According to a new research from the Woolwich, an average of 19 per cent of peoples takes home pay on mortgages.
This percentage was set to increase as the effects of the base rate rise filter through in September, according to Barclays.
Woolwich reported that the cost of servicing mortgages increased in August, up 18.8% from July, to almost £550.
A new high has been registered in London, where people are spending 23.5% of their pay on mortgages. There was no change in the West Midlands in the amount people spend on their mortgages, while South-West has seen a proportional decrease.
There was a great impact on affordability due to increasing house prices, a buoyant summer and the higher cost of fixed rates.
Andy Gray, head of mortgages for Woolwich said: "It will become increasingly questionable whether another increase in interest rates is needed as the steam already seems to be coming out of the market."
Companies such as Nationwide and Assetz are very cautious about the future of the market. According to Assetz, the rate of growth was likely to ease heading into the autumn months, back to between 5% and 5.5%.
Assetz said that with the threat of another interest rate hike hanging over homeowners, the rate of growth was likely to ease heading into the autumn months, back to between 5% and 5.5%.
Why And What Is A Remortgage?
A remortgage is simply taking out a brand new mortgage on your current home, replacing your existing mortgage and generally saving money by earning a lower rate, or replacing a variable rate mortgage with a fixed one – or vice versa.
After a considerable time has passed since your initial home purchase, your mortgage payments offer continual increases in your home equity. Due to inflation and other factors your home generally increases in value as well. You are, therefore, later eligible for a new, more cost effective mortgage of that same home. While a remortgage does not involve the sale of your home or any relocation at all, it may be that your debt does leave one financial institution and become the property of a new lender.
There may be times when you need additional money for new additions on your home, or home remodeling. A remortgage may provide these funds at a lower rate of interest than other financial resources.
It can be that all other things being equal the time is just right for a remortgage savings because of the improved state of the economy. Right now we are in the midst of such an upswing in the market activity and a downswing in mortgage rates. Now is a great time for a remortgage.
Thanks to the Internet and other electronic technology a remortgage is not at all complicated. You can actually apply for a remortgage online from the privacy of your own home. Not only does this facilitate the process but it also offers you a quicker turnaround on both your approval and the availability of the remortgage funds or savings.
A remortgage can be a sensible way to accrue needed capital, if interest rates are lower than what you are paying on your current mortgage, thus decreasing your monthly payment. Or, you might choose an early payoff of your remortgage instead which could considerably free up resources down the road once your home remortgage is paid in full early. If your remortgage is going to eliminate your high interest debt payment and replace it with a low interest remortgage payment, you will save money. Usually a great deal. What you have to keep in mind, however, is that there are fees involved in the remortgage. You must make sure that the fees you pay to remortgage are not more than the difference between the total payments of your old mortgage minus the total payments of your remortgage.
The greatest expense in your remortgage will be your redemption fee. This is the upfront cost of the mortgage cancellation and remortgage process. You must learn all you can about early repayment penalties. These can have a hefty impact on your remortgage expenses. In general, the newer your current mortgage, the higher the early payment penalty.
Other remortgage fees could be for appraisal, should the new lender want a professional valuation of your home and property. You may have attorney fees as well. Your lending institution may have various fees attached to the remortgage such as transportation, faxing, long distance and so forth. All these are negotiable and you should ask.
What is very important to keep in mind before you embark on a remortgage is that your repayment of your home ownership debt begins all over again with this remortgage. While you might see a remortgage as a great savings in the short run, you could end up paying more in the long run. While you lower your interest rate in most cases – or why do it? – you will be extending the time it takes to pay back the remortgage, unless you are savvy enough to pay more and get out early.
After a considerable time has passed since your initial home purchase, your mortgage payments offer continual increases in your home equity. Due to inflation and other factors your home generally increases in value as well. You are, therefore, later eligible for a new, more cost effective mortgage of that same home. While a remortgage does not involve the sale of your home or any relocation at all, it may be that your debt does leave one financial institution and become the property of a new lender.
There may be times when you need additional money for new additions on your home, or home remodeling. A remortgage may provide these funds at a lower rate of interest than other financial resources.
It can be that all other things being equal the time is just right for a remortgage savings because of the improved state of the economy. Right now we are in the midst of such an upswing in the market activity and a downswing in mortgage rates. Now is a great time for a remortgage.
Thanks to the Internet and other electronic technology a remortgage is not at all complicated. You can actually apply for a remortgage online from the privacy of your own home. Not only does this facilitate the process but it also offers you a quicker turnaround on both your approval and the availability of the remortgage funds or savings.
A remortgage can be a sensible way to accrue needed capital, if interest rates are lower than what you are paying on your current mortgage, thus decreasing your monthly payment. Or, you might choose an early payoff of your remortgage instead which could considerably free up resources down the road once your home remortgage is paid in full early. If your remortgage is going to eliminate your high interest debt payment and replace it with a low interest remortgage payment, you will save money. Usually a great deal. What you have to keep in mind, however, is that there are fees involved in the remortgage. You must make sure that the fees you pay to remortgage are not more than the difference between the total payments of your old mortgage minus the total payments of your remortgage.
The greatest expense in your remortgage will be your redemption fee. This is the upfront cost of the mortgage cancellation and remortgage process. You must learn all you can about early repayment penalties. These can have a hefty impact on your remortgage expenses. In general, the newer your current mortgage, the higher the early payment penalty.
Other remortgage fees could be for appraisal, should the new lender want a professional valuation of your home and property. You may have attorney fees as well. Your lending institution may have various fees attached to the remortgage such as transportation, faxing, long distance and so forth. All these are negotiable and you should ask.
What is very important to keep in mind before you embark on a remortgage is that your repayment of your home ownership debt begins all over again with this remortgage. While you might see a remortgage as a great savings in the short run, you could end up paying more in the long run. While you lower your interest rate in most cases – or why do it? – you will be extending the time it takes to pay back the remortgage, unless you are savvy enough to pay more and get out early.
Mortgage Decisions Made Easy
Homeowners we want to hear from you. The mortgage industry has been through a lot of changes in the recent years. We have seen mortgage rates the lowest they have been in years and we have seen big name lenders getting in trouble for various reasons.Today there are many homeowners who are in over their heads, with interest only loans, option arms and homes that they just can't afford. In some cases, these homeowners have had their equity stretched to the max and there is not a lot they can't do but walk away from their home.My mission is simple, help homeowners prosper by doing the right thing. I have compiled a series of e-books which can be downloaded for free at www.fpf-direct.com. These e-books are beneficial to anyone who is looking to refinance or purchase a new home.Future Planning Financial has helped many homeowners save thousands of dollars and get back on the right track to financial freedom. We have done this by educating homeowners on the choices that lay in front of them. I encourage you to sample the free e-books at www.fpf-direct.com today, even if we don't earn your business, if we help you get the best mortgage our mission is complete.
Shared Ownership Mortgage
Mortgages available on shared ownership for returning the loan are termed as shared ownership mortgages. Shared ownership mortgages are considered to be more risky than the traditional loan schemes; this is the primary reason why it is considered to be limited in nature. Before discussing the advantages and limitations of shared ownership mortgage, lets see what is shared ownership mortgage in the first place.
The term, shared ownership was evolved with a view to help people who are financially unable to buy a house in that particular moment. The common perception here is that when a person is not able to take the responsibility for the whole amount he takes help from other people who agree to share the ownership. Thus, the term shared ownership mortgage. But, the exact dealing is that you buy a share of the property and pay a rent on the remaining share that you don't own. Gradually when you have sufficient money you can buy further shares and eventually you own the whole property. Owning partial ownership of the property is not a consideration for the total rights and responsibilities of a full owner. Thus, it is a boon for those with big dreams but limited resources.
Everyone has sometime or the other dreamt of possessing a house of his or her own. But many of them are not in a very financially stable state to fulfill this dream. Shared ownership mortgage helps you reach this dream. Many housing corporations offer such services but priority is given to the existing tenants of the housing associations or the councils. The only hiccup in shared ownership mortgages is that the house prices go up or down depending upon the market and this can mean that sometimes you can end up paying more or less than the original price.
Apart from the normal advantages that every other mortgage gives, shared ownership mortgage provides you with the feasibility of 99 years, which is a complete lifetime, to complete the repayment. This means that you can pay the remaining amount as per your convenience. Also, you have the owners right to the property. This condition in shared ownership mortgage makes it the most sought after mortgage in the market today. Yet, due to its large risk capacity, lenders don't easily put their money through it.
Shared ownership mortgage is mostly available with the housing trusts or cooperative societies and have simple procedures for completing the formalities. There is also no issue regarding the security to be provided at the time of taking mortgage, as it can be covered with the other half of the property that you rightfully own. This makes the process even simpler and easier to deal with. Thus, if you are planning to buy a house soon and you are looking out for a good mortgage deal you should search for lenders who accept shared ownership mortgage. Go live your dream with shared ownership mortgage!
The term, shared ownership was evolved with a view to help people who are financially unable to buy a house in that particular moment. The common perception here is that when a person is not able to take the responsibility for the whole amount he takes help from other people who agree to share the ownership. Thus, the term shared ownership mortgage. But, the exact dealing is that you buy a share of the property and pay a rent on the remaining share that you don't own. Gradually when you have sufficient money you can buy further shares and eventually you own the whole property. Owning partial ownership of the property is not a consideration for the total rights and responsibilities of a full owner. Thus, it is a boon for those with big dreams but limited resources.
Everyone has sometime or the other dreamt of possessing a house of his or her own. But many of them are not in a very financially stable state to fulfill this dream. Shared ownership mortgage helps you reach this dream. Many housing corporations offer such services but priority is given to the existing tenants of the housing associations or the councils. The only hiccup in shared ownership mortgages is that the house prices go up or down depending upon the market and this can mean that sometimes you can end up paying more or less than the original price.
Apart from the normal advantages that every other mortgage gives, shared ownership mortgage provides you with the feasibility of 99 years, which is a complete lifetime, to complete the repayment. This means that you can pay the remaining amount as per your convenience. Also, you have the owners right to the property. This condition in shared ownership mortgage makes it the most sought after mortgage in the market today. Yet, due to its large risk capacity, lenders don't easily put their money through it.
Shared ownership mortgage is mostly available with the housing trusts or cooperative societies and have simple procedures for completing the formalities. There is also no issue regarding the security to be provided at the time of taking mortgage, as it can be covered with the other half of the property that you rightfully own. This makes the process even simpler and easier to deal with. Thus, if you are planning to buy a house soon and you are looking out for a good mortgage deal you should search for lenders who accept shared ownership mortgage. Go live your dream with shared ownership mortgage!
Closing A Commercial Mortgage The Easy Way
'Time is Money' it's an old adage. Good timing can also amount to the same thing. Taking action at the right time can make all the difference between an easy commercial mortgage transaction and a major headache of stress and panic. In between the lenders offer and the commitment consider undertaking what you can to ease your commercial mortgage deal by anticipating and dealing with any problems or hiccups that may occur.
Try to intercept any future problems or anticipate extra work that could stall your commercial mortgage deal at the critical moment. If you take a little time to consider what is required you should be able to deal with them one by one in plenty of time. Once you have agreed to an offer from a lender and you are waiting for the commitment you should go ahead and run the title searches. The title work can be ordered by your real estate attorney from any number of companies that will risk loosing their title search fee if the commercial mortgage deal doesn't go through.
The title work is a very slow and labour intensive process, so the earlier you start it the quicker it will be completed. Starting it early will also allow for any delays or other issues that may pop up prior to the commercial mortgage completion.
The survey is another potential headache. Surveys have differing specifications and your new lender may have specific requirements of the survey that may not appear in your existing survey documents. Check with your lender exactly what they require of a survey and order it on receiving your offer rather than at closing. Most surveyors are very busy and they can have a very slow turnaround. So again the sooner you can get it underway the easier it will be to deal with any hitches.
Cut down on your mortgage recording tax. Ask your lender to take an assignment of the old mortgage. Early in the deal process you should let your new lender's attorneys look over and approve the old mortgage. This is generally quite quick if you work with your own attorney to ease the process.
Consider the structure of your commercial loan. Does it cover any future plans you may have to modify your property? e.g. you may wish to convert your new property into multiple apartments. Does your loan account for the 'whittling' down of your asset as apartments are sold? This is a simple example but it's better to be upfront at the start about the plans you may have for the future of your property.
Along similar lines you would be well advised to consider the possibility of an early payment penalty if you plan to sell on your property within a few years.
Make a 'To Do' list and use and any spare time to work through it and clear it. There are enough things that can go wrong or cause delays as the deal nears completion. Clear what you can before you get to closing the deal, in this way you can give the mortgage agreement your full attention rather than worry about the other jobs that still need to be done.
Try to intercept any future problems or anticipate extra work that could stall your commercial mortgage deal at the critical moment. If you take a little time to consider what is required you should be able to deal with them one by one in plenty of time. Once you have agreed to an offer from a lender and you are waiting for the commitment you should go ahead and run the title searches. The title work can be ordered by your real estate attorney from any number of companies that will risk loosing their title search fee if the commercial mortgage deal doesn't go through.
The title work is a very slow and labour intensive process, so the earlier you start it the quicker it will be completed. Starting it early will also allow for any delays or other issues that may pop up prior to the commercial mortgage completion.
The survey is another potential headache. Surveys have differing specifications and your new lender may have specific requirements of the survey that may not appear in your existing survey documents. Check with your lender exactly what they require of a survey and order it on receiving your offer rather than at closing. Most surveyors are very busy and they can have a very slow turnaround. So again the sooner you can get it underway the easier it will be to deal with any hitches.
Cut down on your mortgage recording tax. Ask your lender to take an assignment of the old mortgage. Early in the deal process you should let your new lender's attorneys look over and approve the old mortgage. This is generally quite quick if you work with your own attorney to ease the process.
Consider the structure of your commercial loan. Does it cover any future plans you may have to modify your property? e.g. you may wish to convert your new property into multiple apartments. Does your loan account for the 'whittling' down of your asset as apartments are sold? This is a simple example but it's better to be upfront at the start about the plans you may have for the future of your property.
Along similar lines you would be well advised to consider the possibility of an early payment penalty if you plan to sell on your property within a few years.
Make a 'To Do' list and use and any spare time to work through it and clear it. There are enough things that can go wrong or cause delays as the deal nears completion. Clear what you can before you get to closing the deal, in this way you can give the mortgage agreement your full attention rather than worry about the other jobs that still need to be done.
Interest Only Mortgages Inforamtion
There are two types of mortgages. The first and most popular, is the Repayment Mortgage where you pay off the capital (the amount of money loaned) and the interest every month as part of your mortgage payment. The other type is the Interest Only Mortgage where you only pay off the interest on your mortgage every month.
What this means, is that if you take out an Interest only Mortgage, once the term of the loan is over, you will have paid off all the interest, but you must find the capital i.e. the price of the house.
For example, if you bought a house for £100,000 over the course of the next e.g. 25 years, you would have managed to pay off the interest (probably about £150,000), but you will not have paid off any of the £100,000 so the lender will be expecting a payment of £100,000 at the end of the mortgage deal. A lot of money for the vast majority of us.
In order to be able to re-pay the capital on the loan, there are 3 commonly used methods which are usually employed so that the borrower has the funds available to be able to pay off the loan. They are as follows
Endowment
An endowment is an investment scheme which was very common in the 1980s and early 1990s. The idea was to have an endowment and an interest-only mortgage. You would pay a monthly premium to the company (often an insurer) who sells you the endowment, and the policy was supposed to grow over the years. This way, when the policy matures, you would be left with enough money to pay off your mortgage and most people also expected to have a significant lump sum of cash too.
However, what happened is that the performance of the endowment is linked to how well the Stock Market performs so when the Stock Market crashed in the late 1980's, the endowments weren't worth as much as people thought they would be.
In essence, if the borrower took out an endowment mortgage for £100,000, if has had happened in the past, the endowment at the end of the term of the mortgage would have been worth at least £100,000 if not more. Some policies were worth a lot more. Any excess(profits) on the £100,000 would have gone to the borrower. However, what happened is that a lot of endowments after the crash were worth a lot less. This meant that the borrower would have to find the shortfall from somewhere else.
As you can see with the above illustration, this type of mortgage is very risky, offering a potential of a big gain, however, there is always the possibility of problems.
Despite the bad publicity and the inherent problems, it may be that this type of mortgage is suitable for some people and a number of lenders still offer Endowment Mortgages.
ISA (formerly known as Peps)
With this type of mortgage, you're still paying off the interest only, however, you also pay into an ISA. There are a number of different ISA's available, however, the main advantage is that the money you pay in, earns interest free of tax.
A disadvantage though, is that you are only allowed to put a certain amount of money into an ISA every year, so by using an ISA for your mortgage, you are missing out on using the ISA for savings.
Pension
This way of paying off an interest-only mortgage, is by far the least common. Most forms of pension fund let you take 25% of their value as a tax-free lump sum at retirement. The idea behind pension mortgages is that you are paying off the loan not only using a fund which grows free of tax (like an ISA), but you are also effectively getting tax relief on your mortgage contributions as well. The problem is a distinct lack of flexibility, and the fact that you can't pay off the mortgage before retirement.
The other example of using Interest Only Mortgages is with regards to buying homes to rent out. The rental income received is often enough to cover the value of the interest only payment plus a small profit. Hopefully if you've chosen a house wisely (and luckily), then over a period of time (10 - 20 years), the house will have risen in value so at some point you will decide to cash in and sell the house for greater than you bought it for.
This policy is very very risky. There is no guarantee that the house price will continue to rise. There are no guarantees that you will be able to find tenants or attract the rental income you need. This is also stepping into the realms of business as opposed to simply home buying.
Interest Only Mortgages are suitable for some people, however, they are much more risky than Repayment Mortgages but it is possible that if everything works out right, then a nice profit can be made.
What this means, is that if you take out an Interest only Mortgage, once the term of the loan is over, you will have paid off all the interest, but you must find the capital i.e. the price of the house.
For example, if you bought a house for £100,000 over the course of the next e.g. 25 years, you would have managed to pay off the interest (probably about £150,000), but you will not have paid off any of the £100,000 so the lender will be expecting a payment of £100,000 at the end of the mortgage deal. A lot of money for the vast majority of us.
In order to be able to re-pay the capital on the loan, there are 3 commonly used methods which are usually employed so that the borrower has the funds available to be able to pay off the loan. They are as follows
Endowment
An endowment is an investment scheme which was very common in the 1980s and early 1990s. The idea was to have an endowment and an interest-only mortgage. You would pay a monthly premium to the company (often an insurer) who sells you the endowment, and the policy was supposed to grow over the years. This way, when the policy matures, you would be left with enough money to pay off your mortgage and most people also expected to have a significant lump sum of cash too.
However, what happened is that the performance of the endowment is linked to how well the Stock Market performs so when the Stock Market crashed in the late 1980's, the endowments weren't worth as much as people thought they would be.
In essence, if the borrower took out an endowment mortgage for £100,000, if has had happened in the past, the endowment at the end of the term of the mortgage would have been worth at least £100,000 if not more. Some policies were worth a lot more. Any excess(profits) on the £100,000 would have gone to the borrower. However, what happened is that a lot of endowments after the crash were worth a lot less. This meant that the borrower would have to find the shortfall from somewhere else.
As you can see with the above illustration, this type of mortgage is very risky, offering a potential of a big gain, however, there is always the possibility of problems.
Despite the bad publicity and the inherent problems, it may be that this type of mortgage is suitable for some people and a number of lenders still offer Endowment Mortgages.
ISA (formerly known as Peps)
With this type of mortgage, you're still paying off the interest only, however, you also pay into an ISA. There are a number of different ISA's available, however, the main advantage is that the money you pay in, earns interest free of tax.
A disadvantage though, is that you are only allowed to put a certain amount of money into an ISA every year, so by using an ISA for your mortgage, you are missing out on using the ISA for savings.
Pension
This way of paying off an interest-only mortgage, is by far the least common. Most forms of pension fund let you take 25% of their value as a tax-free lump sum at retirement. The idea behind pension mortgages is that you are paying off the loan not only using a fund which grows free of tax (like an ISA), but you are also effectively getting tax relief on your mortgage contributions as well. The problem is a distinct lack of flexibility, and the fact that you can't pay off the mortgage before retirement.
The other example of using Interest Only Mortgages is with regards to buying homes to rent out. The rental income received is often enough to cover the value of the interest only payment plus a small profit. Hopefully if you've chosen a house wisely (and luckily), then over a period of time (10 - 20 years), the house will have risen in value so at some point you will decide to cash in and sell the house for greater than you bought it for.
This policy is very very risky. There is no guarantee that the house price will continue to rise. There are no guarantees that you will be able to find tenants or attract the rental income you need. This is also stepping into the realms of business as opposed to simply home buying.
Interest Only Mortgages are suitable for some people, however, they are much more risky than Repayment Mortgages but it is possible that if everything works out right, then a nice profit can be made.
Bad Credit Mortgage Loans - Are They Possible?
There are lenders out there who give what are referred to as bad credit mortgage loans, if you are experiencing financial problems, a situation that is common to many people everywhere. Possibly you recently just got divorced, lost your business, had large medical bills, or maybe you have had too many credit cards and now the balances are out of control. In all likelihood, things like this may have caused your credit rating and FICO score to drop. Sometimes setbacks happen in life, but there is hope if you still must get a mortgage to buy a home or for other reasons.
There are a number of reasons which contribute to poor credit, damaged credit or bad credit, all of them with almost the same effect as having no credit at all. When a credit check reveals a low score or a questionable credit history, it is more likely that lenders will reject your home mortgage application. So, if you cannot qualify for a regular home mortgage, bad credit mortgage loans come into play to rescue you.
There are many lenders and brokers willing to help people who want to refinance or apply for a home mortgage but do not qualify because of a poor credit history. These loans are usually more costly than regular home mortgages but you can switch to a better option when your credit and finances improve.
Buying a home involves a large disbursement so before you apply try to repair your credit first as much as you can. Although, there are companies which specialize in helping you out in this matter, never trust in organizations that promise to erase your bad credit, or create a new credit identity for you. Self help is your best aid for fixing your finances and your credit history and it is not that hard to achieve.
Bad credit mortgage loans are available for those people whose credit (FICO) score is less than 650, although most banks or financial institutions will let you know that you need a sub-prime loan. Due to the nature of their offer, most lenders are open to work with borrowers with challenged credit, to find the right mortgage and terms for them.
It is a good idea to begin to repair your credit by paying your bills on time, and reduce the number of credit cards that you carry. Remember that late payments are as bad as not paying, and have the same negative effects on your credit score.
Try at all costs to avoid bankruptcy, and do no expect to receive better bad credit mortgage loans, if any, after declaring your bankruptcy. For lenders it is a somewhat risky situation in their eyes to loan out money to someone with damaged credit. Obviously, what they are worried about is whether they will get their money back in case you cannot make the monthly payments.
This is one of the reasons why you will have to pay a higher interest rate and possibly abide by other rules, in this situation. But, if you have a recent track record of paying debts back on time, to credit cards or other lenders, that will certainly help.
There are a large number of resources online for both learning more about credit repair, and finding the right type of loans, according to the borrowed amount and your capability to repay your debt. Also remember that in addition to higher interest rates, some creditors may require collateral or a co-signer to secure the deal.
After doing your research for bad credit mortgage loans, either online, in the newspaper, or yellow pages, contact at least five lenders to compare their offers and get the best option within the limitations of your financial condition.
There are a number of reasons which contribute to poor credit, damaged credit or bad credit, all of them with almost the same effect as having no credit at all. When a credit check reveals a low score or a questionable credit history, it is more likely that lenders will reject your home mortgage application. So, if you cannot qualify for a regular home mortgage, bad credit mortgage loans come into play to rescue you.
There are many lenders and brokers willing to help people who want to refinance or apply for a home mortgage but do not qualify because of a poor credit history. These loans are usually more costly than regular home mortgages but you can switch to a better option when your credit and finances improve.
Buying a home involves a large disbursement so before you apply try to repair your credit first as much as you can. Although, there are companies which specialize in helping you out in this matter, never trust in organizations that promise to erase your bad credit, or create a new credit identity for you. Self help is your best aid for fixing your finances and your credit history and it is not that hard to achieve.
Bad credit mortgage loans are available for those people whose credit (FICO) score is less than 650, although most banks or financial institutions will let you know that you need a sub-prime loan. Due to the nature of their offer, most lenders are open to work with borrowers with challenged credit, to find the right mortgage and terms for them.
It is a good idea to begin to repair your credit by paying your bills on time, and reduce the number of credit cards that you carry. Remember that late payments are as bad as not paying, and have the same negative effects on your credit score.
Try at all costs to avoid bankruptcy, and do no expect to receive better bad credit mortgage loans, if any, after declaring your bankruptcy. For lenders it is a somewhat risky situation in their eyes to loan out money to someone with damaged credit. Obviously, what they are worried about is whether they will get their money back in case you cannot make the monthly payments.
This is one of the reasons why you will have to pay a higher interest rate and possibly abide by other rules, in this situation. But, if you have a recent track record of paying debts back on time, to credit cards or other lenders, that will certainly help.
There are a large number of resources online for both learning more about credit repair, and finding the right type of loans, according to the borrowed amount and your capability to repay your debt. Also remember that in addition to higher interest rates, some creditors may require collateral or a co-signer to secure the deal.
After doing your research for bad credit mortgage loans, either online, in the newspaper, or yellow pages, contact at least five lenders to compare their offers and get the best option within the limitations of your financial condition.
Investment Property Mortgage Rate: Some Key Considerations To Note
Investment property mortgage rate is one of the most decisive factors when choosing a mortgage. Typically, the lower the interest rate, the better the mortgage. But the assessment of viability of a mortgage really depends on the type of mortgage and other loan terms. It is crucial that you shop around a bit to find a mortgage and mortgage rate that suits your requirements. A mortgage can be obtained from reputable banks, financial institutions, credit unions, and even private mortgage brokers, who would find the best rate possible for you.
Investment property mortgage rate can be classified into three major types: fixed-rate, adjustable-rate and balloon or reset.
Fixed-rate mortgage is a mortgage in which your interest rate and monthly payments are fixed throughout the life of the mortgage. There are two major types of fixed-rate mortgages based on the duration of the mortgage - 30-year & 15-year. The major advantage of a fixed-rate mortgage is that the interest rate and the monthly payments don't increase with an increase in market rates. However, this can sometimes work against you, simply because the mortgage interest rate remains fixed even if the market rates are down.
Adjustable-rate mortgage (ARM) is a mortgage that has a variable investment property mortgage rate. ARMs usually start with a lower interest rate and lower monthly payments - this contributes to their wide popularity. However, it is imperative that you be aware of the specifics of an adjustable-rate mortgage, including the adjustment periods; indexes and margins; caps, ceilings and floors; and the number system.
Balloon or reset mortgage is based on a 30-year amortization schedule, with a 5-year or 7-year term. At the end of the term, you have an option to either pay off the remaining principal, or reset the mortgage at the current market rates. Therefore, you have the benefit of lower monthly payments, but you are required to repay the complete mortgage by the end of the specified term.
With several types available, you might be perplexed as to what type of investment property mortgage rate should you choose. The following few points will elucidate this aspect.
A fixed-rate mortgage is perhaps the best option if you plan to own the investment property for more than 5 years. But if you wish to sell the property earlier, or you want to start with a lower monthly payment, an adjustable-rate mortgage seems like an apt choice. And if you believe that your income will increase over time, and you can pay off the whole mortgage within 5 or 7 years, then you can go for a balloon or reset mortgage.
Investment property mortgage rate can be classified into three major types: fixed-rate, adjustable-rate and balloon or reset.
Fixed-rate mortgage is a mortgage in which your interest rate and monthly payments are fixed throughout the life of the mortgage. There are two major types of fixed-rate mortgages based on the duration of the mortgage - 30-year & 15-year. The major advantage of a fixed-rate mortgage is that the interest rate and the monthly payments don't increase with an increase in market rates. However, this can sometimes work against you, simply because the mortgage interest rate remains fixed even if the market rates are down.
Adjustable-rate mortgage (ARM) is a mortgage that has a variable investment property mortgage rate. ARMs usually start with a lower interest rate and lower monthly payments - this contributes to their wide popularity. However, it is imperative that you be aware of the specifics of an adjustable-rate mortgage, including the adjustment periods; indexes and margins; caps, ceilings and floors; and the number system.
Balloon or reset mortgage is based on a 30-year amortization schedule, with a 5-year or 7-year term. At the end of the term, you have an option to either pay off the remaining principal, or reset the mortgage at the current market rates. Therefore, you have the benefit of lower monthly payments, but you are required to repay the complete mortgage by the end of the specified term.
With several types available, you might be perplexed as to what type of investment property mortgage rate should you choose. The following few points will elucidate this aspect.
A fixed-rate mortgage is perhaps the best option if you plan to own the investment property for more than 5 years. But if you wish to sell the property earlier, or you want to start with a lower monthly payment, an adjustable-rate mortgage seems like an apt choice. And if you believe that your income will increase over time, and you can pay off the whole mortgage within 5 or 7 years, then you can go for a balloon or reset mortgage.
How To Choose A Good Investment Property Mortgage
Investment property refers to any real estate asset, which is Non-Owner Occupied. The key intent of such an investment is the rental income that is accrued from it, along with the appreciation in its value over a period of time. Those who possess the necessary funds often look for profitable investment properties. In order to cut down the initial expense, by lowering the down payment, people usually acquire an investment property mortgage for financing their purchase.
An investment property mortgage refers to a loan or lien on an investment property that has to be paid over a specified period of time. In essence, it's a personal guarantee that you would repay the money you have borrowed to purchase your investment property. There are several types of investment property mortgages, each with its unique features, benefits and pitfalls.
Fixed-rate mortgage - This is the most prevalent mortgage type because the monthly payments are stable. The interest rate throughout the life of the mortgage is the same as that at the outset. The major benefits of a fixed-rate mortgage are inflation protection and a relatively low risk.
Adjustable-rate mortgage (ARM) - This type of investment property mortgage has variable interest rates and monthly payments throughout the life of the mortgage. This scheme is popular because it often starts with lower monthly payments and a lower interest rate. The interest rate, however, can change during the life of the mortgage, which means that your monthly payment would change subsequently. It is imperative that you are aware of the nuances of an adjustable-rate mortgage prior to applying for one.
Balloon/reset mortgage - This has monthly mortgage payments based on a 30-year amortization schedule (mortgage repayment schedule). In general, the borrower has an option to pay off the arrears or reset the mortgage at the end of a 5-year or 7-year term. Therefore, this investment property mortgage type offers the advantage of a low payment but the mortgage must be completely paid at the end of the specified term.
Investment property mortgage can be availed on several property types, such as an apartment, a condo, any commercial property, or a plot. It can be acquired from leading banks and financial institutions, which typically verify your credentials (income source, savings and credit score) prior to offering mortgage. Selecting an investment property mortgage is as crucial as selecting a property. Therefore, decide on what amount of interest and monthly payments you are capable to mete out, and then select a mortgage accordingly.
An investment property mortgage refers to a loan or lien on an investment property that has to be paid over a specified period of time. In essence, it's a personal guarantee that you would repay the money you have borrowed to purchase your investment property. There are several types of investment property mortgages, each with its unique features, benefits and pitfalls.
Fixed-rate mortgage - This is the most prevalent mortgage type because the monthly payments are stable. The interest rate throughout the life of the mortgage is the same as that at the outset. The major benefits of a fixed-rate mortgage are inflation protection and a relatively low risk.
Adjustable-rate mortgage (ARM) - This type of investment property mortgage has variable interest rates and monthly payments throughout the life of the mortgage. This scheme is popular because it often starts with lower monthly payments and a lower interest rate. The interest rate, however, can change during the life of the mortgage, which means that your monthly payment would change subsequently. It is imperative that you are aware of the nuances of an adjustable-rate mortgage prior to applying for one.
Balloon/reset mortgage - This has monthly mortgage payments based on a 30-year amortization schedule (mortgage repayment schedule). In general, the borrower has an option to pay off the arrears or reset the mortgage at the end of a 5-year or 7-year term. Therefore, this investment property mortgage type offers the advantage of a low payment but the mortgage must be completely paid at the end of the specified term.
Investment property mortgage can be availed on several property types, such as an apartment, a condo, any commercial property, or a plot. It can be acquired from leading banks and financial institutions, which typically verify your credentials (income source, savings and credit score) prior to offering mortgage. Selecting an investment property mortgage is as crucial as selecting a property. Therefore, decide on what amount of interest and monthly payments you are capable to mete out, and then select a mortgage accordingly.
How To Use Home Mortgage In Real Estate Investment
Investment mortgage, as it is generally called, is the mortgage that is invested in real estate property - either residential or commercial. You can find mortgage lenders, who are ready to provide real estate investors with money. Though applicable for both residential and commercial properties, mortgage lenders see residential property as ‘safer'. The collateral here is the home. The secure feeling by mortgage financiers can be the feeling that no one is likely to make default on payments on a loan, taken with their dwelling place as collateral.
Investing in real estate is always a good option. You can either make an initial investment on a home, that you would rent out for a few years and sell the property, once the value of the property makes considerable appreciation. If you prefer not to sell, you can also used the appreciated value to take additional mortgage loan, which you will invest in yet another property. This is the usual strategy. The key here is to find a mortgage that requires you to pay little to no prepayment fine. You close the loan when there is considerable capital appreciation and sells it off after taking your profit.
Since you are not a seasoned real estate investor, doing business with a mortgage lender for a long time, you need to shop for lower cost mortgage loans. Of course, the first thing in this regard is your credit score. Once you are found eligible to get a home mortgage for considerably low interest rate, you can start your investments in real estate. It is not actually a big deal to find a mortgage to make an investment on a home or commercial property.
It is always a good idea to go through a critical analysis of the possible appreciation of the property on which you look to invest. You need to repay the mortgage and still carve out a profit out of it.
You can start investing in real estate, even if you have bad credit score. Your low income or lack of financial support too doesn't prevent you from creating wealth out of real estate property that you buy on mortgage. For the first time, don't put your eyes on the success levels or strategies of big guns in the field. You are starting out as a newbie - make your small investments, and separate your profits. Soon you will find what works for you.
The safest route will be to put your eyes on capital appreciation, consider renting out as a second option only. Hold the winners and drop the losers - better still, don't ever catch a loser.
Investing in real estate is always a good option. You can either make an initial investment on a home, that you would rent out for a few years and sell the property, once the value of the property makes considerable appreciation. If you prefer not to sell, you can also used the appreciated value to take additional mortgage loan, which you will invest in yet another property. This is the usual strategy. The key here is to find a mortgage that requires you to pay little to no prepayment fine. You close the loan when there is considerable capital appreciation and sells it off after taking your profit.
Since you are not a seasoned real estate investor, doing business with a mortgage lender for a long time, you need to shop for lower cost mortgage loans. Of course, the first thing in this regard is your credit score. Once you are found eligible to get a home mortgage for considerably low interest rate, you can start your investments in real estate. It is not actually a big deal to find a mortgage to make an investment on a home or commercial property.
It is always a good idea to go through a critical analysis of the possible appreciation of the property on which you look to invest. You need to repay the mortgage and still carve out a profit out of it.
You can start investing in real estate, even if you have bad credit score. Your low income or lack of financial support too doesn't prevent you from creating wealth out of real estate property that you buy on mortgage. For the first time, don't put your eyes on the success levels or strategies of big guns in the field. You are starting out as a newbie - make your small investments, and separate your profits. Soon you will find what works for you.
The safest route will be to put your eyes on capital appreciation, consider renting out as a second option only. Hold the winners and drop the losers - better still, don't ever catch a loser.
Five Common Pitfalls When Getting A Home Mortgage
Owning a home is a lifetime dream for many. The best way of acquiring a loan is with the help of a home equity mortgage. You will also sometimes feel the requirement to get some finance by providing your home as collateral. There are some fine points to look before you sign up for a loan by providing your home as guarantee.
Pitfall number 1: Dealing with wrong people
You have heard enough of frauds and cheats. Financing your requirements with unscrupulous can cause you lose the equity you build up and your home as a whole. Don't talk finance with any party that asks you to claim more income than you actually have and to apply for higher amounts than you require. Such people are also likely to sign unfilled forms, not allow you to keep a copy of the documents you sign and most importantly put pressure on you to pay huge monthly payments than you could afford, usually at a later stage of loan approval.
Pitfall Number 2: Not Keeping a Good Credit Score While Applying for Home Equity Mortgage
Major credit purchases immediately before you apply for loan can affect your score. Not caring too much about your credit score for a long time can damage your credit scores and you will not be able to quickly build up the damage. Healthy credit score is always desirable to get lower interest on home mortgage too. However, succumbing to the pressure of the first lender that sites your average credit score as reason for higher interest is also a major pitfall you should avoid. If the credit score is affected due to inability to repay a credit due to illness or temporary loss of job, you can still shop around and negotiate your way to low interest home mortgage.
Pitfall Number 3: Allowing a lot of credit Companies Check your Credit Score
Equifax, TransUnion and Experian are the main credit rating agencies. Ordering your own credit score can cost you $ 40. Your credit score drops a little with each credit check by lending companies. If you shop around and allow all the companies to check your credit score, it can drop considerably, disqualifying you from lower interest mortgage. Allow only the company you zero in on for your financing requirements to check your credit score.
Pitfall Number 4: Holding Back Information about your Credit History from Your Broker
Once you choose to deal with a mortgage broker to find a good home equity mortgage, you must talk with him if you had any credit problems in the recent history. If you try to misguide the broker, you will be in a bad light to getting a mortgage. If you describe your situation well, chances are higher that he will find a low cost loan to you.
Pitfall Number 5: Overlooking Overages and giving up the power of negotiation
Overage is the difference between lowest available price for the mortgage and the higher price the buyer is willing to pay. Lenders or brokers can keep the whole of or a part of the difference as additional compensation. Ask your broker(s) how much he gets as compensation.
Pitfall number 1: Dealing with wrong people
You have heard enough of frauds and cheats. Financing your requirements with unscrupulous can cause you lose the equity you build up and your home as a whole. Don't talk finance with any party that asks you to claim more income than you actually have and to apply for higher amounts than you require. Such people are also likely to sign unfilled forms, not allow you to keep a copy of the documents you sign and most importantly put pressure on you to pay huge monthly payments than you could afford, usually at a later stage of loan approval.
Pitfall Number 2: Not Keeping a Good Credit Score While Applying for Home Equity Mortgage
Major credit purchases immediately before you apply for loan can affect your score. Not caring too much about your credit score for a long time can damage your credit scores and you will not be able to quickly build up the damage. Healthy credit score is always desirable to get lower interest on home mortgage too. However, succumbing to the pressure of the first lender that sites your average credit score as reason for higher interest is also a major pitfall you should avoid. If the credit score is affected due to inability to repay a credit due to illness or temporary loss of job, you can still shop around and negotiate your way to low interest home mortgage.
Pitfall Number 3: Allowing a lot of credit Companies Check your Credit Score
Equifax, TransUnion and Experian are the main credit rating agencies. Ordering your own credit score can cost you $ 40. Your credit score drops a little with each credit check by lending companies. If you shop around and allow all the companies to check your credit score, it can drop considerably, disqualifying you from lower interest mortgage. Allow only the company you zero in on for your financing requirements to check your credit score.
Pitfall Number 4: Holding Back Information about your Credit History from Your Broker
Once you choose to deal with a mortgage broker to find a good home equity mortgage, you must talk with him if you had any credit problems in the recent history. If you try to misguide the broker, you will be in a bad light to getting a mortgage. If you describe your situation well, chances are higher that he will find a low cost loan to you.
Pitfall Number 5: Overlooking Overages and giving up the power of negotiation
Overage is the difference between lowest available price for the mortgage and the higher price the buyer is willing to pay. Lenders or brokers can keep the whole of or a part of the difference as additional compensation. Ask your broker(s) how much he gets as compensation.
Three Critical Things To Consider When Getting A Home Mortgage
While looking to buy a new home or while trying to tide over your immediate financial problems, you will think about getting a home mortgage. A mortgage, like a loan comes with a fixed or an adjustable interest rate. You make new or owned home collateral for acquiring a mortgage. You can get up to 80% of the value of the house, as appraised by an attorney as loan amount. If you plan to get more than 80% of value as loan, you will need to buy PMI insurance policy and make additional monthly payments as premium. There are means to tide over this situation, a 80/20 mortgage will be your answer, that is you get two mortgage for 80% and 20% equity of the house.
Whatever be your plan, consider a few critical things before you jump into buying home mortgage financing.
The first thing of course is the interest rate. APR is variable based on different factors. Some factors, like credit score are under your control. Reducing the overage, the compensation that the lending officer or loan broker takes, depends on your negotiating skills and the willingness of the lender or broker to reduce their compensations. It is important that the monthly payment amount is comfortably affordable by you. The last thing you would like to see is your home attached by the lender for default payments. Many people consider interest rate as the only major thing about loans or home mortgage, while overlooking several other factors that costs you huge dollars.
Checking your credit information is an important step. Before you apply for a home mortgage, be disciplined to ask your credit score from the three credit agencies - Equifax, TransUnion and Experian - and check whether there are any errors there. Thoroughly check spelling, employment information, social security number, etc. More than 50% of all credit reports have errors in it - why dampen your chances of getting a low cost home mortgage due to mistakes made by other people? Another thing about credit report is that your credit score drops a bit with a lending agency checking your credit score. Take the measures to prevent dozens of lenders check your credit score while you shop around.
Ask about prepayment fine before applying for a home mortgage. Look for home mortgages that come with zero or at least very low repayment fees. This will save you considerable amounts of money while you consider refinancing your loan in the future.
Whatever be your plan, consider a few critical things before you jump into buying home mortgage financing.
The first thing of course is the interest rate. APR is variable based on different factors. Some factors, like credit score are under your control. Reducing the overage, the compensation that the lending officer or loan broker takes, depends on your negotiating skills and the willingness of the lender or broker to reduce their compensations. It is important that the monthly payment amount is comfortably affordable by you. The last thing you would like to see is your home attached by the lender for default payments. Many people consider interest rate as the only major thing about loans or home mortgage, while overlooking several other factors that costs you huge dollars.
Checking your credit information is an important step. Before you apply for a home mortgage, be disciplined to ask your credit score from the three credit agencies - Equifax, TransUnion and Experian - and check whether there are any errors there. Thoroughly check spelling, employment information, social security number, etc. More than 50% of all credit reports have errors in it - why dampen your chances of getting a low cost home mortgage due to mistakes made by other people? Another thing about credit report is that your credit score drops a bit with a lending agency checking your credit score. Take the measures to prevent dozens of lenders check your credit score while you shop around.
Ask about prepayment fine before applying for a home mortgage. Look for home mortgages that come with zero or at least very low repayment fees. This will save you considerable amounts of money while you consider refinancing your loan in the future.
What Is A Reverse Home Mortgage And Why It May Be Useful To You
Reverse mortgage, as the name suggests enables you receive money against equity on your home. It allows you to get money, without selling your home. However you need to repay the money after your death, while you sell your home or you stop living in the house. Many Americans, the age of 62 and above partly depend on reverse mortgage for different financial requirements like healthcare expenses, to supplement their retirement income or to pay off their mortgage.
Statutory laws pronounce reverse mortgage process generally tax-free and in most cases, without income restriction.
Types of Reverse Mortgages
Basically, there are three types of Mortgages
Single Purpose Reverse Mortgages, supported by local, state agencies or nonprofit organizations
They are low cost loans, usable for only a specific purpose, as specified by the lender. They are available to people with low to moderate income.
Federally Insured Reverse Mortgages, also known as Home Equity Conversion Mortgages (HECMs), backed by US Department of Housing and Urban Development (HUD)
Proprietary Reverse Mortgages offered by different companies
HECMs and proprietary reverse mortgages are costlier than single purpose reverse mortgages.
The value of the house is the total repayable cash and taking a reverse mortgage loan doesn't affect your other property or the property of your heirs.
Advantages of Reverse Home Mortgage
You can use the money you receive for any purpose, provided you don't take Single Purpose Reverse Mortgage loans. Pay taxes, cover insurance costs, etc. Fall in returns from CDs or IRAs force people to look for other means of income security.
There is no time limit for receiving money and you continue to receive money till you sell your property, or permanently move to a different house. You will never be asked to pay more than the value of your home and at the end of loan, your heirs will receive any surplus amount in the home equity.
However attractive it appears, a reverse mortgage is not for everyone, especially for very low income people. Such a loan can disqualify them from receiving aids, like Supplemental Security Income or Medicaid.
If you are a man or woman of 62 years or older, who is house-rich, cash-poor, you can opt for a reverse home mortgage. It will help you manage your cash flow problems, as and when it arises.
Statutory laws pronounce reverse mortgage process generally tax-free and in most cases, without income restriction.
Types of Reverse Mortgages
Basically, there are three types of Mortgages
Single Purpose Reverse Mortgages, supported by local, state agencies or nonprofit organizations
They are low cost loans, usable for only a specific purpose, as specified by the lender. They are available to people with low to moderate income.
Federally Insured Reverse Mortgages, also known as Home Equity Conversion Mortgages (HECMs), backed by US Department of Housing and Urban Development (HUD)
Proprietary Reverse Mortgages offered by different companies
HECMs and proprietary reverse mortgages are costlier than single purpose reverse mortgages.
The value of the house is the total repayable cash and taking a reverse mortgage loan doesn't affect your other property or the property of your heirs.
Advantages of Reverse Home Mortgage
You can use the money you receive for any purpose, provided you don't take Single Purpose Reverse Mortgage loans. Pay taxes, cover insurance costs, etc. Fall in returns from CDs or IRAs force people to look for other means of income security.
There is no time limit for receiving money and you continue to receive money till you sell your property, or permanently move to a different house. You will never be asked to pay more than the value of your home and at the end of loan, your heirs will receive any surplus amount in the home equity.
However attractive it appears, a reverse mortgage is not for everyone, especially for very low income people. Such a loan can disqualify them from receiving aids, like Supplemental Security Income or Medicaid.
If you are a man or woman of 62 years or older, who is house-rich, cash-poor, you can opt for a reverse home mortgage. It will help you manage your cash flow problems, as and when it arises.
Why Consider A Home Mortgage Refinance Loan
There are specific reasons to consider a home mortgage refinance loan. The most powerful reason among them is the requirement to cut down monthly payments, by opting for a lower interest loan. If you get a new APR lower by at least two points, or by 0.5 %, you can opt for a home mortgage refinance loan. Refinancing is not a free of cost affair, it involves expenses like home re-appraisal, attorney fees, and loan application fees - all can add up to $ 500 or $ 750. Then again, this amount is considerably lower when compared to the hundreds of dollars you save every month for ten to twenty years.
Another reason can be moving into the security of fixed rate loans, especially when you sense that the there are chances for your adjustable mortgage rate go up in the near future, say less than a year. This is a good pre-emptive move, to stay afloat in changing financial conditions.
Other, less convincing, reason for home mortgage refinance loan is home improvement or for buying a new lifestyle product available in the market. If adding ambience to your life is the only requirement of home mortgage refinance, you are more likely to be at the losers end. The present interest rates to which you are changing can be higher than your original rate.
Giving your home equity as collateral can also be necessitated by conditions like education of your children or other unavoidable circumstances. At such times, getting your equity on your home will be the best move to getting low price loan.
A good move in refinancing home mortgage will be consult a lender other than your existing loan provider, or at least suggest your lender you consider refinancing your mortgage. Since you are an existing customer, chances are higher that your refinance application goes to the back burner. However, with a switch in lender, you can get faster processing of refinance mortgage application. Then again, you may get a lower interest loan from your current financier. The point here is that you have more options. If you have been consistent in timely payment of your monthly due, the existing lender may overlook another credit check and reappraisal of your home, property.
Another reason can be moving into the security of fixed rate loans, especially when you sense that the there are chances for your adjustable mortgage rate go up in the near future, say less than a year. This is a good pre-emptive move, to stay afloat in changing financial conditions.
Other, less convincing, reason for home mortgage refinance loan is home improvement or for buying a new lifestyle product available in the market. If adding ambience to your life is the only requirement of home mortgage refinance, you are more likely to be at the losers end. The present interest rates to which you are changing can be higher than your original rate.
Giving your home equity as collateral can also be necessitated by conditions like education of your children or other unavoidable circumstances. At such times, getting your equity on your home will be the best move to getting low price loan.
A good move in refinancing home mortgage will be consult a lender other than your existing loan provider, or at least suggest your lender you consider refinancing your mortgage. Since you are an existing customer, chances are higher that your refinance application goes to the back burner. However, with a switch in lender, you can get faster processing of refinance mortgage application. Then again, you may get a lower interest loan from your current financier. The point here is that you have more options. If you have been consistent in timely payment of your monthly due, the existing lender may overlook another credit check and reappraisal of your home, property.
How To Choose A Good Home Mortgage Online
Internet has changed the ways of our life for good. Be it the way of paying bills or shopping for a good coffee maker. Now the convenience of internet helps us make informed decision on a major financial decision - finding and applying for a home mortgage. With a flurry of online lenders offering mortgages, you may wonder just how to choose a good home mortgage online. The process is simpler than you think. You have the convenience of shopping around for loans from the comforts of your home. Many flexible, readily available loan options just did not exist just six or seven years ago. You can find most, if not all, of them online.
Behind the scenes, everything is just the same - checking your credit history, analyzing your repaying capacity and the lender taking decision whether or not to release money - albeit a little faster. The first step you can take is to get your credit score from Equifax, TransUnion and Experion. Then compare the numerous companies offering home mortgage and identify what interest rate you would pay. An important point here - don't just let all of the companies check your credit score, because with each credit check by the financial company, your credit score drops a bit, which can cost you dearly if a dozen of lenders request your credit information.
The Annual Percentage Rate (APR) is the first thing you compare. Ask quotes from companies that doesn't require checking your credit score to provide the information. Prepayment penalty, though considered negligible, can become a costly affair if your financial situations change in such a way to repay the loan in full before the term or you repay the loan with a refinance option. Drop the companies that require you to pay prepayment penalties.
Choosing a fixed rate mortgage rate can protect you from the fluctuations of the market. Variable or floating rate may, in the future drive up monthly installments to unaffordable levels. Balloon mortgage is for a short term of five to seven years, where you pay low monthly amounts, as if you are paying a 30-year mortgage. However at the end of five or seven years, you have to repay the balance in full - by refinancing or by selling your home.
Behind the scenes, everything is just the same - checking your credit history, analyzing your repaying capacity and the lender taking decision whether or not to release money - albeit a little faster. The first step you can take is to get your credit score from Equifax, TransUnion and Experion. Then compare the numerous companies offering home mortgage and identify what interest rate you would pay. An important point here - don't just let all of the companies check your credit score, because with each credit check by the financial company, your credit score drops a bit, which can cost you dearly if a dozen of lenders request your credit information.
The Annual Percentage Rate (APR) is the first thing you compare. Ask quotes from companies that doesn't require checking your credit score to provide the information. Prepayment penalty, though considered negligible, can become a costly affair if your financial situations change in such a way to repay the loan in full before the term or you repay the loan with a refinance option. Drop the companies that require you to pay prepayment penalties.
Choosing a fixed rate mortgage rate can protect you from the fluctuations of the market. Variable or floating rate may, in the future drive up monthly installments to unaffordable levels. Balloon mortgage is for a short term of five to seven years, where you pay low monthly amounts, as if you are paying a 30-year mortgage. However at the end of five or seven years, you have to repay the balance in full - by refinancing or by selling your home.
Why You Should Consider A Bad Credit Home Mortgage
Poor credit ratings, without doubt is the biggest hindrance in securing a loan. However, when it comes to home mortgage, you have better chances of getting a loan. Bad credit home mortgage or mortgage for persons with poor credit score is possible. The main reason for lenders releasing money to home mortgage is that they consider home mortgage as relatively safe. You provide your home as collateral and no one can go to thin air with his or her house. People are also likely to pay their due, especially when it comes to something that affects their home.
The main advantages of home equity include:
Lower interest rates - since it includes the big amount risk free business, lenders provide you with low interest loans.
Tax deductibility - federal financial laws view your paying for home eligible for tax deductions.
Availability of bigger amounts as loan - up to 80% or more of the total value of your property is available as loan.
Low monthly pay - you can completely pay the loan over many years, in 10, 20 or 30 years.
Longer terms up to 30 years
Easier to qualify with bad credit score - lenders have your house as collateral. It is thus possible to attach your house in case you default in your payments.
Before you apply for bad credit home mortgage, be particular about getting your credit score from the credit agencies (Equifax, Trans Union and Experian) for a cost of $ 40. If you have a bad credit score, chances are higher that your lender will try to sell you the idea that you should opt for a high interest home mortgage. Lenders' trying to take advantage of your bad credit score is an unlucky instance. They will try to sell a bad credit home mortgage with high fees and interest rates. If you feel like discriminated because of your poor credit showing, avoid that financier and knock another door. You are more likely to find one, that will be knowledgeable about your situations and offer you an affordable bad credit home mortgage.
You can find a number of mortgage lenders specializing in bad credit loans in general and bad credit home mortgage in special. Not all of them are unscrupulous. There are people who are willing to genuinely help you with your financial situations. Credit unions are an example. You have a bad credit should be the sole reason to be more cautious against falling prey to unscrupulous people. Make sure you understand each term and condition associated with bad credit home mortgage and where each dollar you pay goes.
The main advantages of home equity include:
Lower interest rates - since it includes the big amount risk free business, lenders provide you with low interest loans.
Tax deductibility - federal financial laws view your paying for home eligible for tax deductions.
Availability of bigger amounts as loan - up to 80% or more of the total value of your property is available as loan.
Low monthly pay - you can completely pay the loan over many years, in 10, 20 or 30 years.
Longer terms up to 30 years
Easier to qualify with bad credit score - lenders have your house as collateral. It is thus possible to attach your house in case you default in your payments.
Before you apply for bad credit home mortgage, be particular about getting your credit score from the credit agencies (Equifax, Trans Union and Experian) for a cost of $ 40. If you have a bad credit score, chances are higher that your lender will try to sell you the idea that you should opt for a high interest home mortgage. Lenders' trying to take advantage of your bad credit score is an unlucky instance. They will try to sell a bad credit home mortgage with high fees and interest rates. If you feel like discriminated because of your poor credit showing, avoid that financier and knock another door. You are more likely to find one, that will be knowledgeable about your situations and offer you an affordable bad credit home mortgage.
You can find a number of mortgage lenders specializing in bad credit loans in general and bad credit home mortgage in special. Not all of them are unscrupulous. There are people who are willing to genuinely help you with your financial situations. Credit unions are an example. You have a bad credit should be the sole reason to be more cautious against falling prey to unscrupulous people. Make sure you understand each term and condition associated with bad credit home mortgage and where each dollar you pay goes.
Three Pitfalls Associated With Home Equity Mortgage
You are more likely to qualify for a home equity mortgage than for a traditional loan. In case of home equity mortgage, you provide the equity you have over your home as collateral for the amount you take as mortgage. There are a few critical things to keep in mind while applying for a mortgage.
Avoid these three pitfalls associated with home equity mortgage
1.Holding credit information from your broker or lender
This is the worst mistake you can make while applying for a mortgage. If your credit report has weak points, be upfront about it and tell the lender how it happened. You are more likely to find a lender who is understandable about your situations and likely to accommodate you. However, if you make an un-provable claim chances are higher that your whole credit history be scrutinized and all negative points highlighted. If you are honest about your condition and give a solid reason for your bad credit score, you can negotiate your way to a low paying home equity mortgage.
2.Letting Dozens of lending companies check your credit score
Your credit score drops with a lending company requesting your credit information from the three credit rating companies. While it is a good idea to shop around for a good deal, be critical about getting a home mortgage quote from the company, based on the credit score you show them - not that they check it for themselves. Avoid a company if it declines to give you a quote as per your requirement. You can compare the different loan and mortgage products to get an good idea about the costs involved.
3.Doing business with unscrupulous business people
You can find any number of home mortgage scams, where the victims, primarily are elderly people or people with very low income. They will sell you mortgage products that are simply not affordable by you. They also use different pressure techniques to buy their product. There are different signals that should forewarn you. They generally tell you to site your income much higher than it actually is, tells you it is OK to buy a mortgage with high monthly payments than you could afford, and most importantly tries to get your signature on unfilled forms. They also will dissuade from reading the terms and conditions you are to agree and duly sign.
Avoiding the above three pitfalls associated with home mortgage can help you get cheap mortgage and better terms.
Avoid these three pitfalls associated with home equity mortgage
1.Holding credit information from your broker or lender
This is the worst mistake you can make while applying for a mortgage. If your credit report has weak points, be upfront about it and tell the lender how it happened. You are more likely to find a lender who is understandable about your situations and likely to accommodate you. However, if you make an un-provable claim chances are higher that your whole credit history be scrutinized and all negative points highlighted. If you are honest about your condition and give a solid reason for your bad credit score, you can negotiate your way to a low paying home equity mortgage.
2.Letting Dozens of lending companies check your credit score
Your credit score drops with a lending company requesting your credit information from the three credit rating companies. While it is a good idea to shop around for a good deal, be critical about getting a home mortgage quote from the company, based on the credit score you show them - not that they check it for themselves. Avoid a company if it declines to give you a quote as per your requirement. You can compare the different loan and mortgage products to get an good idea about the costs involved.
3.Doing business with unscrupulous business people
You can find any number of home mortgage scams, where the victims, primarily are elderly people or people with very low income. They will sell you mortgage products that are simply not affordable by you. They also use different pressure techniques to buy their product. There are different signals that should forewarn you. They generally tell you to site your income much higher than it actually is, tells you it is OK to buy a mortgage with high monthly payments than you could afford, and most importantly tries to get your signature on unfilled forms. They also will dissuade from reading the terms and conditions you are to agree and duly sign.
Avoiding the above three pitfalls associated with home mortgage can help you get cheap mortgage and better terms.
Mortgage Broker Bonds - Highly Requested Types of Surety Bonds
In today's competitive and unstable economical climate, surety bonds play a crucial role, guaranteeing for the respecting of payments, the fulfilling of certain roles or other terms stipulated in legal agreements. Surety bonds can take a wide range of forms, serving for a multitude of purposes. While some bonds are closed for guaranteeing payments and various other financial transactions, others oblige the parts who sign the contract to perform a series of tasks or fulfill certain duties.
Although surety bonds are commonly undertaken and managed by insurance agents, it is very important to note that they differ from insurance. Surety bonds are basically legal documents that guarantee that an obligation will be properly fulfilled; otherwise, a certain penalty will be paid by the surety company. Once a person signs the agreement on the bond, that person is obliged to reimburse the surety company in case of a financial loss. Surety bonds are powerful financial tools undertaken through documents and forms that are often very different from those characteristic to insurance.
Surety bonds can be categorized in two main distinctive groups: contract surety bonds - provide financial security and construction assurance on construction projects by guaranteeing to the obligee that the principal will perform the work and pay certain subcontractors, workers and material suppliers (include performance bonds, bid bonds, payment bonds, maintenance bonds and subdivision bonds) and commercial surety bonds guarantee performance by the principal of the obligation or undertaking described in the bond (include license and permit bonds, judicial and probate bonds, public official bonds and federal bonds). A very popular subtype of commercial surety bonds is represented by mortgage broker bonds. Due to the fact that mortgage broker bonds are imposed by state law, enabling brokers or lenders to sustain their activity in legality, these subtypes of commercial surety bonds have a great importance and are highly requested at present.
Despite the fact that many people consider that mortgage broker bonds and mortgage banker bonds are the same thing, these types of bonds are in fact two distinctive concepts. While mortgage banker bonds refer to license and permit bonds that are required for mortgage brokers who are also members of the institutions that finance the loan, mortgage broker bonds are designed exclusively for brokers, not for persons who are also lending the funds. Consequently, mortgage broker bonds are generally easier and quicker to obtain than mortgage banker bonds.
Mortgage broker bonds guarantee the authenticity and legality of brokers' license, as well as the respecting of the laws, rules and regulations imposed by a certain state and / or required by the mortgage broker licensure code. It is important to note that each state establishes a series of specific laws and thus each state has individual mortgage broker bonds. In addition, each state may regularly change the document list required for obtaining mortgage broker surety bonds, as well as the fees that need to be paid in order to close such bonds. Thus, it is advisable to do an elaborate research on the exact state requirements before closing mortgage broker bonds in a certain state.
The surety bond industry has suffered substantial changes over the last few years, determining considerable increases in surety bond rates. In addition, personal credit reports nowadays have a greater importance in obtaining better bond rates. For instance, a person with a great credit score is more likely to obtain lower rates than a person with a less impressive credit situation. However, even in the case of clients with good credit scores, most surety bond companies may decide to drop their policies if their clients' credit scores drop. The good news is that mortgage broker surety bonds are still affordable and not difficult to obtain.
Unlike most types of surety bonds, mortgage broker bonds haven't changed much in the last few years, at present having a low claim rate and benefiting clients with low premiums. However, in order to ensure that you will be provided with highly efficient and affordable mortgage broker bond services, you should only rely on the best bonding agencies in the industry. To obtain the best results, it is advisable to hire the services of an experienced, reliable and dedicated bonding agency with an impeccable reputation.
Although surety bonds are commonly undertaken and managed by insurance agents, it is very important to note that they differ from insurance. Surety bonds are basically legal documents that guarantee that an obligation will be properly fulfilled; otherwise, a certain penalty will be paid by the surety company. Once a person signs the agreement on the bond, that person is obliged to reimburse the surety company in case of a financial loss. Surety bonds are powerful financial tools undertaken through documents and forms that are often very different from those characteristic to insurance.
Surety bonds can be categorized in two main distinctive groups: contract surety bonds - provide financial security and construction assurance on construction projects by guaranteeing to the obligee that the principal will perform the work and pay certain subcontractors, workers and material suppliers (include performance bonds, bid bonds, payment bonds, maintenance bonds and subdivision bonds) and commercial surety bonds guarantee performance by the principal of the obligation or undertaking described in the bond (include license and permit bonds, judicial and probate bonds, public official bonds and federal bonds). A very popular subtype of commercial surety bonds is represented by mortgage broker bonds. Due to the fact that mortgage broker bonds are imposed by state law, enabling brokers or lenders to sustain their activity in legality, these subtypes of commercial surety bonds have a great importance and are highly requested at present.
Despite the fact that many people consider that mortgage broker bonds and mortgage banker bonds are the same thing, these types of bonds are in fact two distinctive concepts. While mortgage banker bonds refer to license and permit bonds that are required for mortgage brokers who are also members of the institutions that finance the loan, mortgage broker bonds are designed exclusively for brokers, not for persons who are also lending the funds. Consequently, mortgage broker bonds are generally easier and quicker to obtain than mortgage banker bonds.
Mortgage broker bonds guarantee the authenticity and legality of brokers' license, as well as the respecting of the laws, rules and regulations imposed by a certain state and / or required by the mortgage broker licensure code. It is important to note that each state establishes a series of specific laws and thus each state has individual mortgage broker bonds. In addition, each state may regularly change the document list required for obtaining mortgage broker surety bonds, as well as the fees that need to be paid in order to close such bonds. Thus, it is advisable to do an elaborate research on the exact state requirements before closing mortgage broker bonds in a certain state.
The surety bond industry has suffered substantial changes over the last few years, determining considerable increases in surety bond rates. In addition, personal credit reports nowadays have a greater importance in obtaining better bond rates. For instance, a person with a great credit score is more likely to obtain lower rates than a person with a less impressive credit situation. However, even in the case of clients with good credit scores, most surety bond companies may decide to drop their policies if their clients' credit scores drop. The good news is that mortgage broker surety bonds are still affordable and not difficult to obtain.
Unlike most types of surety bonds, mortgage broker bonds haven't changed much in the last few years, at present having a low claim rate and benefiting clients with low premiums. However, in order to ensure that you will be provided with highly efficient and affordable mortgage broker bond services, you should only rely on the best bonding agencies in the industry. To obtain the best results, it is advisable to hire the services of an experienced, reliable and dedicated bonding agency with an impeccable reputation.
The Sky is Falling...the Sky is Falling
Every investment vehicle and financial program under the sun has some sort of risk attached to it. Whether it is stocks, bonds, stock options (deep in the money/out of the money) puts, arbitrage, stock shorting, derivatives, mergers, Real Estate Investment Trusts, etc. The key is managing the risks within suitable parameters while superimposing an investment template and guidelines over the investment.
Many have used the Option Adjustable Rate Mortgage for consumer home purchases and some are in deep do-do for never understanding exactly what the downside held for them. Many wealthy people have used the Option ARM in combination with financial planning, as they knew exactly what to do with the payment difference between the fully indexed payment and the option payment. They put it to work to more than offset any negative amortization and have benefited. A well-known lender proponent of this vehicle structures the deal with an 80% or lower LTV (Loan To Value) and offers a biweekly payment schedule. This allows the borrower to pay the loan off in 21 to 22 years by making one extra payment per year thereby shortening the term and saving 8 to 9 years of payments. This can make for tremendous savings while working within the program guidelines. The problems started when the Option ARM became morphed by new players in the game by allowing Piggy-Back Second mortgages behind the potentially negative ARM thereby putting more pressure on the borrower to keep up with the adjustments during the current mortgage upswing. Typically the monthly payment has a 7.5% built in escalator per year for the first five years with an additional limitation of the amount of negative amortization (original mortgage amount goes up) 115% of the original loan amount. During an accelerating real estate market the appreciation has kept ahead of the negative amortization. For example: If a borrower had an original 80% LTV loan of $450,000.00 and the difference between the fully indexed rate (fixed margin percentage and the variable index used) and the minimum payment amount was say 6% less and neighborhood prices per appreciating say 11% per year fine. Even with say 3.5% inflation a borrower would be ahead of the game in this scenario. Keep in mind, the 11% appreciation is taking place on the total value where the negative amortization is effecting the mortgage amount only. As long as this scenario carried forward for say five years the borrower could be still be ok. However, when the market turns suddenly, the borrower could be upside down (owe more than the property is worth) in short order.
The best evidence of the sudden turn of events is in monitoring the foreclosure rates of ARMS versus Fixed rate mortgages. In many areas, there are steep rises in these programs. To complicate things, hybrid OPTION ARMS have found there way into ALT A market with borrowers demonstrating less than stellar credit, employment, assets, etc. or a combination of all the aforementioned. With this combination and perhaps a Piggy Back Second Mortgage making for an initial 95% to 100% Combined Loan To Value the handwriting has been on the wall for major problems when a downturn occurred in property values. There will be foreclosures, short sales (lenders settling for less than what is owed) and much agony experienced by borrowers, but eventually it will work itself out. Regulators are already touting closer regulation of Option ARM and other mortgage hybrid products that may pose a danger to the consumer.
So do we through the baby out with the bath water, or is there a way to make this program work?
Let's then look at a four-unit residential investor property acquisition using an OPTION ARM mortgage vehicle. This is a scenario and discussion of buying property in a softer market as is found in many areas of the country. If the goal in any investments is to make something in the range of 10% plus or minus in other investments then how would this four unit stack up. First of all if you are a professional property manager, great. If not, spend a lot of time to locate and interview a licensed professional property manager perhaps with a Certified Property Manager Realtor designation. Proper management is a must. A street smart Realtor who is not afraid to make lots of low offers is another. Like stocks, a margin account can get you about 50% leverage. Likewise real estate has that and more. Our goal then would be to buy an undervalued property with seller help on costs. The property will be structurally sound with a good roof but may be tired looking and dated with tenants paying less rent than the market. After negotiating a stellar price and term deal the financing will need to allow us CASH FLOW while we tune up the exterior and interior including updated baths and kitchens, carpet and new decorating. The existing tenants will be given the opportunity to stay and pay the higher rents or move and bring in new rental customers who can appreciate the amenities of the new digs. The key to this deal is the OPTION ARM mortgage, which will allow for a low starter payment while the property is being rehabbed. When rents stabilize-full payments can be made at the indexed rate. This will be on a 75% Loan To Value basis to make the numbers work. On a $500,000 property a mortgage of $375,000 at a start rate of say 2.75% or a payment of $1,530.90/month. Rents would be $4,400 per month with a vacancy factor. Taxes are $5,200 or $433.33/month and hazard insurance is $291.66/month. The units have separate meters for water, electric and gas. The owner pays the garbage and lawn maintenance and snow removal. The property was the dog on the block so there is excellent appreciation opportunities over time. Rents will move up annually. In this instance, the property has a Net Operating Income of $33,000 before debt service giving a Cap Rate of $33,000/$515,000(including costs) = 6.4%. With the 2.75% payment rate on the Option ARM the cash flow would be $33,000-$19,000=$14,000 in Cash Flow. The initial investment is $125,000 down + $8,000 cost + $35,000 fix up totaling $168,000. So with $14,000 in cash flow the return on equity is $14,000/$168,000 = 8.33%. Now with the interest and depreciation factored in of some $13,636 plus an interest deduction of $26,250 totals (fully loaded) = $39,886 giving a tax loss of $39,886-$33,000=$6,886 but with a before tax cash flow of $14,000. The Federal Tax savings would be some $2,065 for a 30% tax bracket. The total return on equity would $2,065 + $14,000=$16,065/$168,000= 9.56% in After Tax Return. To compare to fully taxed investments we would then allow for the 30% tax bracket or 9.56%/. 70 = 13.66% before tax rate for investment comparison purposes.
Option ARMs can make sense for a discounted value property at a value below market that will appreciate with upgrades and improvements to make for a more desirable rental space. In this niche with 80% LTV or lower using this program can make a lot of sense. A borrower does not HAVE to go negative; it just cuts down on the positive cash flow. The Option ARM gives lots of flexibility to an investor where cash flow is king. It's not for everyone. The property has to be acquired at the right price and there must be the potential for a greater value with improvements and higher rents. If that is not the case, pass; bring on the next property. Make lots of offers and bargain for your terms. The blush on this rose (current market) will be returning sooner than not. Market opportunities do not last in this dynamically changing climate. Option ARMS can be used as a useful cash flow tool. Compared to other investments, the depreciation and interest deductions are huge for sheltering investment dollars with the opportunity for appreciation and increasing rents to keep up with rising operational costs. Take a closer look. This can work for good or bad credit. Give it a shot and complete your due diligence.
Many have used the Option Adjustable Rate Mortgage for consumer home purchases and some are in deep do-do for never understanding exactly what the downside held for them. Many wealthy people have used the Option ARM in combination with financial planning, as they knew exactly what to do with the payment difference between the fully indexed payment and the option payment. They put it to work to more than offset any negative amortization and have benefited. A well-known lender proponent of this vehicle structures the deal with an 80% or lower LTV (Loan To Value) and offers a biweekly payment schedule. This allows the borrower to pay the loan off in 21 to 22 years by making one extra payment per year thereby shortening the term and saving 8 to 9 years of payments. This can make for tremendous savings while working within the program guidelines. The problems started when the Option ARM became morphed by new players in the game by allowing Piggy-Back Second mortgages behind the potentially negative ARM thereby putting more pressure on the borrower to keep up with the adjustments during the current mortgage upswing. Typically the monthly payment has a 7.5% built in escalator per year for the first five years with an additional limitation of the amount of negative amortization (original mortgage amount goes up) 115% of the original loan amount. During an accelerating real estate market the appreciation has kept ahead of the negative amortization. For example: If a borrower had an original 80% LTV loan of $450,000.00 and the difference between the fully indexed rate (fixed margin percentage and the variable index used) and the minimum payment amount was say 6% less and neighborhood prices per appreciating say 11% per year fine. Even with say 3.5% inflation a borrower would be ahead of the game in this scenario. Keep in mind, the 11% appreciation is taking place on the total value where the negative amortization is effecting the mortgage amount only. As long as this scenario carried forward for say five years the borrower could be still be ok. However, when the market turns suddenly, the borrower could be upside down (owe more than the property is worth) in short order.
The best evidence of the sudden turn of events is in monitoring the foreclosure rates of ARMS versus Fixed rate mortgages. In many areas, there are steep rises in these programs. To complicate things, hybrid OPTION ARMS have found there way into ALT A market with borrowers demonstrating less than stellar credit, employment, assets, etc. or a combination of all the aforementioned. With this combination and perhaps a Piggy Back Second Mortgage making for an initial 95% to 100% Combined Loan To Value the handwriting has been on the wall for major problems when a downturn occurred in property values. There will be foreclosures, short sales (lenders settling for less than what is owed) and much agony experienced by borrowers, but eventually it will work itself out. Regulators are already touting closer regulation of Option ARM and other mortgage hybrid products that may pose a danger to the consumer.
So do we through the baby out with the bath water, or is there a way to make this program work?
Let's then look at a four-unit residential investor property acquisition using an OPTION ARM mortgage vehicle. This is a scenario and discussion of buying property in a softer market as is found in many areas of the country. If the goal in any investments is to make something in the range of 10% plus or minus in other investments then how would this four unit stack up. First of all if you are a professional property manager, great. If not, spend a lot of time to locate and interview a licensed professional property manager perhaps with a Certified Property Manager Realtor designation. Proper management is a must. A street smart Realtor who is not afraid to make lots of low offers is another. Like stocks, a margin account can get you about 50% leverage. Likewise real estate has that and more. Our goal then would be to buy an undervalued property with seller help on costs. The property will be structurally sound with a good roof but may be tired looking and dated with tenants paying less rent than the market. After negotiating a stellar price and term deal the financing will need to allow us CASH FLOW while we tune up the exterior and interior including updated baths and kitchens, carpet and new decorating. The existing tenants will be given the opportunity to stay and pay the higher rents or move and bring in new rental customers who can appreciate the amenities of the new digs. The key to this deal is the OPTION ARM mortgage, which will allow for a low starter payment while the property is being rehabbed. When rents stabilize-full payments can be made at the indexed rate. This will be on a 75% Loan To Value basis to make the numbers work. On a $500,000 property a mortgage of $375,000 at a start rate of say 2.75% or a payment of $1,530.90/month. Rents would be $4,400 per month with a vacancy factor. Taxes are $5,200 or $433.33/month and hazard insurance is $291.66/month. The units have separate meters for water, electric and gas. The owner pays the garbage and lawn maintenance and snow removal. The property was the dog on the block so there is excellent appreciation opportunities over time. Rents will move up annually. In this instance, the property has a Net Operating Income of $33,000 before debt service giving a Cap Rate of $33,000/$515,000(including costs) = 6.4%. With the 2.75% payment rate on the Option ARM the cash flow would be $33,000-$19,000=$14,000 in Cash Flow. The initial investment is $125,000 down + $8,000 cost + $35,000 fix up totaling $168,000. So with $14,000 in cash flow the return on equity is $14,000/$168,000 = 8.33%. Now with the interest and depreciation factored in of some $13,636 plus an interest deduction of $26,250 totals (fully loaded) = $39,886 giving a tax loss of $39,886-$33,000=$6,886 but with a before tax cash flow of $14,000. The Federal Tax savings would be some $2,065 for a 30% tax bracket. The total return on equity would $2,065 + $14,000=$16,065/$168,000= 9.56% in After Tax Return. To compare to fully taxed investments we would then allow for the 30% tax bracket or 9.56%/. 70 = 13.66% before tax rate for investment comparison purposes.
Option ARMs can make sense for a discounted value property at a value below market that will appreciate with upgrades and improvements to make for a more desirable rental space. In this niche with 80% LTV or lower using this program can make a lot of sense. A borrower does not HAVE to go negative; it just cuts down on the positive cash flow. The Option ARM gives lots of flexibility to an investor where cash flow is king. It's not for everyone. The property has to be acquired at the right price and there must be the potential for a greater value with improvements and higher rents. If that is not the case, pass; bring on the next property. Make lots of offers and bargain for your terms. The blush on this rose (current market) will be returning sooner than not. Market opportunities do not last in this dynamically changing climate. Option ARMS can be used as a useful cash flow tool. Compared to other investments, the depreciation and interest deductions are huge for sheltering investment dollars with the opportunity for appreciation and increasing rents to keep up with rising operational costs. Take a closer look. This can work for good or bad credit. Give it a shot and complete your due diligence.
Cutting your Mortgage Cost Through Cheaper Insurance
By the end of this article, you should have gained enough new knowledge on this subject to be able to explain its main points to another person.
though experts assume the number of homeowners facing foreclosure to expansion over the next two being, a better understanding of insurance may help keep you from seemly a marker.
Surprisingly, homeowners insurance policies are a joint measure many borrowers bomb to revive on; instead accepting insurance as just another detriment of owning a home. As far as many new home borrowers have been nervous, their homeowners insurance policies are bundled into their mortgage payment. Homeowners insurance charge, however, can diverge by hundreds of dollars from guests to guests; thus, homeowners should store for insurance the same way they would store for any other invention.
Look for Multi-statement
From this point forward, we will let you in on little secrets that will help you implement this subject into your life.
indemnity
Most insurance companies that plug insurance inventions other than homeowners insurance will submit regulars disregards for trade more than one invention from them. For example, if your vehicle insurance guests also plugs homeowners insurance, you might get a disregard of up to 15 percent by trade both.
Only Buy Coverage You require
Homeowners insurance plan confines should be revisited every year to reevaluate any foremost purchases and additions. On the other hand, many of the possessions that homeowners assure depreciate significantly over a year. revise your home array and reevaluate plan confines for potential savings.
introduce Your Deductible
Increasing your deductible by just a few hundred dollars can make a significant difference to your premium. Most deductibles shock at $250; thus, if you inflate yours to $1,000, you may revive almost 25 percent on your premium.
Look for Discounts That direct to You
There are a multitude of homeowners disregards that go unrecognized by many regulars. For example, you may be able to get a minor premium if your home has wellbeing skin such as obsolete-bolt mane, smoke detectors, an siren order, storm shutters or fire-retardant roofing data.
It is little things, such as this, that may aid you in your search. So, sit down and decide which avenue would be best for you to take.
though experts assume the number of homeowners facing foreclosure to expansion over the next two being, a better understanding of insurance may help keep you from seemly a marker.
Surprisingly, homeowners insurance policies are a joint measure many borrowers bomb to revive on; instead accepting insurance as just another detriment of owning a home. As far as many new home borrowers have been nervous, their homeowners insurance policies are bundled into their mortgage payment. Homeowners insurance charge, however, can diverge by hundreds of dollars from guests to guests; thus, homeowners should store for insurance the same way they would store for any other invention.
Look for Multi-statement
From this point forward, we will let you in on little secrets that will help you implement this subject into your life.
indemnity
Most insurance companies that plug insurance inventions other than homeowners insurance will submit regulars disregards for trade more than one invention from them. For example, if your vehicle insurance guests also plugs homeowners insurance, you might get a disregard of up to 15 percent by trade both.
Only Buy Coverage You require
Homeowners insurance plan confines should be revisited every year to reevaluate any foremost purchases and additions. On the other hand, many of the possessions that homeowners assure depreciate significantly over a year. revise your home array and reevaluate plan confines for potential savings.
introduce Your Deductible
Increasing your deductible by just a few hundred dollars can make a significant difference to your premium. Most deductibles shock at $250; thus, if you inflate yours to $1,000, you may revive almost 25 percent on your premium.
Look for Discounts That direct to You
There are a multitude of homeowners disregards that go unrecognized by many regulars. For example, you may be able to get a minor premium if your home has wellbeing skin such as obsolete-bolt mane, smoke detectors, an siren order, storm shutters or fire-retardant roofing data.
It is little things, such as this, that may aid you in your search. So, sit down and decide which avenue would be best for you to take.
Everlasting Mortgages
What does the term "inter-generational mortgage" mean to you? If you're not up to date, then read on for more information on this revolutionary move.
It seems that there is a distinct possibility that lifetime interest only mortgages, which we could pass on down the family, may be the answer to a lot of home buying problems and worries.
The way the scheme works is the borrower takes out an interest only mortgage. This means that your monthly repayments are for interest only and no part of the original sum borrowed is repaid. Monthly interest payments are appreciably lower than that of a repayment mortgage. If you borrow £100,000 the saving on repayments could be around £130 per month.
A major feature of the scheme is that it means that your children will be able to inherit your home and very much reduce the dreaded inheritance tax.
In the event of your death the mortgage could pass on to your children, or other beneficiary.
On your death the mortgage passes on to your children, who have the choice of either continuing the mortgage payments and moving into the house or selling the home and repaying the loan. They could choose to live in the property, treat it as a buy-to-let or maybe a holiday home for family use. The implications of this as regards inheritance tax are interesting as only the value of the house, less the mortgage amount, would be counted as part of your estate.
There is no time limit on the mortgage and your children could continue to enjoy the property for as long as they wished.
Your first reaction to all this may be that you don't want to pass debts to your children but in fact these mortgages are extremely popular in other parts of the world. The careful Swiss have found it works well for them and they're not known for anything but neat, tidy and methodical practices, whether it is for sourcing mortgages or making cuckoo clocks! If it helps to you both pass on your home to your dependants and also reduce the amount of your hard earned money paid to the taxman, then it's got to be worth some careful thought.
With more and more estates coming into the inheritance tax bracket (£285,000 in 2006) someone living in a relatively modest house could be affected by this tax. Many older people would be amazed to think that their estate could fall into this category.
It's an increasingly common situation for older people to take out equity release schemes where they raise money against their home's value to enable them to live more comfortably in retirement. These schemes can be really expensive. A mortgage which can be passed on to their children could be a far better bet. The interest rate would be much lower and this in turn would give them money to spend on themselves and they could have the pleasure of helping their children and grandchildren in their lifetime. Assuming that the equity in their home is greater than the mortgage, their children are still inheriting an asset worth more than the debt.
It looks as though we'll be hearing a lot more about inter-generational mortgages. For more information and help on this and other mortgage choices we recommend you get on line and get some independent advice.
You never know, they might eventually come up with a more user-friendly name for it ......maybe the everlasting mortgage will catch on.
It seems that there is a distinct possibility that lifetime interest only mortgages, which we could pass on down the family, may be the answer to a lot of home buying problems and worries.
The way the scheme works is the borrower takes out an interest only mortgage. This means that your monthly repayments are for interest only and no part of the original sum borrowed is repaid. Monthly interest payments are appreciably lower than that of a repayment mortgage. If you borrow £100,000 the saving on repayments could be around £130 per month.
A major feature of the scheme is that it means that your children will be able to inherit your home and very much reduce the dreaded inheritance tax.
In the event of your death the mortgage could pass on to your children, or other beneficiary.
On your death the mortgage passes on to your children, who have the choice of either continuing the mortgage payments and moving into the house or selling the home and repaying the loan. They could choose to live in the property, treat it as a buy-to-let or maybe a holiday home for family use. The implications of this as regards inheritance tax are interesting as only the value of the house, less the mortgage amount, would be counted as part of your estate.
There is no time limit on the mortgage and your children could continue to enjoy the property for as long as they wished.
Your first reaction to all this may be that you don't want to pass debts to your children but in fact these mortgages are extremely popular in other parts of the world. The careful Swiss have found it works well for them and they're not known for anything but neat, tidy and methodical practices, whether it is for sourcing mortgages or making cuckoo clocks! If it helps to you both pass on your home to your dependants and also reduce the amount of your hard earned money paid to the taxman, then it's got to be worth some careful thought.
With more and more estates coming into the inheritance tax bracket (£285,000 in 2006) someone living in a relatively modest house could be affected by this tax. Many older people would be amazed to think that their estate could fall into this category.
It's an increasingly common situation for older people to take out equity release schemes where they raise money against their home's value to enable them to live more comfortably in retirement. These schemes can be really expensive. A mortgage which can be passed on to their children could be a far better bet. The interest rate would be much lower and this in turn would give them money to spend on themselves and they could have the pleasure of helping their children and grandchildren in their lifetime. Assuming that the equity in their home is greater than the mortgage, their children are still inheriting an asset worth more than the debt.
It looks as though we'll be hearing a lot more about inter-generational mortgages. For more information and help on this and other mortgage choices we recommend you get on line and get some independent advice.
You never know, they might eventually come up with a more user-friendly name for it ......maybe the everlasting mortgage will catch on.
Mortgages - An Important Date
A helpful reminder from your mortgage broker may be just what you need to save yourself a whole lot of trouble.
The FSA (Financial Services Authority) is very happy with the way rules for renewing two or three year home loans are working out, but mortgage brokers tell a different tale and are less impressed, saying that borrowers are confused and could be out of pocket over the system.
When your short-term mortgage is coming to an end it would be helpful if you could rely on your lender to send you a reminder. Although some do, they're not actually under any obligation to send you this information. They do have to inform you that the interest rate is to alter, with the obvious result of an increase in repayments. Unless, of course the rate comes down, which would probably be as likely as a flying pig? The rate they'll be offering you will be their standard variable rate, which is likely to be something like 2.25% higher than the rate you've been on.
If you find yourself in the position that you have actually inadvertently switched to SVR, you'll need to do something about it as soon as possible. For some-one with a £100,000 loan, switching from a standard variable rate deal can expect to save around £1,000 per annum for each one-percentage point reduction in their interest rate.
On average, it will take four to six weeks to re-mortgage with an alternative lender. Make certain that you allow at least this time to have everything in hand to change lenders in plenty of time, to plan an easy change-over. The FSA recommends that you study the "Key Facts" document which you will have received at the start of your mortgage. This will give you the date that your loan comes to an end. They recommend that you make a note of it.
Lenders vary, some will give you about three months notice, which is fine, some will write to you a few weeks before, which may mean a period on the higher rate whilst you're making arrangements. Remember, some won't write at all.
Whilst it makes sense to shop around for a similar, or preferably lower, interest rate to your current one, don't dismiss remortgaging with your present lender out-of-hand. There will be a saving on exit fees, often around £300, valuation and legal fees if you stay faithful. It's worth checking on what their offer would be.
Competition is strong on the mortgage front. All the companies would like your custom and you may find some will help with the costs of transferring the mortgage by meeting valuation costs and the legal costs to tempt you to switch to them.
The advantage of using a mortgage broker is that they'll do all the research for you, finding the best deals and weighing up all the different aspects of your loan. Form filling will be kept to an absolute minimum too, once you've given them your details. When the time comes to renew the mortgage they'll seek out the best deal again and let you know what they've come up with.
Get onto the internet and search under mortgage brokers to get the ball rolling.
The FSA (Financial Services Authority) is very happy with the way rules for renewing two or three year home loans are working out, but mortgage brokers tell a different tale and are less impressed, saying that borrowers are confused and could be out of pocket over the system.
When your short-term mortgage is coming to an end it would be helpful if you could rely on your lender to send you a reminder. Although some do, they're not actually under any obligation to send you this information. They do have to inform you that the interest rate is to alter, with the obvious result of an increase in repayments. Unless, of course the rate comes down, which would probably be as likely as a flying pig? The rate they'll be offering you will be their standard variable rate, which is likely to be something like 2.25% higher than the rate you've been on.
If you find yourself in the position that you have actually inadvertently switched to SVR, you'll need to do something about it as soon as possible. For some-one with a £100,000 loan, switching from a standard variable rate deal can expect to save around £1,000 per annum for each one-percentage point reduction in their interest rate.
On average, it will take four to six weeks to re-mortgage with an alternative lender. Make certain that you allow at least this time to have everything in hand to change lenders in plenty of time, to plan an easy change-over. The FSA recommends that you study the "Key Facts" document which you will have received at the start of your mortgage. This will give you the date that your loan comes to an end. They recommend that you make a note of it.
Lenders vary, some will give you about three months notice, which is fine, some will write to you a few weeks before, which may mean a period on the higher rate whilst you're making arrangements. Remember, some won't write at all.
Whilst it makes sense to shop around for a similar, or preferably lower, interest rate to your current one, don't dismiss remortgaging with your present lender out-of-hand. There will be a saving on exit fees, often around £300, valuation and legal fees if you stay faithful. It's worth checking on what their offer would be.
Competition is strong on the mortgage front. All the companies would like your custom and you may find some will help with the costs of transferring the mortgage by meeting valuation costs and the legal costs to tempt you to switch to them.
The advantage of using a mortgage broker is that they'll do all the research for you, finding the best deals and weighing up all the different aspects of your loan. Form filling will be kept to an absolute minimum too, once you've given them your details. When the time comes to renew the mortgage they'll seek out the best deal again and let you know what they've come up with.
Get onto the internet and search under mortgage brokers to get the ball rolling.
Mortgages - Short Term Memory
Do you, in common with millions of other home owners, have a short-term mortgage? If so, it's very easy to set up the monthly repayment and then get involved with so many other aspects of your life that time slips away and before you know it, the two or three year period of your loan is coming to an end. Whilst many lenders write to their customers towards the end of the loan period, it isn't compulsory.
When you sign on the dotted line for your mortgage deal, you are issued with a key facts mortgage document which will include all the loan details together with the all important date that your fixed price deal will come to an end. If you forget this date and also fail to receive a reminder, the first thing you'll become aware of it a notice of a change in monthly re-payments, which means that you'll be going on to the lender's usually expensive SVR, or standard variable rate.
As an example, on a loan of £150,000, you could easily be paying out a substantially higher amount – more than £200 a month extra. This is assuming that the SVR is 2.25% more than the "special rate", which would not be unusual.
Obviously most borrowers would opt to change to an alternative short term mortgage, but it takes between four to six weeks to arrange this change-over.
If you are extremely diligent at remembering to take action you may run into problems too as if you ask what your options are when there's more than a month or so to run, your lender will very often say they're unable to make a decision until nearer the date. Then you've been stalled and still can't make a decision.
There has been some improvement in the way insurers are handling the situation. An increasing number of them are contacting borrowers around three months before the end of their current deal and setting out options.
It's not always the right thing to automatically change to another lender to get the best price. Consider your options carefully. If you stay with your current lender, there will be a saving on legal charges and you shouldn't need another valuation. Nor will exit fees be charges, which could mean a fairly big saving. It just could be that a slightly more expensive deal with your current lender may work out best in the long run.
Because of this and with the intense competition in the re-mortgaging business, it's becoming increasing common to find new lenders who will fund the charges, just to get your business.
If you used a broker to arrange the mortgage, you may well find that they'll send you a friendly reminder. This is a service which will be no problem for them and another thing less for you to think about, which has to be good news. Your broker will weigh up the deals and come up with some facts and figures when it comes to renewal too. The internet's the place to look and an on-line broker's the person to look for.
When you sign on the dotted line for your mortgage deal, you are issued with a key facts mortgage document which will include all the loan details together with the all important date that your fixed price deal will come to an end. If you forget this date and also fail to receive a reminder, the first thing you'll become aware of it a notice of a change in monthly re-payments, which means that you'll be going on to the lender's usually expensive SVR, or standard variable rate.
As an example, on a loan of £150,000, you could easily be paying out a substantially higher amount – more than £200 a month extra. This is assuming that the SVR is 2.25% more than the "special rate", which would not be unusual.
Obviously most borrowers would opt to change to an alternative short term mortgage, but it takes between four to six weeks to arrange this change-over.
If you are extremely diligent at remembering to take action you may run into problems too as if you ask what your options are when there's more than a month or so to run, your lender will very often say they're unable to make a decision until nearer the date. Then you've been stalled and still can't make a decision.
There has been some improvement in the way insurers are handling the situation. An increasing number of them are contacting borrowers around three months before the end of their current deal and setting out options.
It's not always the right thing to automatically change to another lender to get the best price. Consider your options carefully. If you stay with your current lender, there will be a saving on legal charges and you shouldn't need another valuation. Nor will exit fees be charges, which could mean a fairly big saving. It just could be that a slightly more expensive deal with your current lender may work out best in the long run.
Because of this and with the intense competition in the re-mortgaging business, it's becoming increasing common to find new lenders who will fund the charges, just to get your business.
If you used a broker to arrange the mortgage, you may well find that they'll send you a friendly reminder. This is a service which will be no problem for them and another thing less for you to think about, which has to be good news. Your broker will weigh up the deals and come up with some facts and figures when it comes to renewal too. The internet's the place to look and an on-line broker's the person to look for.
Secrets of the Pay Option Arm Mortgage
Option ARM (also called Pick A Payment or Pay Option ARM) loans work by providing the borrower with four payment options each month.
Before we get into the payment options, let's review some of the important terms and concepts involved with this loan program.
ARM – Adjustable Rate Mortgage. An ARM is a mortgage whose interest rate is raised or lowered at periodic intervals according to the prevailing interest rates in the market. Also called variable-rate mortgage.
Principle – The original amount of money provided in a loan is the principle. This amount, plus the interest accrued must be paid back in full by the end of the loan's term.
Interest – Interest is the cost paid to borrow the money.
Start Rate – The initial rate of the mortgage. This rate is the rate that the "minimum" payment option is based on. Typically this rate will range from 1-2%.
Amortization – The process of paying down the principle balance of a loan. A fully amortized loan is a loan that will be paid off completely through the monthly payments by the end of the loan's term.
Negative Amortization – Negative Amortization or "neg am" is the process of adding unpaid interest to the principle balance of the loan. If you make a "minimum payment," the difference between that payment and the interest only payment will be added to the principal balance of your loan.
Index – An index is a measure of a particular security or other monetary instrument that can be used to adjust interest rates. Index examples include US Treasury Bond valuations, LIBOR (London Inter Bank Offering Rate), COFI (Cost of Funds Index), and MTA (Monthly Treasury Average). Indexes can adjust on a daily basis.
Margin – Margin is the difference between the Index and the rate on a loan.
Fully Indexed Rate – The fully indexed rate is calculated by adding the Index to the Margin. For example, if Libor was 3.0% and the margin on the loan was 2%, the fully indexed rate would be 5% (Index + Margin). The fully indexed rate is the rate that your loan accrues interest at.
Now that we've covered the basic terms, let's examine the four payment options.
These payment options are:
1) Minimum Payment
This payment is a 30 year amortized payment based on the start rate of the loan. When the minimum payment is made, the difference between the minimum payment and the interest only payment is added to the principle balance of the loan.
This payment is lowest possible payment and lets you keep more cash in your pocket each month. This payment typically changes annually and is recalculated based on the remaining principal balance of the loan, the remaining loan term, and the current interest rate. A payment cap is usually applied to ensure that the payment does not swing wildly from year to year. A typical payment cap is 7%. For example, if your minimum payment was $1,000 in year one, the most it would be in year two is $1,070 and the least it would be is $930.
2) Interest Only Payment
This payment is based on the fully indexed rate. These payments do not pay down the principal balance of the loan.
In order to avoid deferred interest and negative amortization, each month you will be given the option to make an interest only payment. This allows you the benefit of keeping a low monthly payment and keeps the principal balance of your loan at the same amount.
3) 30 Year Fixed Payment
This payment is based on the fully indexed rate. These payments do pay down the principal balance of the loan.
It's calculated each month based on the prior month's interest rate, loan balance and remaining loan term. When you choose this option, you reduce your principal and pay off your loan on schedule.
4) 15 Year Fixed Payment
This payment is based on the fully indexed rate. These payments do pay down the principal balance of the loan.
If you want to build equity faster, pay off your loan quicker and save on interest, this is the option for you. It is calculated to amortize your loan based on a 15-year term from the first payment due date.
Let's take a look at a couple of examples.
Example 1:
$250,000 Loan Amount – 1.25% Start Rate – 5.5% Fully Indexed Rate
Payment #1 (Minimum Payment) – $833.13
Payment #2 (Interest Only Payment) – $1,145.83
Example 2:
$450,000 Loan Amount – 1.25% Start Rate – 5.5% Fully Indexed Rate
Payment #1 (Minimum Payment) – $1,499.63
As you can see, there can be quite a difference between payment options!
If you want to run your own scenarios, We've built a simple, Excel based, Pay Option Calculator that you can download for free. Check out the resource box below for information on how to download this great little tool.
Hopefully, this gave you some insight into what an Option ARM loan is and how it works.
If you are interested in learning more about this program, and if you are eligible for it, your next step should be contacting a mortgage professional.
IMPORTANT NOTICE
Beware companies or individuals that make you put money down or order an appraisal BEFORE they agree to discuss your situation with you. Also, be wary of those who won't talk to you until they pull your credit report. While a credit report will be necessary if you decide to go forward, you have the right to talk to someone about your options before they look at your credit. These are frequently just sales tactics to make you feel like you are obligated to go forward with that particular broker or lender.
Before we get into the payment options, let's review some of the important terms and concepts involved with this loan program.
ARM – Adjustable Rate Mortgage. An ARM is a mortgage whose interest rate is raised or lowered at periodic intervals according to the prevailing interest rates in the market. Also called variable-rate mortgage.
Principle – The original amount of money provided in a loan is the principle. This amount, plus the interest accrued must be paid back in full by the end of the loan's term.
Interest – Interest is the cost paid to borrow the money.
Start Rate – The initial rate of the mortgage. This rate is the rate that the "minimum" payment option is based on. Typically this rate will range from 1-2%.
Amortization – The process of paying down the principle balance of a loan. A fully amortized loan is a loan that will be paid off completely through the monthly payments by the end of the loan's term.
Negative Amortization – Negative Amortization or "neg am" is the process of adding unpaid interest to the principle balance of the loan. If you make a "minimum payment," the difference between that payment and the interest only payment will be added to the principal balance of your loan.
Index – An index is a measure of a particular security or other monetary instrument that can be used to adjust interest rates. Index examples include US Treasury Bond valuations, LIBOR (London Inter Bank Offering Rate), COFI (Cost of Funds Index), and MTA (Monthly Treasury Average). Indexes can adjust on a daily basis.
Margin – Margin is the difference between the Index and the rate on a loan.
Fully Indexed Rate – The fully indexed rate is calculated by adding the Index to the Margin. For example, if Libor was 3.0% and the margin on the loan was 2%, the fully indexed rate would be 5% (Index + Margin). The fully indexed rate is the rate that your loan accrues interest at.
Now that we've covered the basic terms, let's examine the four payment options.
These payment options are:
1) Minimum Payment
This payment is a 30 year amortized payment based on the start rate of the loan. When the minimum payment is made, the difference between the minimum payment and the interest only payment is added to the principle balance of the loan.
This payment is lowest possible payment and lets you keep more cash in your pocket each month. This payment typically changes annually and is recalculated based on the remaining principal balance of the loan, the remaining loan term, and the current interest rate. A payment cap is usually applied to ensure that the payment does not swing wildly from year to year. A typical payment cap is 7%. For example, if your minimum payment was $1,000 in year one, the most it would be in year two is $1,070 and the least it would be is $930.
2) Interest Only Payment
This payment is based on the fully indexed rate. These payments do not pay down the principal balance of the loan.
In order to avoid deferred interest and negative amortization, each month you will be given the option to make an interest only payment. This allows you the benefit of keeping a low monthly payment and keeps the principal balance of your loan at the same amount.
3) 30 Year Fixed Payment
This payment is based on the fully indexed rate. These payments do pay down the principal balance of the loan.
It's calculated each month based on the prior month's interest rate, loan balance and remaining loan term. When you choose this option, you reduce your principal and pay off your loan on schedule.
4) 15 Year Fixed Payment
This payment is based on the fully indexed rate. These payments do pay down the principal balance of the loan.
If you want to build equity faster, pay off your loan quicker and save on interest, this is the option for you. It is calculated to amortize your loan based on a 15-year term from the first payment due date.
Let's take a look at a couple of examples.
Example 1:
$250,000 Loan Amount – 1.25% Start Rate – 5.5% Fully Indexed Rate
Payment #1 (Minimum Payment) – $833.13
Payment #2 (Interest Only Payment) – $1,145.83
Example 2:
$450,000 Loan Amount – 1.25% Start Rate – 5.5% Fully Indexed Rate
Payment #1 (Minimum Payment) – $1,499.63
As you can see, there can be quite a difference between payment options!
If you want to run your own scenarios, We've built a simple, Excel based, Pay Option Calculator that you can download for free. Check out the resource box below for information on how to download this great little tool.
Hopefully, this gave you some insight into what an Option ARM loan is and how it works.
If you are interested in learning more about this program, and if you are eligible for it, your next step should be contacting a mortgage professional.
IMPORTANT NOTICE
Beware companies or individuals that make you put money down or order an appraisal BEFORE they agree to discuss your situation with you. Also, be wary of those who won't talk to you until they pull your credit report. While a credit report will be necessary if you decide to go forward, you have the right to talk to someone about your options before they look at your credit. These are frequently just sales tactics to make you feel like you are obligated to go forward with that particular broker or lender.
Re-mortgages - Get Up To Date
If you're thinking of improving your home, investing in buy-to-let or holiday property or maybe consolidating your debts, you're probably thinking of re-mortgaging. If your current mortgage is now some years old, you're probably out of date on what's available. Forget the old "one size fits all" mortgages. Mortgages today are varied and there's probably one just waiting for you.
In view of the fact that there are around 4,000 different loans available, obviously we can't cover them all, but here are a couple of popular options:-
Flexible mortgages have no fixed term. It's up to you to choose what you spend your loan on, however the loan is secured by your property so it is essential that you keep up to date with your monthly repayments, otherwise you risk losing your home. These mortgages can be based on either a repayment mortgage, which is more traditional, or an interest only mortgage. You can even have a mixture of both types.
These mortgages are ideal for someone who plans a break from their career for family commitments, such as child birth, or travel, re-training or whatever. You can reduce or suspend payments for a period. You can also increase payments and get ahead in order to either take these breaks or avoid interest costs. Funding your credit needs via this type of mortgage will be at a lower interest rate than general credit card use.
It is increasingly common to find that these flexible mortgages include a range of banking services, such a cheque books, direct debit facilities and credit cards. Generally speaking, though, the more flexible mortgages are inclined to be the ones carrying higher interest rates.
If you're the type of person who likes to keep financial matters "compartmentalised" then the all in one nature of this type of mortgage may take some getting used to.
For the more traditional borrower, a repayment mortgage could be a possibility. The advantage of this is that, as long as payments are kept up to date, the debt will be paid off in the term of the mortgage. It is simple to understand and easy to manage. The monthly repayments are split between the cost of interest and the repayment of the capital borrowed. During the earlier years of the mortgage life a large part of the monthly payment will, for the most part, be paid in interest. As the years progress, however, more and more will go towards capital repayment.
There is not the flexibility in this method and unless overpayments are made, you're in for the full stretch, so to speak. In the early years, very little capital is being repaid and overall you may pay more interest than in our earlier comparison.
For advice and ideas, an on-line mortgage broker is the answer They'll be able to offer you details of the various mortgaging methods and interest rates and once they have your details they'll come up with as many comparisons as you need.
Whichever method you choose, by re-mortgaging you can release some of the value of your home to spend on whatever you choose. Don't be put off by the thought of all the hassle of surrendering your old mortgage. It's perfectly easy to organise and people are doing it all the time. There will probably be a charge in the region of £300 for the release of deeds and possibly a fee of £25 for the transfer of funds. Lenders are keen to get your re-mortgaging business and will often offer fee-free deals and even pay your legal costs.
In view of the fact that there are around 4,000 different loans available, obviously we can't cover them all, but here are a couple of popular options:-
Flexible mortgages have no fixed term. It's up to you to choose what you spend your loan on, however the loan is secured by your property so it is essential that you keep up to date with your monthly repayments, otherwise you risk losing your home. These mortgages can be based on either a repayment mortgage, which is more traditional, or an interest only mortgage. You can even have a mixture of both types.
These mortgages are ideal for someone who plans a break from their career for family commitments, such as child birth, or travel, re-training or whatever. You can reduce or suspend payments for a period. You can also increase payments and get ahead in order to either take these breaks or avoid interest costs. Funding your credit needs via this type of mortgage will be at a lower interest rate than general credit card use.
It is increasingly common to find that these flexible mortgages include a range of banking services, such a cheque books, direct debit facilities and credit cards. Generally speaking, though, the more flexible mortgages are inclined to be the ones carrying higher interest rates.
If you're the type of person who likes to keep financial matters "compartmentalised" then the all in one nature of this type of mortgage may take some getting used to.
For the more traditional borrower, a repayment mortgage could be a possibility. The advantage of this is that, as long as payments are kept up to date, the debt will be paid off in the term of the mortgage. It is simple to understand and easy to manage. The monthly repayments are split between the cost of interest and the repayment of the capital borrowed. During the earlier years of the mortgage life a large part of the monthly payment will, for the most part, be paid in interest. As the years progress, however, more and more will go towards capital repayment.
There is not the flexibility in this method and unless overpayments are made, you're in for the full stretch, so to speak. In the early years, very little capital is being repaid and overall you may pay more interest than in our earlier comparison.
For advice and ideas, an on-line mortgage broker is the answer They'll be able to offer you details of the various mortgaging methods and interest rates and once they have your details they'll come up with as many comparisons as you need.
Whichever method you choose, by re-mortgaging you can release some of the value of your home to spend on whatever you choose. Don't be put off by the thought of all the hassle of surrendering your old mortgage. It's perfectly easy to organise and people are doing it all the time. There will probably be a charge in the region of £300 for the release of deeds and possibly a fee of £25 for the transfer of funds. Lenders are keen to get your re-mortgaging business and will often offer fee-free deals and even pay your legal costs.
Your Mortgage - Time To Switch?
Would you like to save money on your mortgage? Over 50% of homebuyers are wasting money by paying over the odds for their mortgage every month. This is normally due to the fact that they're paying their lender's standard variable mortgage rate.
These standard variable rates are frequently 2 percentage points higher than lots of the best market deals, so the simplest way of saving money is to switch deals. If someone has a £100,000 loan and switches from a standard variable rate, there will be a saving of around £1000 per year for each one percentage point in the interest rate. As the difference is often 2%, this would save £2000 every year.
Contrary to common belief, remortgaging is relatively easy and hassle-free. More and more lenders are specializing in re-mortgage packages and frequently offer fee-free deals with legal fees thrown in. The whole thing is normally completed in around six weeks.
Re-mortgaging is not simply to do with the money saving side of things; you can also make use of some of the equity which has been built in the value of your property. Borrowing via your mortgage is much cheaper than doing so through a personal loan.
If you're already a buy-to-let investor, re-mortgaging is a way to fund extensions, alterations or repairs. If your equity in the property has built up sufficiently, it may be possible to re-mortgage and use the proceeds to build up your property portfolio.
If your re-mortgaging requirements are modest, it is best to go for a free-switching loan, where the mortgage provider pays your valuation, arrangements and even legal fees. Once you are borrowing is way over the £100,000 mark, then it would probably be best to go for the very best rates, even if you pay your own expenses. The savings are going to make it worth-while.
Lenders are looking for ways of extending their range of services and there is a lot of competition in the remortgaging market. As an example of this, the introduction of a flexible mortgage is an interesting development. They may well be a help to self-employed borrowers, offering them more control of their mortgage and the ability to under and over-pay to fit in with their varying business circumstances. Money earmarked for the VAT or the Revenue can be used to reduce the interest on the mortgage until the time comes when the money is actually needed. This type of loan is also useful if you need to reduce or suspend payments at time, say during a career break or for family commitments.
It's possible for flexible mortgages to include banking facilities, so you can use a cheque book or credit card or make direct debits in the same way as with a bank account.
There's a wide choice of home loans - some 4,000 different ones, from over 100 lenders. Because of this, it's really important to take some advice from some-one who knows and understands the whole market. The most simple and sensible way to do this is via an internet broker. A broker has access to the very latest and most up to date deals and will search the market to find the right deal to suit your circumstances. You'll get the very best deals, with a minimum of fuss and form-filling.
We think you'll find it rewarding - why not get on-line today and check it out
These standard variable rates are frequently 2 percentage points higher than lots of the best market deals, so the simplest way of saving money is to switch deals. If someone has a £100,000 loan and switches from a standard variable rate, there will be a saving of around £1000 per year for each one percentage point in the interest rate. As the difference is often 2%, this would save £2000 every year.
Contrary to common belief, remortgaging is relatively easy and hassle-free. More and more lenders are specializing in re-mortgage packages and frequently offer fee-free deals with legal fees thrown in. The whole thing is normally completed in around six weeks.
Re-mortgaging is not simply to do with the money saving side of things; you can also make use of some of the equity which has been built in the value of your property. Borrowing via your mortgage is much cheaper than doing so through a personal loan.
If you're already a buy-to-let investor, re-mortgaging is a way to fund extensions, alterations or repairs. If your equity in the property has built up sufficiently, it may be possible to re-mortgage and use the proceeds to build up your property portfolio.
If your re-mortgaging requirements are modest, it is best to go for a free-switching loan, where the mortgage provider pays your valuation, arrangements and even legal fees. Once you are borrowing is way over the £100,000 mark, then it would probably be best to go for the very best rates, even if you pay your own expenses. The savings are going to make it worth-while.
Lenders are looking for ways of extending their range of services and there is a lot of competition in the remortgaging market. As an example of this, the introduction of a flexible mortgage is an interesting development. They may well be a help to self-employed borrowers, offering them more control of their mortgage and the ability to under and over-pay to fit in with their varying business circumstances. Money earmarked for the VAT or the Revenue can be used to reduce the interest on the mortgage until the time comes when the money is actually needed. This type of loan is also useful if you need to reduce or suspend payments at time, say during a career break or for family commitments.
It's possible for flexible mortgages to include banking facilities, so you can use a cheque book or credit card or make direct debits in the same way as with a bank account.
There's a wide choice of home loans - some 4,000 different ones, from over 100 lenders. Because of this, it's really important to take some advice from some-one who knows and understands the whole market. The most simple and sensible way to do this is via an internet broker. A broker has access to the very latest and most up to date deals and will search the market to find the right deal to suit your circumstances. You'll get the very best deals, with a minimum of fuss and form-filling.
We think you'll find it rewarding - why not get on-line today and check it out
Foreign Mortgages. New Horizons?
There has been a tremendous boom in overseas property ownership. Whether for personal use as a family, holiday or retirement property or as an investment property, the market shows no sign of slowing down.
In the excitement of making the decision to go ahead, it's easy to overlook the importance of taking professional advice with regards to the legal situation.
The law in respect of property and mortgages abroad is very different from that in the UK. Local practices, customs and regulations are very different and vary from country to country. One of the most common mistakes made by people purchasing overseas property is to assume that everything will be similar to the UK and there can be nasty shocks in store when the reality of the very different legal system strikes them. Television programmes have highlighted problems in proving ownership, lack of planning permission or plans for three lane highways cutting virtually cutting through the garden.
It needn't be like this. Expert advisers are in a position to guide buyers through the maze of foreign property purchase and to help them to get independent and specialized advice from professional people such as surveyors, architects and the all-important solicitors.
As far as financing the purchase, it is usual to think about either raising the money on existing UK property or alternatively to arrange a mortgage using the foreign property as security, via an overseas lender.
Assuming you own property in the UK and are buying your overseas property as a holiday home or investment, the easiest route to take would be to arrange a loan on the equity in your home. By releasing this equity you would be able to complete any deal without undue delay.
Alternatively, it may be possible to get an improved interest rate by raising a mortgage on the overseas property you plan to buy. There is an added advantage in this option, in that the legal title of the property would be checked by the lender, who would ensure that all other aspects of the purchase would be in order, such as registration in the buyer's name, valuation and checking of any building certificates, regulations and planning permissions.
European interest rates are generally lower than those in the UK. Because of this, with Spanish property, most buyers are advised to take out a Euro mortgage, although technically you could choose all major currencies. If buying property in France or Italy then a Euro mortgage is required.
Euro mortgage repayments must be in euros. There will be some currency fluctuations and this should be taken into account when planning your monthly repayments.
Your adviser will be able to help you with the choice of which mortgage is for you. For instance, if you intend to rent out your Spanish property via a Spanish agent, any income will be in euros. Rental received can be paid into a Spanish bank account to help to fund the mortgage repayments, thus avoiding any fluctuation in currency when transferring money each month. Obviously in this case a Euro mortgage makes sense.
A sterling mortgage would avoid the fluctuating currency problem if the property is purely for personal use and there is no foreign income. However, the savings on interest rates still make a Euro mortgage an attractive proposition.
For help on overseas mortgages, we strongly advise you to take some guidance from the experts. This can be found by going on-line to find a broker, where you'll find their knowledge of the whole foreign property market invaluable.
In the excitement of making the decision to go ahead, it's easy to overlook the importance of taking professional advice with regards to the legal situation.
The law in respect of property and mortgages abroad is very different from that in the UK. Local practices, customs and regulations are very different and vary from country to country. One of the most common mistakes made by people purchasing overseas property is to assume that everything will be similar to the UK and there can be nasty shocks in store when the reality of the very different legal system strikes them. Television programmes have highlighted problems in proving ownership, lack of planning permission or plans for three lane highways cutting virtually cutting through the garden.
It needn't be like this. Expert advisers are in a position to guide buyers through the maze of foreign property purchase and to help them to get independent and specialized advice from professional people such as surveyors, architects and the all-important solicitors.
As far as financing the purchase, it is usual to think about either raising the money on existing UK property or alternatively to arrange a mortgage using the foreign property as security, via an overseas lender.
Assuming you own property in the UK and are buying your overseas property as a holiday home or investment, the easiest route to take would be to arrange a loan on the equity in your home. By releasing this equity you would be able to complete any deal without undue delay.
Alternatively, it may be possible to get an improved interest rate by raising a mortgage on the overseas property you plan to buy. There is an added advantage in this option, in that the legal title of the property would be checked by the lender, who would ensure that all other aspects of the purchase would be in order, such as registration in the buyer's name, valuation and checking of any building certificates, regulations and planning permissions.
European interest rates are generally lower than those in the UK. Because of this, with Spanish property, most buyers are advised to take out a Euro mortgage, although technically you could choose all major currencies. If buying property in France or Italy then a Euro mortgage is required.
Euro mortgage repayments must be in euros. There will be some currency fluctuations and this should be taken into account when planning your monthly repayments.
Your adviser will be able to help you with the choice of which mortgage is for you. For instance, if you intend to rent out your Spanish property via a Spanish agent, any income will be in euros. Rental received can be paid into a Spanish bank account to help to fund the mortgage repayments, thus avoiding any fluctuation in currency when transferring money each month. Obviously in this case a Euro mortgage makes sense.
A sterling mortgage would avoid the fluctuating currency problem if the property is purely for personal use and there is no foreign income. However, the savings on interest rates still make a Euro mortgage an attractive proposition.
For help on overseas mortgages, we strongly advise you to take some guidance from the experts. This can be found by going on-line to find a broker, where you'll find their knowledge of the whole foreign property market invaluable.
Mortgage Terminology Explained
When you first apply for a mortgage, you may feel you've stepped into a different culture with a language all its own. More than likely, your mortgage professional is throwing many new terms and expressions your way. It's the responsibility of that same mortgage professional to make sure you understand everything that's being explained to you, so you should never hesitate to ask them to stop and clarify. However, if you can approach your application meeting armed with some familiarity with mortgage terms, everyone can be more comfortable from the very beginning. Familiarize yourself with the following and you'll be a step ahead of the average first-time borrower.
HUD: HUD stands for Housing and Urban Development, and refers to the US Department of Housing and Urban Development Settlement Statement documents pertaining to the house being financed. When your loan officer talks about having you sign the HUD, they are referring to that settlement statement. The "HUD" will detail all payoff information, including any fees associated with your mortgage loan.
LTV and CLTV: LTV and CLTV stand for Loan to Value and Cumulative Loan to Value (or Combined Loan to Value). LTV refers to the percentage of the home's value that is being financed. Thus an $80,000 loan for a $100,000 home constitutes 80% LTV. Higher LTV loans may carry higher interest rates and mortgage insurance than lower LTV loans. CLTV refers to the combined amount being financed between two loans for the same property. If the $100,000 home mentioned above has a first mortgage of $80,000 and a second mortgage of $20,000, the LTVs of those loans would be 80% and 20% respectively for a CLTV of 100%.
Designation 80/20: Designation 80/20 in the same line of thought, refers to the technique of obtaining 100% financing for a borrower without using a program that offers 100% in one loan. 80/20 refers to the percentage of the home that will be financed with each loan, 80% with the first mortgage and 20% with the second mortgage. 80/15s, 80/10s, and so on are also available and are options you should consider under the advisement of your loan officer or financial planner.
Stips: Stips are stipulations, and they are the requirements handed down by your lender and its underwriting department in order for your mortgage to be cleared to close. Common stips are copies of pay stubs, bank statements, and verifications of rent and employment.
VOR and VOE: VOR and VOE stand for Verification of Rent and Verification of Employment. Both may be required by your lender in order for your loan to be approved. Not all lenders and not all loans require either one of these.
HELOC: HELOC, while not something you will probably hear during your first mortgage experience, is one of the most common mortgage acronyms. It refers to a Home Equity Line of Credit, which is one option borrowers have for taking equity out of their homes. With a HELOC, borrowers can draw up to the full amount of the loan as many times as they choose, paying down all or part of the amount and drawing it back out again. In this way, a HELOC is a loan similar to a credit card, except that the interest paid on a HELOC is tax-deductible.
This is not a comprehensive list of the new terminology you may encounter when securing a mortgage, but familiarity with these terms will help you understand what your loan officer or financial planner is talking about when it comes time to finance a home.
HUD: HUD stands for Housing and Urban Development, and refers to the US Department of Housing and Urban Development Settlement Statement documents pertaining to the house being financed. When your loan officer talks about having you sign the HUD, they are referring to that settlement statement. The "HUD" will detail all payoff information, including any fees associated with your mortgage loan.
LTV and CLTV: LTV and CLTV stand for Loan to Value and Cumulative Loan to Value (or Combined Loan to Value). LTV refers to the percentage of the home's value that is being financed. Thus an $80,000 loan for a $100,000 home constitutes 80% LTV. Higher LTV loans may carry higher interest rates and mortgage insurance than lower LTV loans. CLTV refers to the combined amount being financed between two loans for the same property. If the $100,000 home mentioned above has a first mortgage of $80,000 and a second mortgage of $20,000, the LTVs of those loans would be 80% and 20% respectively for a CLTV of 100%.
Designation 80/20: Designation 80/20 in the same line of thought, refers to the technique of obtaining 100% financing for a borrower without using a program that offers 100% in one loan. 80/20 refers to the percentage of the home that will be financed with each loan, 80% with the first mortgage and 20% with the second mortgage. 80/15s, 80/10s, and so on are also available and are options you should consider under the advisement of your loan officer or financial planner.
Stips: Stips are stipulations, and they are the requirements handed down by your lender and its underwriting department in order for your mortgage to be cleared to close. Common stips are copies of pay stubs, bank statements, and verifications of rent and employment.
VOR and VOE: VOR and VOE stand for Verification of Rent and Verification of Employment. Both may be required by your lender in order for your loan to be approved. Not all lenders and not all loans require either one of these.
HELOC: HELOC, while not something you will probably hear during your first mortgage experience, is one of the most common mortgage acronyms. It refers to a Home Equity Line of Credit, which is one option borrowers have for taking equity out of their homes. With a HELOC, borrowers can draw up to the full amount of the loan as many times as they choose, paying down all or part of the amount and drawing it back out again. In this way, a HELOC is a loan similar to a credit card, except that the interest paid on a HELOC is tax-deductible.
This is not a comprehensive list of the new terminology you may encounter when securing a mortgage, but familiarity with these terms will help you understand what your loan officer or financial planner is talking about when it comes time to finance a home.
Five Reasons That Banks Reject Commercial Mortgages
This article highlights the five main reasons that banks decline commercial mortgage loan applications. The reasons provided below do not represent obscure issues, so it is likely that two or three of the reasons described will be important for typical commercial mortgage situations. The first two reasons (business plans and tax returns) will potentially impact all commercial borrowers. Many commercial loan officers will start their loan review process by stating some variation of "Can you show me your business plan?" and "We will need to see several years of tax returns".
Many commercial projects are too unique for traditional commercial banks. In these situations (even if a commercial borrower has favorable tax returns and an adequate business plan), it is not unusual for commercial borrowers to be declined for a commercial mortgage loan by a traditional commercial lender. Commercial borrowers are likely to be confused when they are turned down and will be unsure as to why it happened and what to do next. For each of the five major reasons that a bank might decline a commercial real estate loan, a strategy is provided for converting the declined loan into an approved commercial mortgage.
Reason # 1:
A bank's loan officer or loan underwriter is not satisfied that the business plan provided by the commercial borrower supports the requested loan.
Strategy # 1:
Most commercial borrowers will benefit directly from dealing with a commercial lender that does not require a business plan due to the following major benefits:
(1) Reduce commercial mortgage costs by thousands of dollars. A common range for an average business plan (prepared to typical bank specifications) would be $5,000 to $10,000.
(2) Reduce mortgage closing time by several months. Business plans can be prepared before or after applying for a loan, but either way the net extra time required will probably be 1-2 months or more.
(3) If the lender does not require a business plan, there is one less item standing between the commercial borrower and their approved loan.
Reason # 2:
Loan underwriters find something on a tax return that disqualifies a borrower under the bank's lending guidelines. This "something" will frequently be insufficient net income, but when loan underwriters look at tax returns, there are many other possibilities which produce a similar result. For example, IRS Form 4506 (which authorizes the lender to obtain tax returns directly from the IRS) is routinely required by most traditional banks. Some lenders require this form in addition to current tax returns.
Strategy # 2:
Business loan borrowers will NEVER have Reason Number 2 to worry about if they are applying for a "Stated Income" commercial real estate loan. Very few traditional banks use Stated Income (no tax returns, no income verification, no IRS Form 4506) for a commercial mortgage. Commercial borrowers should seek out lenders using Stated Income Commercial Loans and "Limited Documentation Requirements". This strategy will not work for all commercial mortgages since there is a maximum loan amount of $2-3 million for most Stated Income Commercial Mortgage Programs.
Reason # 3:
The bank does not generally make business loans for the type of business involved or imposes special requirements that make the loan impractical for the commercial borrower. Fewer and fewer banks are making loans to bar/restaurant properties. Similarly, auto service businesses are frequently given unnecessary (and expensive) environmental reporting requirements. There are many "special purpose" properties such as funeral homes, nursing homes, assisted living facilities, RV parks, marinas, golf courses, bed and breakfast, day care centers, churches and car washes that most traditional banks will not include in their business lending portfolio.
Strategy # 3:
For most business borrowers that can get approved at a traditional bank, there are better options available elsewhere. And "better options" are clearly available ONLY elsewhere when the bank won't make the business loan in the first place! There are very capable commercial lenders that are interested in unique or special purpose properties.
Reason # 4:
When a business is refinancing their current commercial mortgage and wants to get a significant amount of cash out for various uses, it is not unusual for the bank to limit the amount of cash to amounts as small as $100,000. Even though the bank might make the loan, if they won't provide the amount of cash needed by the commercial borrower, this is equivalent to declining the loan.
Strategy # 4:
As mentioned in Strategy Number 3, there are better options available elsewhere! The commercial borrower's mission (and it is not impossible at all) is to use a commercial real estate lender that will allow them to get much larger amounts of unrestricted cash out of a commercial refinancing, i.e. more cash out and no restrictions on what they do with it.
Reason # 5:
The bank will not provide a business loan without adequate collateral, usually in the form of a lien on personal assets such as the commercial borrower's home.
Strategy # 5:
Commercial mortgage borrowers should seek out lenders that do not "cross collateralize" assets as a condition for obtaining a business loan. This will provide greater flexibility for the commercial borrower and avoid unnecessary (and unwise) connections between personal and business assets.
The situations described above represent five common examples of commercial mortgage problems that can be avoided. Please see http://steve.bush.googlepages.com/home for a review of twelve commercial real estate loan problems that commercial borrowers should (and can) avoid. Another practical summary ( http://aexcommercialfinancing.com/_wsn/page9.html ) provides 14 reasons that a commercial borrower might not go to a bank for a commercial real estate loan.
Many commercial projects are too unique for traditional commercial banks. In these situations (even if a commercial borrower has favorable tax returns and an adequate business plan), it is not unusual for commercial borrowers to be declined for a commercial mortgage loan by a traditional commercial lender. Commercial borrowers are likely to be confused when they are turned down and will be unsure as to why it happened and what to do next. For each of the five major reasons that a bank might decline a commercial real estate loan, a strategy is provided for converting the declined loan into an approved commercial mortgage.
Reason # 1:
A bank's loan officer or loan underwriter is not satisfied that the business plan provided by the commercial borrower supports the requested loan.
Strategy # 1:
Most commercial borrowers will benefit directly from dealing with a commercial lender that does not require a business plan due to the following major benefits:
(1) Reduce commercial mortgage costs by thousands of dollars. A common range for an average business plan (prepared to typical bank specifications) would be $5,000 to $10,000.
(2) Reduce mortgage closing time by several months. Business plans can be prepared before or after applying for a loan, but either way the net extra time required will probably be 1-2 months or more.
(3) If the lender does not require a business plan, there is one less item standing between the commercial borrower and their approved loan.
Reason # 2:
Loan underwriters find something on a tax return that disqualifies a borrower under the bank's lending guidelines. This "something" will frequently be insufficient net income, but when loan underwriters look at tax returns, there are many other possibilities which produce a similar result. For example, IRS Form 4506 (which authorizes the lender to obtain tax returns directly from the IRS) is routinely required by most traditional banks. Some lenders require this form in addition to current tax returns.
Strategy # 2:
Business loan borrowers will NEVER have Reason Number 2 to worry about if they are applying for a "Stated Income" commercial real estate loan. Very few traditional banks use Stated Income (no tax returns, no income verification, no IRS Form 4506) for a commercial mortgage. Commercial borrowers should seek out lenders using Stated Income Commercial Loans and "Limited Documentation Requirements". This strategy will not work for all commercial mortgages since there is a maximum loan amount of $2-3 million for most Stated Income Commercial Mortgage Programs.
Reason # 3:
The bank does not generally make business loans for the type of business involved or imposes special requirements that make the loan impractical for the commercial borrower. Fewer and fewer banks are making loans to bar/restaurant properties. Similarly, auto service businesses are frequently given unnecessary (and expensive) environmental reporting requirements. There are many "special purpose" properties such as funeral homes, nursing homes, assisted living facilities, RV parks, marinas, golf courses, bed and breakfast, day care centers, churches and car washes that most traditional banks will not include in their business lending portfolio.
Strategy # 3:
For most business borrowers that can get approved at a traditional bank, there are better options available elsewhere. And "better options" are clearly available ONLY elsewhere when the bank won't make the business loan in the first place! There are very capable commercial lenders that are interested in unique or special purpose properties.
Reason # 4:
When a business is refinancing their current commercial mortgage and wants to get a significant amount of cash out for various uses, it is not unusual for the bank to limit the amount of cash to amounts as small as $100,000. Even though the bank might make the loan, if they won't provide the amount of cash needed by the commercial borrower, this is equivalent to declining the loan.
Strategy # 4:
As mentioned in Strategy Number 3, there are better options available elsewhere! The commercial borrower's mission (and it is not impossible at all) is to use a commercial real estate lender that will allow them to get much larger amounts of unrestricted cash out of a commercial refinancing, i.e. more cash out and no restrictions on what they do with it.
Reason # 5:
The bank will not provide a business loan without adequate collateral, usually in the form of a lien on personal assets such as the commercial borrower's home.
Strategy # 5:
Commercial mortgage borrowers should seek out lenders that do not "cross collateralize" assets as a condition for obtaining a business loan. This will provide greater flexibility for the commercial borrower and avoid unnecessary (and unwise) connections between personal and business assets.
The situations described above represent five common examples of commercial mortgage problems that can be avoided. Please see http://steve.bush.googlepages.com/home for a review of twelve commercial real estate loan problems that commercial borrowers should (and can) avoid. Another practical summary ( http://aexcommercialfinancing.com/_wsn/page9.html ) provides 14 reasons that a commercial borrower might not go to a bank for a commercial real estate loan.
Saving for your Child's Future
Having children isn't cheap these days, especially in the long term - the older they get, the more they cost. Higher education prices continue to soar and it's almost impossible to get onto the housing market without having some capital or homeowner loans. All of these things may seem so far ahead, especially if your child is very young, but now's the time to start saving to ensure you can provide what your children need further down the line.
Surveys suggest that we're starting to realise this. A report published by Mintel in October 2005 found that 75% of British parents with children under 14 are now saving for their children's futures. Nearly six million parents are now saving for their children, compared to just under five million in 2003. So it's evident that we understand the need to save, but it's not always easy to do so. The day-to-day family finances can be difficult enough to manage without having to think about the future. This article provides some information on how to save for children and explains some of the financial products available.
Bank accounts
The first step that most parents take towards saving for their children is to open a savings account on their behalf and start making cash deposits. Most banks and building societies have accounts specially tailored for children. They often have a higher rate of interest and offer incentives such as membership of a kids' savings club with regular newsletters, piggy banks, toys and badges. Even if you're not sure how often you'll be able to make deposits into the account, it's a good idea to set one up as soon as possible after your child is born so that it's there whenever you do have money to put aside. Try to get into the habit of putting in at least a small amount on a regular basis - setting up an automatic transfer from your bank account will make this much easier. Alternatively, simply depositing the government child benefit on a weekly basis will get you off to a good start - it's amazing how quickly it builds up.
Tax
Children are subject to income tax on bank accounts just like adults. They receive a tax allowance and as long as their total income including interest doesn't exceed this allowance in the financial year, they will not be taxed on their interest. (The allowance for 2006-2007 is £5,035.) However, this only applies when the savings are gifted by a relative or friend. Interest on money gifted by parents will be subject to tax if the amount of interest earned in a year exceeds £100 per parent. (This prevents parents from taking advantage of children's accounts for their own savings.) If your child's annual income will be less than their tax allowance and the money you give them in a year will amount to less than £100 in interest, you can fill out an R85 form from the Inland Revenue to apply to have the interest paid without tax being deducted. It may be worth opening separate bank accounts if your child will be receiving money from yourself as well as relatives or friends, to save any confusion.
Child trust funds
The introduction of child trust fund by the government in 2005 has made a big difference in helping parents to save for their children. In the scheme, new parents are given a minimum of £250 to invest in a long-term savings and investment account on their children's behalf, plus a further £250 when the child turns seven. The proceeds are held in trust for them until their 18th birthday. It's not subject to tax and up to £1,200 can be invested each year by parents, family or friends.
There are three types of account - a savings account, a shares account and a stakeholder account. The choice you make will depend to a great extent on your attitude towards risk. Savings accounts are the safest method as you won't lose money this way, but the returns on the investment tend not to be very high.
The shares account invest your child's money by purchasing stock market shares. Investing in shares can be risky, especially in the short term, although on the whole the stock market can produce a good long-term returns as share values tend to rise more than they fall over a long period. As saving for children is normally a long-term approach, shares accounts can be an attractive option. However, shares can go down as well as up at any time and past performance isn't necessarily an indicator of future performance. It's also important to note that the account provider will normally charge an annual fee for managing the shares.
The stakeholder account is a medium risk option, which invests in shares until the child turns 13 and then the money is transferred to lower risk investments and assets, helping to limit potential losses in the lead-up to the child's 18th birthday. However, if the stock market performs well over this period, the returns won't be as high as they would have been if the money had remained in the higher risk investments.
You'll need to choose not only which account you want for your child, but also which provider. Various different banks, buildings societies and financial organisations provide approved child trust fund accounts. The government simply sends you a voucher for £250, which you'll invest in the account and provider of your choice. All providers are of course regulated and must meet the terms and conditions stipulated by the government. However, there may be differences in the products they offer. Look out for fees charged and any requirements relating to how much you deposit and how frequently.
Other government-backed savings options
The National Savings and Investments Bank (formerly the Post Office Bank) is an agency of the Chancellor of the Exchequer. It was set up in 1861 by the Palmerston Government to help working people save for their futures and as a means of raising government funds for public spending. It offers various safe and secure options for saving. Premium Bonds, for example, are a monthly large-value prize draw in which you can enter anything from £100 to £30,000. The jackpot can be up to £1million, but prizes of between £50,000 and £100,000 can be won for every bond number held. The prizes are tax-free and bonds can be bought by parents, relatives or friends on behalf of children under 16. Alternatively, indexed linked savings certificates are a great method of tax-free saving in which the value of your money increases in line with inflation (linked to the Retail Prices Index) at guaranteed interest rates. Between £100 and £15,000 can be invested per issue, and they are available to anyone over the age of seven (or can be bought on a child's behalf if they are under seven).
There are lots of other possibilities for saving for your children - investments, stocks and shares, bonds, savings accounts, trust funds - not all of which are specifically designed for children. In such cases, you'll need to manage the money on the child's behalf until they reach 18 (or sometimes 21). To find out how you can best provide for your child's future, you should visit a financial advisor who will be able to outline the most suitable options for you and your family.
Surveys suggest that we're starting to realise this. A report published by Mintel in October 2005 found that 75% of British parents with children under 14 are now saving for their children's futures. Nearly six million parents are now saving for their children, compared to just under five million in 2003. So it's evident that we understand the need to save, but it's not always easy to do so. The day-to-day family finances can be difficult enough to manage without having to think about the future. This article provides some information on how to save for children and explains some of the financial products available.
Bank accounts
The first step that most parents take towards saving for their children is to open a savings account on their behalf and start making cash deposits. Most banks and building societies have accounts specially tailored for children. They often have a higher rate of interest and offer incentives such as membership of a kids' savings club with regular newsletters, piggy banks, toys and badges. Even if you're not sure how often you'll be able to make deposits into the account, it's a good idea to set one up as soon as possible after your child is born so that it's there whenever you do have money to put aside. Try to get into the habit of putting in at least a small amount on a regular basis - setting up an automatic transfer from your bank account will make this much easier. Alternatively, simply depositing the government child benefit on a weekly basis will get you off to a good start - it's amazing how quickly it builds up.
Tax
Children are subject to income tax on bank accounts just like adults. They receive a tax allowance and as long as their total income including interest doesn't exceed this allowance in the financial year, they will not be taxed on their interest. (The allowance for 2006-2007 is £5,035.) However, this only applies when the savings are gifted by a relative or friend. Interest on money gifted by parents will be subject to tax if the amount of interest earned in a year exceeds £100 per parent. (This prevents parents from taking advantage of children's accounts for their own savings.) If your child's annual income will be less than their tax allowance and the money you give them in a year will amount to less than £100 in interest, you can fill out an R85 form from the Inland Revenue to apply to have the interest paid without tax being deducted. It may be worth opening separate bank accounts if your child will be receiving money from yourself as well as relatives or friends, to save any confusion.
Child trust funds
The introduction of child trust fund by the government in 2005 has made a big difference in helping parents to save for their children. In the scheme, new parents are given a minimum of £250 to invest in a long-term savings and investment account on their children's behalf, plus a further £250 when the child turns seven. The proceeds are held in trust for them until their 18th birthday. It's not subject to tax and up to £1,200 can be invested each year by parents, family or friends.
There are three types of account - a savings account, a shares account and a stakeholder account. The choice you make will depend to a great extent on your attitude towards risk. Savings accounts are the safest method as you won't lose money this way, but the returns on the investment tend not to be very high.
The shares account invest your child's money by purchasing stock market shares. Investing in shares can be risky, especially in the short term, although on the whole the stock market can produce a good long-term returns as share values tend to rise more than they fall over a long period. As saving for children is normally a long-term approach, shares accounts can be an attractive option. However, shares can go down as well as up at any time and past performance isn't necessarily an indicator of future performance. It's also important to note that the account provider will normally charge an annual fee for managing the shares.
The stakeholder account is a medium risk option, which invests in shares until the child turns 13 and then the money is transferred to lower risk investments and assets, helping to limit potential losses in the lead-up to the child's 18th birthday. However, if the stock market performs well over this period, the returns won't be as high as they would have been if the money had remained in the higher risk investments.
You'll need to choose not only which account you want for your child, but also which provider. Various different banks, buildings societies and financial organisations provide approved child trust fund accounts. The government simply sends you a voucher for £250, which you'll invest in the account and provider of your choice. All providers are of course regulated and must meet the terms and conditions stipulated by the government. However, there may be differences in the products they offer. Look out for fees charged and any requirements relating to how much you deposit and how frequently.
Other government-backed savings options
The National Savings and Investments Bank (formerly the Post Office Bank) is an agency of the Chancellor of the Exchequer. It was set up in 1861 by the Palmerston Government to help working people save for their futures and as a means of raising government funds for public spending. It offers various safe and secure options for saving. Premium Bonds, for example, are a monthly large-value prize draw in which you can enter anything from £100 to £30,000. The jackpot can be up to £1million, but prizes of between £50,000 and £100,000 can be won for every bond number held. The prizes are tax-free and bonds can be bought by parents, relatives or friends on behalf of children under 16. Alternatively, indexed linked savings certificates are a great method of tax-free saving in which the value of your money increases in line with inflation (linked to the Retail Prices Index) at guaranteed interest rates. Between £100 and £15,000 can be invested per issue, and they are available to anyone over the age of seven (or can be bought on a child's behalf if they are under seven).
There are lots of other possibilities for saving for your children - investments, stocks and shares, bonds, savings accounts, trust funds - not all of which are specifically designed for children. In such cases, you'll need to manage the money on the child's behalf until they reach 18 (or sometimes 21). To find out how you can best provide for your child's future, you should visit a financial advisor who will be able to outline the most suitable options for you and your family.
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