Full text of FDIC Consumer News : April 1981

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Library
NOV - 91981

FDICi
EDITOR: Josie Downey

FEDERAL DEPOSIT I N S U R A N C E ~ ~

The Bank Customers Publication

April 1981
Volume I No. 4

Early With~als Of Tim~ Accounts
Can Result In Forfeiture Of Interest
Today's rapidly fluctuating interest
rates are causing consumers to seek not
only the highest rate of return on their
investments but a lso liquid ity . But consu mers wh o invest in t ime accounts
shou ld be aware of t he penalt ies for
wi t hdrawa l of t hese acco unt s pr ior to
maturity before t hey move the ir fu nds
elsewhere.
T he t hree kinds of penalties for early
withdrawa l are:
• For ce rt ificates of depos it purchased before July I, 1979, and not
extended or renewed since that date,
the penalty is forfeiture of three
months' interest on the amount of
deposit plus the reduction of the
interest rate to the savings deposit
rate on the balance of the amount
of deposit tot he date the certificate
was purchased. The penalty may go
into t he principa l.
• For cer t ificates renewed or exte nded on or after July I, 1979, but
before J u ne 2, 1980, t he pena lty is
forfe iture of three mont hs' interest
for certificates with mat urity terms
of less th a n one year o r fo rfeit u re of
six m onths of interest fo r certificates with ma turity ter ms of one
year or longer. N ote tha t the
penalty does not go into t he principal.
• For certificates purchased , re newed , or extended on or after
June 2, 1980, the penalty is forfeiture of six months' interest for certificates with maturity terms of one
year or longer, forfeiture of three
months to less than one year maturities , and forfeiture of all interest

for certificates of less than three
months maturity term. These penalties apply regardless of how long a
certificate may have been on deposit. If a deposit is withdrawn too
soon, the penalty could include
part of the principal.
T he custo mer shou ld keep in m ind that
a ban k may assess a greater pe nalty if it
so chooses; however, banks are legally
required to des cribe exact ly what the
penalty' is fo r early withdrawa l.
Many peop le bel ieve that banks mus t
allow early withdrawal of time depos its
upon request. The law clearly indicates
that with certain exceptions, banks have
the option to allow or refuse early withdrawal of time deposits. Banks cannot
give blanket approval to early withdrawals, but must consider each case.
The following condit ions apply to a ll
time deposits, incl uding six month
"money market" certificates, 2 ½ year
"sma ll saver" certificates, and somet imes to deposits of more than$ I 00,000.
• Banks must grant a request for
early withdrawal upon death ofany
ow ner of a t ime depos it or if any
ow ner of a ti me d epos it has bee n
d eclared inco m pet ent by a court.
T he penalty may not be mandatory
in such a case, but the ba nk s may
enforce if they choose.
• Ba nk s need no t apply penalties
when allowing early withdrawal fo r
time deposits if the deposit consists
of Individual Retirement Account
or Keogh (H.R. 10) funds and the
person for whose benefit the account is maintained is 59 ½ or older
or has become legally disabled.

FDIC regulations require banks to
give a customer at the time he or she
buys a certificate of deposit or other
deposit a wr itten statement indicating
the bank will assess a penalty on funds
withdrawn before maturity .

Consumers Have Equal
Access To Credit
The Equal Credit Opportunity Act
does not give anyone an automatic right
to credit. It does require that creditors
apply the same standard of "creditworthiness" equally to all applicants.
The Equal Credit Opportunity Act is a
Federal law which prohibits discrimination against an applicant for credit on
the basis of race, color, religion,
national origin, age, sex, marital status
or reliance on income from public assistance, or because the applicant may have
exercised rights under the consumer
protection laws. (Discrimination is defined as treating one applicant less
fav orab ly than others for invalid reasons.)
C red ito rs a re a ll banks, savings and
loans, cred it u ni ons, fin a nce co mpan ies ,
depart ment stores, credit card issuers,
car and a ppliance dealers and ot hers
who regularly ext end credit t o co nsumers.
Creditors want t o be assured of two
things: your ability to repay a debt and
your willingness to do so . To ascerta in
this information, the creditors will as k
you about your finances: how much you

PREPARED BY THE DIVISION OF BANK SUPERVISION
Federal Deposit Insurance Corporation
Washington, D.C. 20429

(Cont. on page 2.)

Consumers Should,·Kfn ow About Mortgages And
Related Costs Before Buying A Home
~- Part I
Buying a home is the largest financial
investment most people will ever make.
It is best to be fully informed at every
step of the way. The more you know, the
more likely you are to make sound decisions. This is the first of a three part
article that will help guide, inform, and
direct you during the home buying experience.
Before you apply for a mortgage on the
house you have chosen to buy, compare
the mortgage terms of different lenders.
It's important to know how to get a
mortgage that offers the best terms.
Once you and a seller agree on a price
of a house, or if you offer a contract a
seller accepts, a purchase agreement is
signed. A purchase agreement is a legal
contract in which a seller agrees to sell
and a buyer agrees to buy a piece of
property. The terms and conditions of
the sale are stated in the agreement and
it is signed by the buyer and seller.
After signing the purchase agreement,
check with several lenders to find out
what financial terms they offer. It pays
to shop around for the lowest interest
rates.
For example, a $50,000 mortgage for
30 years at 13 ¾ percent interest costs
you $582.56 per month. The same mortgage for 30 years at 13 ¼ percent interest
costs you $562.89. The lower interest
rate saves you $19.67 per month, and
about $7,080 over the life of the mortgage.
A longer mortgage term means smaller
monthly payments but you pay more in
total interest.
For example, a $50,000 mortgage at
13 ¾ percent interest for 20 years costs
you $612. 70 per month. The same mortgage at 13 ¾ p-ercent interest for 30 years
costs you $582.56 per month. The longer
term reduces your monthly payment by
$30.14 per month, but you end up paying $62,674 more to the lender as a result
of the longer mortgage term. Keep in
mind that these monthly payments consist only of principal and interest.
The amount of your down payment
may determine the interest rate you have
to pay on the loan. If you make a larger
down payment, the lender may charge
you a lower interest rate. The larger
down payment reduces the risk to the

lender and usually results in a lower
rate.
For FHA and VA loans, the interest
rate you pay is fixed by the government
and is adjusted from time to time to
reflect changes in conventional interest
rates.
To help you better understand the
mortgage payment process, ask the creditor or lender for a thorough explanation of the following information:
• The principal amount of the mortgage, the interest rate of the mortgage
(as low as possible); the term (years) of
the mortgage, and the monthly payment.
• What type of mortgage is better for
you. The Standard Fixed Rate Mortgage is a long term loan (25 or 30 years)
set at a fixed rate of interest, with fixed
monthly payments over the !ife of the
loan. If you sign a contract stating you
will pay an amount at 17 percent interest, 17 percent interest is what you
always will pay on the loan. The seller
cannot change the rate of interest on
your loan, whether the rate goes up or
down in the market.
Other types of mortgages that may be
of interest to you are the Variable Rate
Mortgage and Renegotiable Rate Mortgage. These mortgages allow the lender
during the life of a mortgage to change
the rate of interest in accordance with
the market. For example, if you sign a
contract stating you will pay 17 percent
interest on a loan and then a year later
the interest rate goes up to 20 percent,
the lender can change your interest rate
from 17 percent to 20 percent to coincide with the market rate or the lender
can decrease the rate from 17 percent to
12 percent if the market rate is 12 percent. The amount the rate can be
changed and the frequency are sometimes governed by Federal regulation,
by State law, and by the terms of the
contract between lender and buyer.
Another mortgage is the Shared Appreciation Mortgage. The lender shares the
profit on the sale of a house in return for
a lower-than-market interest rate (reduced monthly payments) during the
first ten years of the loan. Many of these
loans are written so that at the end of ten
years, the homeowner must pay the

bank its share of the profits based on the
appreciation of the home even if the
owner doesn't sell. The owner may have
to refinance the house at that time with a
new mortgage in order to pay the bank
its share, but the new monthly payments
may be too high because of the appraised value (an evaluation of the
house to determine its value and what it
would sell for in the market) of the
property and the subsequent size of the
loan.
In the May issue- Part 2, more on what
you should know before buying a home.

'Equal Credit'
Rule Explained
(Cont. from page 1.)

earn, what kinds of savings and investments you have, what other sources of
income you have. They may look for
signs of reliability: your occupation,
how long you've been employed, how
long you lived at the same address,
whether you own or rent your home.
They may also examine your credit
record: how much you owe, how often
you've borrowed, and how you've managed to pay past debts.
Creditors may not ask you your sex on
a credit application - with one exception. If you apply for a loan to buy or
build a home, creditors are required to .
ask your sex to provide the Federal
government with information to monitor compliance with the Act.You do not
have to answer the question.
Creditors may not request your marital
status on an application for an individual, unsecured account (a bank credit
card or an overdraft checking account)
in non-community property states.
They may request your marital status on
other than individual unsecured loans.
In community property states, they may
request your marital status. Community
property states are: Arizona, California,
Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington.
Creditors may consider your marital
status because, under the laws of your
state, there may be differences in the
(Cont. on page 4.)

Antes De Comprar Una Vivienda
Los Consumidores Deben Estar lnformados
Acerca De Los Prestamos Hipotecarios Y
Los Costos Correspondientes
El comprar una vivienda es la inversion
financiera mas grande que muchas
personas jamas lleven acabo. Es importa nte que usted este informado
plenamente en cada paso del camino.
Si usted conoce mas informaci6n, estara
capacitado a hacer una decision sabia.
Esta es la primera parte de un artfculo de
dos partes que le servira de gufa e
informaci6n durante el proceso de comprar una casa.
Antes de solicitar un prestamo
hipotecario para la vivienda que ha
seleccionado, compare los terminos
hipotecarios ofrecidos por diferentes
prestamistas. Es importante conocer
como conseguir un prestamo hipotecario
que le ofrezca los mejores terminos.
Una vez que usted y su vendedor fijen el
precio de la vivienda, o si usted ofreze un
contrato que el vendedor acepta, se firma
un contrato de compra. Un contrato de
compra es un contrato legal en el cual el
vendedor accede a vender, y el comprador
accede a comprar una propiedad. El
contrato que esta firmado por el comprador y el vendedor establece los plazos
y las condiciones de dicha venta.
Despues de firmar el contrato de compra
verifique con varies prestamistas para
conocer los terminos financieros que
estos le ofrezen. Paga comparar para
conseguir la tasa de interes menor .
Por ejemplo, un prestamo hipotecario
por la suma de $50,000, por un termino
de 30 anos, pagando interes a raz6n de
13¾ por ciento, le cuesta mensualmente
$582.56. El mismo prestamo hipotecario
por un termino de 30 anos, pagando
interes a raz6n de 13¼ por ciento, le
cuesta mensualmente $562 .89 . La tasa
de interes menor le ahorra mensualmente $19 .67, y alrededor de $7,080
durante la duraci6n de la hipoteca.
Un plazo hipotecario mas largo significa
pagos mensuales menores pero usted
termina pagando una cantidad mayor de
interes total.
Por ejemplo, un prestamo hipotecario
por la suma de $50,000, pagando interes
a raz6n de 13¾ por ciento, por un termino
de 20 anos le cuesta mensualmente
$612.70 . El mismo prestamo hipotecario
pagando interes a raz6n de 13¾ por
· ciento, por un termino de 30 a nos le
cuesta mensualmente $582.56 . El plazo
mas largo reduce su pago mensual por

$30.14, pero usted termina pagando al
prestamista alrededor de $62,-674 mas,
debido al largo plazo de la hipoteca .
La cantidad de su pronto de pago
puede determinar la tasa de interes que
usted tiene que pagar en un prestamo. Si
usted hace un pronto de pago grande
puede que el prestamista le cargue una
tasa de interes menor. El pronto de pago
grande aminora el riesgo que el prestamista tiene que tomar, y usualmente
resulta en una tasa menor.
La tasa de interes de los prestamos
hipotecarios de FHA o VA la fija el
gobierno y de tiempo en tiempo se varia o
altera para reflejar los cambios de las
tasas de interes convencionales .
Para ayudar a que usted conozca mejor
el proceso de los pagos hipotecarios,
preguntele al acreedor o el prestamista
una explicaci6n detallada de la siguiente
informaci6n:
La cantidad principal del prestamo
hipotecario, la tasa de interes de la
hipoteca (la mas baja posible), el plazo
(anos) de la hipoteca y los pagos
mensuales.
lOue tipo de prestamo hipotecario es
mejor para usted? El prestamo hipotecario conocido como "Standard Fixed
Rate Mortgage" (Hipoteca con una Tasa
de lnteres Fija) es un prestamo a largo
plazo (25 o 30 anos) que ha sido
acomodado a una tasa de interes fija, con
pagos mensuales fijos durante la duraci6n
del prestamo.
Si usted firma un contrato que estipula
que usted va a pagar una cantidad
pagando interes a raz6n de 17 por ciento,
interes a raz6n de 17 por ciento es lo que
pagara en dicho prestamo. El prestamista
no puede cambiar la tasa de interes de
su prestamo, a pesar de que el mercado
de la tasa de interes sube o baja.
Otros tipos de prestamos hipotecarios
que pueden ser de su interes son "Variable
Rate Mortgage" (Hipoteca con una Tasa
Variable) y "Renegotiable Rate Mortgage"
(Hipoteca con una Tasa Renegociable).
Durante la duraci6n de estos prestamos
hipotecarios el prestamista puede cambiar
la tasa de interes de acuerdo con el
mercado. Por ejemplo, si usted firma un
contrato que estipula que el interes que
pagara en dicho prestamo sera a raz6n de
17 por ciento y luego un ano mas tarde la
tasa de interes sube a un 20 por ciento, el

prestamista puede cambiar su tasa de
interes de 17 por ciento al 20 por ciento
para de esta manera coincidir con la tasa
del mercado. El prestamista tambien puede
bajar la tasa de 17 por ciento al 12 por
ciento si la tasa del mercado es 12 por
ciento. La cantidad y la frecuencia que la
tasa puede cambiar estan a veces controladas por reglamentos federates, por
!eyes estatales y por los terminos del
contrato entre el prestamista y el comprador .
Otro prestamo hipotecario es el "Shared
Appreciation Mortgage" (Hipoteca con
la Participaci6n del Aumento de Precio).
En esta hipoteca el prestamista participa
en las ganancias de la venta de la
vivienda a cambio de ofrecer durante los
primeros 10 anos de la misma una tasa de
interes me nor (pa gos mensuales reducidos)
que la que prevalece en el mercado.
Muches de estos prestamos estipulan
que al final de los primeros 10 anos, el
propietario de la vivienda tiene que
pagarle al banco su participaci6n de las
ganancias del aumento en precio de la
vivienda, aun si el propietario no decide
vender. Para poder pagarle al banco su
participaci6n de las ganancias el
propietario puede que tenga que refinanciar la vivienda con un prestamo
hipotecario nuevo, pero los pagos
mensuales nuevos pueden que sean
mayores debido a que el valor estimado
(una evaluaci6n de la vivienda que
determina el valor y en cuanto se
venderfa en el mercado) de la propiedad y
al tamano del prestamo subsecuente .
La segunda parte de este artfculo se
publicara en la edici6n de mayo. En este
encontrara mas informaci6n de lo que
usted debe conocer antes de comprar
una vivienda.

FDIC CONSUMER NEWS
Si usted desea recibir este
noticiero favor de enviar su
nombre y direcci6n postal a
la siguiente direcci6n:
Josie Downey, Editor
FDIC Consumer News
550 17th Street, N.W.
Washington, D.C. 20429

Questions From Bank Customers
Q.

Does interest earned on a certificate of deposit have to
be reported to the Internal Revenue Service?

A.

Yes, all interest paid or earned and available on a certificate of deposit must be reported to the IRS by the
consumer. In addition, the bank must report directly to
the IRS any interest in excess of $10 .00 paid to a consumer or accrued for a consumer.

Q.

Are savings and loan inst itutions under the FDIC's
jurisdiction?

A.

No, informat ion regarding savings and loan institutions
may be obtained from the Federal Home Loan Bank
Board.

Q.

Are money market certificates and money market funds
insured by the FDIC or FSLIC?

A.

Money market certificates are 6-month time deposits of
$10,000 or more issued by insured banks and savings
and loan associations . As such, they are insured by the
FDIC or FSLIC up to $100,000 together with all other
deposits held by the depositor in the same right and
capacity in the same insured bank or savings and loan
assoc iation.

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FDIC CONSUMER HOTLINE

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Money market funds are mutual funds in which the
investor becomes a proportionate owner of the assets of
the fund and shares proportionally in the income
derived from those assets, including short term government securities and large certificates of deposit. Monies
invested in such funds are not insured by the FDIC or
FSLIC since they do not represent depos it obligations
of insured banks or savings and loan associations .

Consumers Have Equal Access To Credit

(Cont.frompage2.)

property rights of married and unmarobligations to pay child support or
· ried..
SU€h _d_ifferences m,~4fifct . mainte~ance. They cann~t ask about
~..,,
■ t,h~
ol"~·''~rt'Mity to cqlled..1'f'Vou\ . your birth control practices or your
~
'd'~f~
. .
s,gnsiderati@ do ~s ~o~
.t. . : plans to have children. Creditors cannot
, - ~ ~ : a p ~ a l unsect(~d lo~.n~. i~ ;. assume that y~u _will have _ch ildr~n or
,,.,_ ,_,..~:~~"'1and, ~re&i~_rs t~~m.... • j that a womans income will be interrefuse ~o ~~ your 1?corn(~ ~ j~ .f rupte~ to do so.
Creditors may also ask how regularly
a marned woman, even if your mctrl'fie~
from part-time emp loyment.
you receive or pay your alimony payIn •order to estimate your ..~4,f,
t!xpenses,
men ts, or whether
they are made under
•
•
~
creditors may ask how many~~ildren
·court order, m order to· det'ermme
you l)a..,ye, their ages, and the. cost of
whether these payments are a dependacaring for them, as well as a ~ your
'tile. source of income. Also, credito rs

p~~!~-.

cannot refuse to consider reliable alimony, child support, or separate maintenance payments . You don't need to
disclose alimony or child support payments unless you will rely on that income to pay off the loan.
For more information, write to the
Office of Consumer and Compliance
Programs, FDIC, 550 17th s ·t., N .W .,
Washington, D .C. 20429, and request
the"Equal Credit Opportunity" pamphlet.

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