Consolidating Your Banking May be a good Idea

We understand why consolidated banking is a good idea from the financial institution’s point of view; they maximize the profit from that particular customer and no longer have to expend any effort in trying to capture their other banking/lending/investments. But, why is it a good idea for the client?

Financial institutions concentrate their sales efforts on bringing in a larger share of the customer’s wallet. This can also work to the customer’s advantage. As a customer, you may be able to receive benefits such as better interest rates and reduced or no fees for bringing in their loans, retirement savings and other investments. Free checking accounts, free safe deposit boxes, very low cost overdraft protection, personal document shredding, free coin counters, preferred rates on credit cards and auto loans are some of the advantages of having your finances in one place. Another good reason for combining your accounts is relationship pricing on loans and savings products. This means that, depending on the size of your overall relationship, you may be able to get higher rates on your time deposits and lower rates or reduced rates on your borrowing. With many institutions, you will see increased benefits as their deposits and relationships increase in size. Often these are tiered benefits that kick in at $10K, $25K, and $50K.

If you have a particularly large relationship; one that includes your investments and home and business loans, you may find yourself in a unique position. Your financial institution may make some very significant concessions should you decide to look elsewhere for your banking services. Are you refinancing your mortgage? Your manager will likely do their best to meet or beat any competitor’s quote!

But it’s not just financial savings. There are some real convenience issues here too! Combined statements are very convenient; being able to see all your accounts in one statement saves a lot of time. When you enter your online banking, all of your accounts can be accessed at once for transfers and other business.

You can have a better, often more personal relationship with your financial institution. As a manager myself not too many years ago, I had always assigned my best bankers to my top clients. I have always believed bank managers should treat his or her best and most profitable clients like royalty. They should assign an employee to them as their “Personal Banker.” Now, if the manager is not in, the customer has an assigned representative to support their financial needs.

Finally, when you die, if all your accounts are in one place, you have made things much easier for the executor of your estate. They don’t need to go to multiple financial institutions to settle the estate. This saves your family time and effort. 

*   *   *

It is Homebuying Weekend June 7th and 8th at the Meriwest Credit Union's Sunnyvale Financial Center on El Camino at Fair Oaks. Friday the 7th is Mortgage Day. Loan Agent Bruno Gonzalez will be present all day to answer your home purchase and refinance questions.  

On Saturday, June 8th, we will be presenting "Homebuying Strategies for the Current Bay Area Housing market."

Presented by Michael Mendenhall of Keller Williams Realty, with Bruno Gonzalez of Meriwest Mortgage. 

You will learn:

• The truth about foreclosures, short sales and other sources of housing inventory.
• Purchasing real estate in today's changing housing market
• Possible problems when purchasing a short sale home, flipped or bank-owned property.
• Defining your homeownership goals and creating a step-by-step strategy to achieve them.
• What you need to have in place to start looking for a home.
• The benefits of homeownership in the bay area.
• How to view homes and make offers that get accepted, at the best price with the most favorable terms.
• Understanding your financing choices when purchasing a home.
• Acquainting yourself with the required real estate documents.

 I hope you can join us June 7th and 8th in Sunnyvale!

Over Your Head Financially? Here are your top ten indicators...

 1. Carrying a balance on a credit card. If you are not paying them off, you are paying interest. If you could shift all the interest you paid on your consumer credit cards to your retirement account, how rich would you be? 

2. You use payday loans to make ends meet at the end of the month. Bad consumer! 

3. You’ve been turned down for a consolidation loan. This is a sure sign you are already over-extended and that your debt-to-income ratio is too high. Time to budget your expenses and start paying down what you owe! 

4. You’re hiding your spending behavior from family members. This red flag indicates that you are aware of your personal finance problems, but are unable to acknowledge it. Fighting with your spouse is a related indicator as financial troubles often lead to domestic trouble.

5. You finance your vehicle for more than five years. This may be a clear sign that you’re buying more vehicle than you can reasonably afford.

6. You get more than one late notice per year. On occasion, everybody may let a bill fall through the cracks and forget to pay it. But if you find yourself getting multiple late notices for bills, especially for utilities, then that’s a signal that your finances may be in serious trouble.

7. You get more than one bounced check per year. Again, most folks have had an occasional overdraft of their checking account. But if this happens more than once per year, it’s usually a sign of trouble.

8. You need a co-signer to get a loan. Those without a credit history can ignore this warning sign. However, for everyone else, the need for a co-signer indicates that banks no longer find you credit worthy.

9. You find yourself borrowing from your family and friends. We have heard that borrowing from friends or family is a surefire way to sow the seeds of discontent — especially when you fail to pay the money back.

10. You lack an emergency savings account of at least three months living expenses. Those who are living from paycheck to paycheck can be completely derailed by even the most modest unexpected expenses, such as the need for major car repairs.

Credit: Credit Unions are providing their members and the public with more financial education classes than ever. This is done for free as a community service to their neighbors. Yeah! 

Debit: Over the past year, several national banks have raised fees on their checking overdraft and non sufficient funds transactions. Boo! 

Our Next Financial Workshop:

May 22nd - Preventing Identity Theft -6:30pm
Meriwest Credit Union Main Office at 5615 Chesbro Ave, San Jose CA 95123
RSVP with Greg Meyer at gmeyer@meriwest.com or call at 408-365-6328

The Long Shadow of Bad Credit in a Job Search: How does your credit effect your ability to find a job? This story, from New York Times Business Day section, will give you some insights into how hiring managers view your credit report. Click the link and learn! 

 

Len Penzo - One of the great financial bloggers! Check out his blog here: LenPenzo.com

Helping your Kids buy a Home

It is nice to help our kids buy a house. But it is equally important that we keep it “business.” If you loan them part of the downpayment or provide a loan to cover a gap in the financing, i.e. the kids come in with 20% down, take a 70% first mortgage and need 10% lent to them by the parents because the payments on an 80% first would be too much for their budget. The “Parental Second” can be creative. You can have the interest paid monthly or accrued to be paid annually. If you don’t have a payment plan and are letting the interest accrue, you can also compound the interest monthly or annually to increase your yield on the loan. Just remember that any interest earned, whether deferred or paid regularly, is regular income and subject to IRS taxation.

There is some bookkeeping to be done by Mom and Dad. The parents are required to provide their kids with a 1098 to document their interest paid so the kids may deduct the interest from their taxes.

For some parents, earning 3% or a bit more on your money is a pretty good deal considering how poor savings rates are today. Of course, your loan is in second position and, historically, loans in secondary positions usually have a greater interest rate than the first mortgage due to the greater risk accepted by the lender in second position. If a borrower defaults on the first mortgage, the holder of the second mortgage must make up the financial shortfalls on the first mortgage to make good his claim on the property. So asking for >4% is not unusual for a second mortgage. Many financial institutions are asking for prime plus one point on business loans. Wall Street Journal prime is 3.25% so, prime plus one is 4.25%. That might be a very satisfactory rate for a family loan. Let’s keep in mind, historic rates for home mortgages are up in the 5’s. Thus, 4.5% is still a pretty good deal.

Hmmmm, could a loan like this become part of your retirement income? If you are retired, this sort of thing can be helpful to your income. $40,000 at 4.5% generates about $150 a month in interest income. That's a nice supplement to someone's Social Security.

Of course, I suppose that each of us knows our kids and whether or not they would be a responsible adult and repay their loans; particularly loans from their parents! Let’s keep in mind that we need to go all the way and file a deed of trust and have your kids sign a promissory note that details how the loan is to be repaid. If you don’t do that, you deserve all that you are not repaid! The deed of trust protects your loan interest and your interest in the property. Without it, should you kids fail to pay, your ability to get repaid thru the trustee sale or foreclosure sale of the home will be compromised.

Emotional? Yes, there are a variety of ways for this to become an emotional mess. Is the parent depending on the interest from this loan to help with their retirement income? A missed payment in this case could be very critical. Suppose the son or daughter is involved in a large lay off? Even worse, their job is in low demand and finding a new job will take a lot of time. During this lay off, they stop paying their first mortgage. It is then the responsibility of the second mortgagor to make good the first mortgage to keep the first lender from filing foreclosure. Can all parents afford to pay this for their kids? That is a lot of stress and demonstrates for us the emotional issues that can come with lending to our kids. 

*   *   *

Our next financial education workshops will be presented at our main office on Chesbro Ave in San Jose. This month we are offering "Establishing Credit" on May 15th which is a good course for high school and college students, but really works well for anyone interested in how credit gets established. 

On the 22nd we will be offering "Preventing Identity Theft" at our main office. This workshop provides you with all you need to know to prevent identity thieves and protect your good name from those who would use it for criminal acts. Get ready for summer vacation with our preventing identity theft class. 

May 15th - Establishing Credit - 6:30pm 
Meriwest Credit Union Main Office at 5615 Chesbro Ave, San Jose CA 95123
RSVP with Greg Meyer at gmeyer@meriwest.com or call at 408-365-6328

May 22nd - Preventing Identity Theft -6:30pm

Meriwest Credit Union Main Office at 5615 Chesbro Ave, San Jose CA 95123
RSVP with Greg Meyer at gmeyer@meriwest.com or call at 408-365-6328