Archive for the 'Financial Definitions' Category

Every once in a while you will come across advertisements on “all-time” low mortgage rates. Most of the time, these type of mortgages are given to people with good credit standing and control of their personal finances. But what if your credit score is not something that you can be proud of? How do you get your mortgage?

In cases like this, people would usually resort to a subprime loan since they cannot get loans with prime rates.

What are Subprime Loans?

Subprime loans are offered to individuals who have less than attractive credit history or scores. When you cannot qualify for the prime rate financing, it is highly unlikely that you will get the kind of loan that you want. Mortgage companies have exact requirements for prime mortgage loans. Basically, approval for loan despite bad credit score is the classic feature of a sub prime.

What is the drawback to these kinds of loans? Since financing companies know that loan default rate is very high when you have bad credit score, they usually charge high interest rates for subprime loans. This often translates into a bad personal finance setup for many people. Usually, however, the interest rate varies depending on how bad your credit score is.

Selecting a Lender

You might not be able to do anything about your credit score at the moment, but you have a choice as to your lender. There are companies that primarily specialize in these types of loans. There are traditional mortgage companies that are venturing into subprime loans. Make sure that you place a quote request with various lending companies before settling with one. By doing this, you may still get a great deal despite your credit score. You may still minimize the effects to your personal finance.

One key point however is that you must pay up your monthly installments on time or risk losing your property.

The price-to-earnings ratio, or P/E, is determined by dividing the closing price by the most recently available earnings per share (EPS), based upon primary EPS for the past four quarters. The P/E ratio is one of the most commonly used measures to analyze the price of a stock. It cannot be used alone to make investment decisions, you must contrast it with the company’s past P/E ratios and with the P/E ratios of similar companies to assess value. The P/E ratio generally indicates how fast the market expects the company’s earnings to grow. The higher the P/E ratio, the greater the potential growth in earnings is likely to be.

Many investors use the P/E ratio of the Dow Jones Industrial Average (DJIA) as a standard of comparison. For example, if the DJIA has a P/E ratio of 10 and an individual stock has a P/E ratio of 7, earnings are considered to be underpriced when compared to the market.

Gross National Product, or GNP, is a number that represents the total market value of the output of a nation’s good and services annually.The GNP is generally held to be the best indicator of a country’s economic health.

To consider GNP as an equation, here’s how it adds up:

GNP = C + I + G + NE

C = consumption expenditures
Personal consumption expenditures on consumer goods and services.

I = investment expenditures
Gross private domestic spending by business firms on future productivity, including changes to inventory.

G = government expenditures
Federal, state, and local governmental spending on finished goods and resources.

NE = net exports, or total exports minus total imports
The amount of goods and services that are exported less the amount of goods and services imported.

Dollar-cost averaging basically means that you invest a certain amount of money at specific intervals over a period of time, usually years. This means that if you are investing in stock, the price of the stock you are buying will go up and down; when the price is down, your fixed amount buys more shares. Conversely, when the price of the stock rises, your regular investment buys fewer shares.

Over time, theorists say that the price per share generally averages out, insulating your investment against fluctuations in market value. By establishing an automatic investment plan that takes advantage of dollar-cost averaging, you can also avoid overreacting to changes in stock price (as well as the risks associated with playing the market).

Though the market certainly has crests and troughs, the overall value has persistently risen–dollar-cost averaging is a simple idea that may help you achieve your financial goals.

The next time you feel like complaining about the coins weighing heavily in your pockets, think about these alternative forms of currency.

The Babylonian shekel refers to a measure of barley. In ancient Greece, they used iron sticks as money. Cowry (or snail) shells paid the bills in ancient China and many parts of the South Pacific. Much of Europe used salt for currency at one time. Gold and silver coins have been used since about 560 BC. Cash crops like indigo, maize, rice, tobacco, and wheat were used for currency in colonial America. When Sydney, Australia was settled, rum was the main cash flow of the day.

Whatever form money takes, it is simply an object to which we assign value, whether it be paper, gold, or snail shells. Money matters because it gives us a common medium of exchange to buy and sell the goods and services that we need.

If you are considering a loan and you are unsure as to the differences between fixed interest rates and adjustable interest rates, read on.

Fixed Rate
Installment loans typically have fixed rate interest, meaning that the interest rate and the monthly payments will remain the same for the entire length of the loan.

Advantages

• Installments are constant
• Payments are easy to budget
• Loan cost won’t increase
• No unpleasant surprises

Disadvantages

• If interest rate drops, yours remains high
• Initially more than adjustable rate

Adjustable Rate
With an adjustable rate, the interest on your loan will vary. When the interest rates change, your monthly payment changes as well. This generally happens once or twice yearly.

Advantages

• Annual increases are usually controlled
• Initial rate is lower than fixed rate
• If rates drop, your overall costs are lower

Disadvantages

• Not always an option
• Tough to budget for increase in rate
• Vulnerability to rate hikes

A credit score is a number indicating your level of credit risk to potential lenders, typically a higher number represents lower risk. It is arrived at using statistical models involving different numbers from your credit report. The models were created using payment data from thousands of debt holders, which make the scores extremely effective in predicting credit behavior among consumers.

Your score is usually generated live when a lender asks for your credit report. Your credit score changes as the numbers in your credit report vary. For example, if you make a payment or open a new account, your score may fluctuate.

How are credit scores used?

Credit scores help lenders such as banks, credit card companies, car dealers, and retailers quickly assess a customer’s credit history, allowing them to provide a faster risk decision. Although many factors are used to determine risk, including applicant’s income and amount of loan, a credit score is a major indication of one’s ability to repay debt.

What impacts my credit score?

Generally, your credit score is affected by:
• Total debt
• Recent inquiries
• Number of late payments
• Number of days late on payments
• Number of accounts, type of accounts, and how long the accounts have existed

How do I obtain my credit score?

Lenders usually make credit scores available to consumers during the process of a loan being issued. If you need to access this information outside of a loan process, go to freecreditreport.com for your free copy.

How can I fix my credit score?

Paying your bills on time is the most important thing you can do to earn a high credit score. Even if you owe only a little bit, it is critical that you make your payments on time every time. Try to pay down debt, avoid taking on more obligations than you can manage, and never apply for credit that you do not really need. Time can be your best ally when it comes to improving your credit.

You’ve heard people talk�about the real value of a company. You’ve heard about value investors like Warren Buffet, and maybe even Benjamin Graham. But what is intrinsic value?

Intrinsic value is simple by definition. It’s the actual value of a security (stock or company) taking into account everything. The intrinsic value can be found differently and may have different values for the same security for different people. But when talking about the intrinsic value of something your sayings it’s true value, not the market value, and not the book value, accountants have a very specific way of getting at the value.

The reason intrinsic value has a different meaning for different people is because you may value the companies Trademarked name differently than I would. I might not think the Golden Arches are worth much while you may think they’re worth all the money in the world.

The same goes for the companies equipement, it’s product inventory, and even the land it’s sitting on. Each investor must find a way to value a security based on his or her own weighting of these factors. But there’s no denying that intrinsic value really means the actual value.

Most people believe that their car is an asset or that even their house is an asset. Is it true, I guess if you want to believe what the bank tells you. But for anyone who has read Rich Dad, Poor Dad you know better. Or at least you know something different.

To Rich Dad and to most people who understand how money works, an asset is something that puts money in your pocket. A car certainly doesn’t put money in your pocket it looses money the second it leaves the show room floor. And your house, although it allows you to take more money out on credit, which you may be able to use to buy or create an asset that does put money in your pocket, is definitely not an asset. More often than not the bank owns more of your house than you do and you just keep paying them more.

No, an asset is something that puts money in your pocket. Everything else can be considered a liability. You need to start thinking this way or else you’ll find yourself diligently lining the pockets of those that use your house or car as their assets.

A mutual fund is an investment that allows multiple investors to pool funds together to purchase multiple stocks. A mutual fund is a tool used to diversify a portfolio with the purchase of one unit. A fund manager directs the money into equities that he or she feels will increase in value over time (you hope).

Basically a fund manager chooses multiple stocks, bonds, or commodities (equity) to create a value of the fund. Each equity holding weights the overall price of the mutual fund creating a unit price. The unit price of the fund fluctuates as the price of each equity fluctuates.