Frequently Asked Questions

The co-signer enters an agreement to be responsible for the repayment of the loan if the borrower defaults. A lender will usually not go after the co-signer until the borrower defaults, but they can lawfully go after the co-signer at any time.

It has been stated by finance companies that in the case of a default most co-signers actually pay off the loans that they have co-signed for including the legal and late fees that end up being tacked on. Clearly this can be a large financial burden, and it can also reflect negatively on the co-signer's credit.

If you do agree to co-sign on a loan for someone, you can request that the financial institution agrees that it will refrain from collecting from you unless the primary borrower defaults. Also, make sure that your liability is limited to the unpaid principal and not any late or legal fees.

Upon co-signing you may have to brandish financial documents to the lender just as the primary borrower would have to.

Co-signing for a loan gives you the same legal responsibility for the repayment of the debt as the borrower. If there are late payments, this will affect your credit as well.

If you are asked to co-sign for someone, you may want to provide another option and suggest that they get a secured credit card. This way, they can build up their own credit history and not open themselves up to the possibility of taking on a debt too large, placing themselves, and you, in financial danger.

Be careful when signing up for a home equity loan or line of credit - the disclosed APR does not reflect the total fees that are associated with the loan, such as closing costs and others. Do not forget to compare this cost, as well as the APR, across multiple lenders.

The vast majority of home equity plans will utilize variable interest rates instead of fixed. A variable rate reflects the current prices of a publically available index, like the prime rate, or the U.S. Treasury Bill rate, and the rate of your loan will oscillate accordingly.

Generally a lender will offer a discounted introductory rate, often referred to as a "teaser rate". Take caution - these rates can sometimes fluctuate unless it is stated that there is a fixed rate. Sometimes the lender will give you a great introductory rate that is variable and can change with time to a rate much higher than you originally agreed to.

Since the rate is linked to an index rate, find out which one it is and how much their margin is. Some companies will have a cap on how much your rate can vary within a particular period of time.

With a second mortgage you will have a fixed amount of money that is repayable over a fixed period of time or is due in full at a given time. A home equity line of credit, on the other hand, is much more open-ended. You have a line of credit that can be borrowed from as you wish, and generally has a variable rate as opposed to a fixed rate.

Pay attention to the fact then when the APR is calculated it takes into account the interest rate charged plus points, finance charges and other fees, whereas with a home equity line the APR is calculated with solely the periodic interest rate.

Before you are charged any fees, the Truth in Lending Act requires that the lenders disclose to you all pertinent terms of the agreement: the APR, payment terms, other charges, and any information about variable interest.

Generally you will receive these disclosures at the same time that you receive an application form and any additional disclosures promptly after. If any of the terms change prior to the loan closing, the lender must return all fees that have been applied, should you choose to back out of the deal.

The finance charge is the total amount paid in exchange for the use of credit, which includes the interest rate, service charges and insurance premiums. The Annual Percentage Rate (APR) is the percentage paid on a yearly basis.

Keep in mind that banks are always required to notify you of the fees for their accounts. The best account to choose is usually the one with the lowest fees, regardless of the interest rate.

Keep an eye out for potential extra charges when shopping for checking accounts. Ask about monthly fees, check processing fees, and ATM fees. Also be wary of cost-free checking accounts, as the bank may charge you if your balance drops below a certain amount. Also, the charges for printing new checks can often be much higher at your bank than through an outside printing provider.

In this day and age, it doesn't really benefit you to put money into an old fashioned "passbook" savings account. Often monthly account fees overshadow the small amount of interest you will earn. Instead, put your money into a checking account. If it is a larger sum, look into a money market account. In this type of account you will earn more interest than in a savings account, but watch out for additional charges if your balance drops too low.

Checking Accounts

Checking accounts provide you with quick, convenient access to your funds. You are able to make deposits as often as you wish, and most banks provide you with an ATM card to access your funds, or to charge debits at stores. Of course, you can also use the conventional method of writing checks.

Some checking accounts pay interest. These are called negotiable order of withdrawal (NOW) accounts. The more commonly used type, a demand deposit account, does not pay interest.

There are several fees that are associated with checking accounts, other than the check printing fees. These will vary depending on the bank you choose. Some will charge a monthly maintenance fee regardless of your balance, others will charge a monthly fee if your balance drops below a certain point. Further, some institutions charge you based on the transactions you make, such as each ATM withdrawal, or each check you write.

Money Market Deposit Accounts (MMDA)

An MMDA is basically an account that accumulates interest. You can also write checks from it. The rate of interest is usually higher than that of checking or savings accounts. However, they require a higher minimum balance in order to earn that interest. The higher your balance becomes, the higher your interest rate may rise.

However, it is less convenient to withdraw money from an MMDA than it is from a checking account. You are limited to six transfers from the account a month, and only three of these can be through writing a check. Also, there are usually transaction fees associated with these accounts.

Savings accounts

You may make withdrawals from savings accounts, but there is less flexibility than with a checking account. Like an MMDA, the number of withdrawals or transfers may be limited.

There are a few different types of savings accounts. The two most common are passbook and statement. Passbook accounts involve a record book that tracks all deposits and withdrawals and must be presented upon making these transactions. With a statement savings account, you are mailed a statement showing all withdrawals and deposits.

Minimum balance fees may also be charged on savings accounts.

Credit Union Accounts

These accounts are similar to those of banks, but with a different title. In a credit union, you would have a share draft account (a checking account), a share account (savings account), or a share certificate account (certificate of deposit account).

The great thing about credit unions is that they usually charge less for banking services than banks do. If you have access to one, use it!

Certificates of Deposit (CD)

CDs are time deposits. They offer a guaranteed rate of interest for a specified term which can be as short as a few days or as long as several years.

When you pick the term you generally can't withdraw your money until the term expires. In some cases the bank will let you withdraw the interest you have earned on the CD. Because CDs are for a set amount of time, the rate of return is usually higher - and the longer the term, the higher the annual percentage yield.

A penalty can be issued if you withdraw your funds before the maturity of your term. Sometimes the penalty can be quite high, eating into your interest earned as well as your principal investment.

Your bank will notify you before your CD matures, but often CDs renew automatically. You should keep track of your maturity date if you would like to take out your funds before the CD rolls over into a new term.

This depends on how you plan to use the account. If you want to grow your money and do not need to access it readily, put it in a CD.

If you need ready access to your money, a savings account could be a good option.

If your primary concern is paying bills, a checking account would be easiest.

Remember, if you only write 2-3 checks a month, an MMDA could suit your needs very well. They have a higher rate of return, but also have a higher minimum balance requirement.

Checking accounts can be very efficient. They simplify your recordkeeping - if you cancel a check, you have a receipt at tax time, and the check register is an easy way of tracking monthly expenses.

Bank institutions have varying fees and features with each of their accounts, so it is important to find out what these are before making a final decision on which bank and which type of account to choose.

A good way to get the most out of a checking account is to inquire into what the minimum balance is and make sure you maintain that amount. Another way to maximize efficiency is to get a checking account that pays interest, or go with a bank that lets you distribute funds into both checking and savings accounts that, combined, reach the minimum balance.

There are several features of accounts you should investigate at various banks.

Interest Rates

• Find out what the interest rate is and whether the bank can change it after the account has been established.
• Also, find out if the bank pays different interest rates based on how much you have in the account, and if so, how it is calculated.
• Ask when the interest starts being compounded (when they pay you interest based on your principal plus your earned interest).
• Ask what the annual percentage yield is. This is a rate that will tell you how much interest you will earn on a deposit.
• Ask the minimum balance required before you start earning interest.
• Ask if you start earning interest when you deposit a check, or when the check is actually credited to the institution.

Fees

• Ask if you will pay a flat per-month fee.
• Find out if there is a penalty fee for dropping below a minimum balance.
• Ask if there is a charge for each deposit or withdrawal and how much.
• Inquire about ATM fees: making deposits, withdrawals, and how these fees vary if you use an ATM owned by the bank.
• See if there is a charge for bill payment by phone or online.

Additional questions:

• Will I be charged per check I write?
• Will my fees be reduced if I have multiple accounts with the bank?
• Will fees be waived if I use direct deposit?
• Is there a fee for canceling a check?
• Is there a fee per balance inquiry?
• Will there be a fee if I close my account soon after it is opened?
• Am I charged a fee if I write a check that bounces?

Limitations

• Find out if there is a limit to the dollar amount of withdrawals or frequency of withdrawals.
• If you close the account before your interest is credited, ask if you will still receive that interest.
• Find out how long it takes a check to clear, and how long you must wait to withdraw funds you have credited to your account.

CDs

• Establish the term of your account.
• See if the account will roll over automatically, and see if there is a grace period in which you can withdraw your funds after your term comes to maturity.

Only deposit accounts at federally insured depository institutions are protected by the FDIC. Check to see if your bank falls into this category. In general, the government will protect accounts up to $250,000. If you have an account with special ownership, such as a trust, or an account with co-owners, this may change the amount of coverage you receive.

If you invest in an annuity or mutual fund with the institution these are usually not protected by the FDIC.

Yes. Here are some tips on how to approach this:

• See what your fees and charges have been over the past 3 years.
• Write down your checking needs, i.e. how many checks you write a month, how many ATM visits, how many deposits, how many times you have overdrawn, how often you go below the minimum balance.
• Take this info and do some research into other banks in the area. Compare their rates and fees to your bank.
• Go to your bank and ask to speak to a manager. Tell them you want to reduce your banking costs. If they don't negotiate, bring up their competition. If they don't want to lose your business they will negotiate. Also ask them other ways to cut costs.
• Keep in mind that many banks offer free checking to seniors, students, and the disabled.
• Don't rule out smaller banks as they may be more willing to cut your costs just to get your business.

This protects you from the possibility of bouncing checks. If you write a check and do not have sufficient funds, it will draw money from your line of credit to make sure the check goes through.

This is a good service for people who are self-employed because if business is seasonal and there are times of the year that have low cash flow, the overdraft protection can help you pay less interest than other forms of borrowing.

This is a federal law that requires depository institutions to inform you of the following:

• Annual percentage yield and interest rate
• Costs, fees, extra charges
• Other info including minimum balance requirements

Because of this act, you will get a disclosure of all this info from the bank you are opening an account with. This act also requires that banks provide you with this info upon request.

The Act also requires that interest and fee information be provided to you in periodic updates, and that if you have a rollover CD, you will be notified before the maturity date.

A bond is simply a certificate which the borrower promises to repay within a certain time period. For the privilege of using the money, the government entity, municipality or company will agree to pay a certain amount of interest per year, usually an exact percentage of the amount loaned.

Bondholders do not own any part of the companies they lend to - they do not receive the benefits of dividends or the privilege to vote on company matters as stockholders would, and the success of the investment isn't related to that company's record in the market either. A bondholder is entitled to receive the amount that was agreed upon, as well as the principal of the bond.

Corporate bonds are generally issued in the denominations of $1000. This price is referred to as the face value of the bond - this is the amount that is agreed to be paid by the company at the time that it matures. Bond prices can differ from their face values, because the prices of the bonds are correlated to the current market rates. When these rates change, the value of the bond will as well. If one were to sell the bond before the time that it matures, the bond may be worth less than was initially paid. A callable bond is one that the issuer may choose to buy back at full face value before the maturity date.

There are three major features of bonds:

• Issuing Organization
• Maturity
• Quality

Short Term Bonds mature in two years or less and long term bonds mature in ten or more. Intermediate is between two and ten years.

Bond quality is the rating of the creditworthiness of an issuing organization. There are organizations that specialize in judging bond quality. The higher the rating, the lower the risk of the investment. The rating system uses letters A through D. The only bond considered to be risk free is the U.S. Treasury Bond.

Highest Quality...Moody's...Standard and Poor's

High Quality...Aaa...AAA

Good Quality...Aa...AA

Medium Quality...Baa...BBB

Speculative Elements...Ba...BB

Speculative...B...B

More Speculative...Caa...CCC

Highly Speculative...Ca...CC

In Default...-...D

Not Rated...N...N

Generally bond prices and interest rates have an inverse relationship - as interest rates drop, bond prices rise and vice versa.

Bond prices are heavily influenced by maturity - the longer the maturity, the greater the change in price for a change in interest rates. If interest rates rise, it would make a larger difference in the 20 year bond, as opposed to a 10 year bond. Because of this, bond fund managers will attempt to change the fund's average maturity to anticipate changes in interest rates.

A "call" is when the issuer of the bonds has an opportunity to redeem the bonds after a certain specified amount of time has passed. This doesn't guarantee a continuation of a high yield after the call date - it limits the appreciation of the bonds, and it makes the investment more risky. These call provisions can be complex, so it is best for investors that don't have strong knowledge to avoid bonds with a call feature.

A bond mutual fund has within it multiple bonds, and for that reason it is impossible to lock in the payment rate or the principal, which you would be able to do if you were directly buying a fund.

A bond mutual fund is an investment company which manages a portfolio of individual bonds. The investors buy ownership in the company, and each share represents ownership in all of the company's holdings. Managers will use these investments to buy and sell bonds that align with the objective of the fund.

Because a bond fund manager has more resources to deal with, they can invest in a vast array of bonds - many more than could any individual investor. There are also certain investments that cost tens of thousands of dollars a share - a bond fund costs far less.

Liquidity plays a major role in bond buying. If you purchase a bond individually and wish to sell it, you must find a buyer for your bond, but if you are invested in a bond fund, that fund has to buy your shares back at any time you wish.

Municipal bonds are offered by local governments, states and cities. The interest of these bonds is not subject to federal income tax, and if the bondholder lives in the jurisdiction of the governing authority, the interest is exempt from state and local tax. Because of all of these tax advantages, the interest rates paid on these bonds is usually lower than others.

Like municipal bonds, the U.S. government also issues these securities. Since they are issued by the U.S. Government, they are considered to have the best safety of all bonds.

Treasury bills can be bought through a broker or directly from the Federal Reserve.

All mutual funds distributions should be reported as income, whether you reinvest or not. Taxable distributions come in two forms, ordinary dividends and capital gains. The distributions of ordinary dividends represent the net earnings of the fund and are paid out periodically to the shareholders. Since these payments are considered to be dividends to you, they must be accounted for accordingly.

Capital Gain Distributions are the net gains of the sales of securities in the fund's portfolio and will be taxed at a different rate than that of ordinary dividends. Yearly, your mutual fund will send you a form, called the 1099-DIV, which will have a detailed breakdown of all of these.

Funds will generally give you the opportunity to automatically reinvest in the fund. This does not prevent you from paying tax on your assets, but this reinvestment will prevent you from paying more "buy" fees to get into the fund, so it is advantageous.

Mutual funds sometimes will distribute back to shareholders monies that haven't been attributed to the funds earnings. This is a non-taxable distribution.

Stocks are traded in quantities of 100 shares, called round lots. Any quantity of stock under 100 shares will be considered an odd lot.

Most stocks are common stocks. However, there is another type (known as preferred) which gives certain advantages regarding dividends. Generally, preferred stock holders do not have the same voting rights that the holders of common shares do. Common stocks are based on company performance, while preferred stocks will usually have a stated dividend.

It is fairly easy to invest in foreign corporations, because these corporations need to register these securities with the SEC. These companies are subjected to the same rules as U.S. companies.

To ensure that you receive the best rate possible it is useful to understand how these premiums are calculated by insurers. Firstly insurers will place people into four main categories:

• Preferred
• Standard
• Substandard
• Uninsurable

Someone who has a semi-serious illness such as diabetes or heart disease can be insured but will pay a higher premium. People with a chronic illness will be placed in the substandard category. Someone with a terminal illness will be rendered uninsurable.

People with high risk jobs or hobbies will be considered substandard as well.

The premiums that you are charged will correlate with the category that you are placed in. Since the categorizing is not an exact science, one company may place you in a different category than another, thus drastically changing the prices of your premiums.

Once you are approved for coverage from a company, they cannot deny you coverage for any reason unless you cease payment.

First of all, beware that many insurance salespeople work on a commission basis, and may want to persuade you to purchase the policy that brings them the largest commission, rather than getting you the policy that makes the most sense for you.

Most of all, be sure that the company you are buying from will be in existence when you need them. Make sure that you check the insurer's rating before you consider doing business with them.

Always review the costs of any recommended policy. The commissions will be stated, and you can see exactly where the money that you contribute will go.

Ask the insurance agent to explain the different policies and why the one you agree on is the best for you considering your circumstances.

In most states there will be a set of rules laid down by a group of insurance regulators. Agents may be required to calculate two different types of indexes to aid in price shopping:

1. Net payment index
2. Surrender cost index

The net payment index calculates the cost of carrying the policy for ten to twenty years. This can be judged easily by remembering that the lower this number is, the more inexpensive the policy is. This is most helpful if you are more concerned with the death payout than the investment.

On the other hand, the surrender cost index is more useful to those who are concerned with the cash value of the investment. The lower this number is, the better.

The cash surrender value is what you will receive in return if you were to surrender the policy, which is different than the cash accumulation value. If you are checking the prices of universal life policies, if the policies have different premiums and death benefits, the policy with the higher cash surrender value would be the better investment.

The main reason that people purchase life insurance is to know that in the event of their passing, their children and loved ones will be taken care of. Life insurance can also help with the distribution of your estate. Your payout could go to family, charity, or wherever you choose to distribute it.

The main reasons to buy life insurance would be because you have dependents that would be put in a tough position without you providing for them. For example, if you have a spouse, a child, or a parent who is dependent on your income, you should have life insurance.

If you have a spouse and young children, you will need more insurance than someone with older children, because they will be dependents for a longer amount of time than older children. If you are in a position where you and your spouse both earn for the family, then you should both be insured in proportion to the incomes that you garner.

If you have a spouse and older children or no children, you will still want to have life insurance, but you won't need the same level of insurance as in the first example, just enough to ensure that your spouse will be provided for, to cover your burial expenses, and to settle the debts that you have accumulated.

If you don't have children or a spouse, you will only need enough insurance to make sure that your burial expenses are covered, unless you would like to have an insurance policy in order to help in the distribution of your estate.

In order to figure out how much insurance you need, you will need to explore your current household expenses, debts, assets, and streams of income. If you need assistance in this, consult either your accountant or financial advisor.

The amount of money that you want to leave behind for your dependents should allow them to use some of the money to maintain their current standard of living, then reinvest another lump sum to ensure that they will be well off in the future.

When attempting to calculate the amount of money that you need to leave behind, be extremely meticulous. If you err low, your family may not receive the help that they need from the insurance company, and if you err the other way, you will be spending more than necessary in insurance premiums.

There are 10 major types of life insurance:

1. Term
2. Renewable
3. Re-entry
4. Level
5. Decreasing
6. Cash Value
7. Whole Life
8. Universal Life
9. Variable Universal
10. Variable Whole Life

Term

Term insurance is best described as a policy for which you pay over a specific amount of time. In the event that you die within that period of time, your beneficiaries will receive a payoff.

People that are under the age of 40 will find this package less costly than a whole life policy. These policies generally do not build in cash value. However, they can convert over to a whole life policy without a mandatory physical.

Renewable

The policy which is bought most frequently is the Renewable Term Policy. This policy renews every year without you having to do anything, and there is no need to input any new information or take physicals. This can continue every year until you are in your 70s. The policy will increase incrementally every year, along with your age.

Re-entry

With this life insurance policy, you will have to periodically take physicals for the company to judge your rate of risk. If you don't, you will be subject to paying an extra premium.

Level

In the Level Term policies, you will be locked into a given rate of premium and you will stay there during a certain period (although not necessarily during the entire period of coverage).

Decreasing

A Decreasing policy is one which decreases in face value with time while the premium remains the same.

Whole Life

Whole Life is the most traditional policy given; this has a cash-value build up, sometimes offers dividends, and provides death benefits. This is not a policy that needs to be renewed constantly, as long as the payments are made, the policy will continue until death.

Universal Life

This policy is similar to the whole life policy. However, it offers more flexibility in many ways; you will have different options in cash value growth and the payment of premiums.

Variable Universal

Variable Universal policies will give you the option to choose the investments for your cash value. This is more risky, but simultaneously gives you more control over where this money is invested.

Variable Whole Life

This is the same as the previous in regards to control over the investments that are made. The difference between these two is the same as the difference between Whole Life and Variable.

There are good arguments for and against purchasing this type of insurance, and every person's situation will differ.

Even though Long-Term Care Insurance can be costly up front, it could save you from paying much more in the long run. The home care coverage that is included in the policies could possibly allow you to live independently for more time before having to switch to assisted living. Since the price of this service increases with time, if you choose to purchase it, it is much better to do so earlier than later.

If this policy is too expensive for you, it may be a better idea to apply for Medicaid. Some of these policies may not give you enough money to stay at home and will force you into assisted living if you don't have sufficient funds to support yourself and your personal help.

The four main factors that you will want to take into consideration when looking for a LTCI policy are:

1. Flexibility
2. Eligibility
3. Inflation
4. Duration

Check to make sure that the flexibility of your policy allows for personal help so you can stay in your home for as long as possible before assisted living is absolutely necessary. Some of the policies will allow you to be paid cash for you to distribute as you please.

Make sure that your policy will pay for more than just what is medically necessary. These policies may not cover all of your needs.

Make sure that you are protected against inflation; you can place a clause into the policy that your payout adjusts 5% annually to cover you against raising prices.

Remember that a policy which lasts 5 years is probably more than you would need. A policy of two to three years will generally be enough.

Over 40% of the American population will eventually need to be in a nursing home or an assisted living facility. Your chances of needing this depend on a number of health factors.

The elimination period is the time you will need to wait from the time you are ready to get the long term insurance to the time in which you will actually receive it. This period of time is negotiable in the terms of the contract and the longer this time period is, the cheaper the premium.

These companies are rated in the same manner in which stocks and bonds are rated, through Standard and Poor's.

• Make sure that your policy can be renewed every year.
• Know that if you are disabled, yet able to work part time, you will still receive coverage.
• Choose a waiting period (elimination period) of three to six months, to keep the premium down, and then set aside a nest egg for that time.
• Make sure you will be eligible to receive coverage until the age of 65, when your retirements will kick in.
• Make sure that the policy will pay if you cannot perform the work in your field.