives.

For more information, read "Credit Cards: Switch and Save" in Home & Family Finance Resource Center.