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Teaser Credits: One way to attract new borrowers

March 10th, 2011

Teaser loans have been creating buzz in the market, since quite some time. Some call it a good option while others considered it as a ‘risky business’. Teaser Loans are meant to tease or attract a borrower, who is seeking for a new home loan. This loan is meant to lure customers therefore for initial 2 years, banks charge relatively low and fixed rate of interest, say nearly 8 to 8.5 per cent. However from the third years onwards, banks increase fixed or floating interest rate, which is according to the prevailing market rates. During initial years, generally these loan offer fixed rate of interest which later on convert to a floating one. Hence it is also known as fixed cum floating interest rate loans.

SBI was the first bank to start off with these loans. SBI Home loans became a major hit in winning customers and as a result various other banks also curtailed their loan rates. Like HDFC Home Loan, ICICI Home Loan, Axis Bank and many more banks slashed their rate of interest to attract more borrowers. This in turns also gave rise to stiff competition among banks to appeal to more clients.

Benefits of Teaser Loans

Initially bank charges low rate of interest, hence it makes home loan affordable for new clients. It proves beneficial to borrowers, especially if there is a chance for the rates to rise shortly.

Disadvantages of Teaser Loans

(1) Teaser loan is a weapon to attract customers. Borrowers seldom understand the EMI Concept i.e,difference between the initial years EMI versus the EMI for the later years. Lenders do not give appropriate illustration of the rate of interest.

(2) The Reserve Bank of India is worried about the EMI affordability, which is later fixed by banks according to prevailing market interest.

(3) Many banks do not show any interest in following stringent & transparent evaluation of the borrowers financial and repayment capacity.Ideally such evaluation should be done by taking into account the customer repaying capacity at normal lending rates. If it is not done properly, then the remaining EMI will become a burden for the borrower.

(4) The Reserve Bank of India, apex financial institution, has shown its concern that in case the floating rates trigger up, borrowers could default in making EMI payments. Such situation will adversely affect both borrower and the asset books of the bank. To tackle the situation, the RBI has triggered the teaser loan standard asset provisioning from 0.4% to 2%. The RBI has also capped the home loan limit at 80 per cent of the property value.

(5) The main drawback of teaser loan versus a normal home loan is that ambiguity is present about the subsequent rate of interest.

The top two private sector lenders- HDFC Ltd. And ICICI Bank had discontinued teaser home loan schemes. Under scheme, HDFC Home loan was offered at a fixed rate of interest of 8.5% up to 31st March, 2011 and 9.5% for a time period between 1st April- 31st March, 2012.

Similarly, ICICI Bank was offering at 8.5% of rate of interest in the first year, 9.25% in the second year & for the third year, it was 1.5% above the base rate.

Tips to follow before applying Teaser Loans

(1) Before loan disbursement, it is good to work out on your home loan affordability by calculating your finance. After initial years, EMIs vary according to market conditions. So make sure that you are taking time factor also in consideration. Other factors like salary hike or promotion are also equally important.

(2) It is good to ask your lender about prepayment clauses. Pay due consideration towards flexibility & penal interests for prepayment and balance transfers.

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Home change credits from the Red Cross

March 8th, 2011

A new program for home loan modifications has been established by the combined efforts made by Massachusetts Rehabilitations commission (MRC) & many disabilities advocates throughout commonwealth. The funding of the Home loan modifications program for people with disabilities was approved by the state legislature of Massachusetts through a certain bond which provides $10 million for next five years. One of the main aims of this program is provision of modification loans to the primary residences of the disabled, families having children with disabilities and old aged people.

A few examples of the modifications which will be financed under this scheme are the installation of ramps, wheel chair access, grab bars, lifts, sensory adaptations etc. Deferred loans of 1000 dollars to 30000 dollars will be available to the eligible people at zero percent interest rates or at below market interest rates, these rates will include all consultation charges & loan fees.

Based on eligibility of income, the borrowers will be easily eligible for Amortized loans below market rates. The MRC is expected to serve an estimated 200 households who are eligible, annually.

The program:

This loan scheme is a recently established Loan program funded by the state, which gives loans for necessary modifications to primary and the principal residences of people with disabilities & elders. The program allows the disabled people to live in their communities independently.

The Facts:

This program allows easy lending of money to house owners in order to allow them to do necessary modifications in their homes for allowing equal and easy access for disabled individuals in their permanent primary residences. There are seven main agencies throughout the state which take care of the administration and funding for the underwriting of this program.

Figures

Based on eligibility of income, from 1000 dollars to 30000 dollars can be lent as deferred loan or amortized loan after being secured with a promissory note or mortgage lien. A deferred loan is due upon the transfer or sale of the property. Schedules for monthly payments are required for amortizing loans at low interests, but these are offered below the market rates.

Eligibility

Any house owner having disabilities or having household member with disabilities or those who have rented their house to individuals with disabilities can apply for the loan. Income requirements are based on the total gross household income of the house owner. Any household in a property of below 10 units might be eligible for this program, but the applicant should be the owner of the property. The unit requiring the modifications should be the primary residence of the disabled and the modifications made should be necessary for a man who benefited from them to stay in the house.

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Home loans, investment loans – Get Faster credits

December 14th, 2010

Loans are always the first option when you don’t have the required large amount to invest. Even today, people who have a large capital, invest through the service of loans in their business. Many companies avail the services of the investment loans to ensure their profits. You can always opt for the home loans while buying your house.

Loans to opt for

o Home loans- housing loans are the most common availed services through banks. They aid in purchasing house and accommodations. Many banks have stretched their services and made the home loans procedures more facile. Now you can opt for the desire EMI for the payments of the instalment. With attractive interest rate one can choose their amount to be taken. Moreover banks have also simplified the documentation and formalities to grab a loan.

o Home equity loans – in this process the borrower uses the property of the house as collateral. Home equity loans can be availed for the education or medical expenditures. Comes in ‘closed end’ and ‘open end’ it provides the freedom to choose the mode to the borrower. Borrower takes the lump sum amount and cannot borrow further in close end. It is depend over the appraise value of the collateral, credit history and income. The open end allows the borrower to choose when and how often he would like to avail the service.

o Investment loans- it could be for specific purpose or for the multiple work programmes to borrow loans to invest in shares, property or manage funds. Many banks match with the best mortgage suited to the borrower in order to maximize their return in the investments.

o Refinance- the procedure involves simply replacing the older loans with the newer one with better terms. You may modify to lower rate of interest, increase or decrease the amount of EMI depending upon your capacity. Chiefly people should refinance for two reasons – to improve their current living situation and to secure their future mortgage situation.

Quicker home loans

The best way to opt for the home loans is to deal online. Banks provide online pre-approved applications to be filled. Even if you are the first home buyer, dealing online is the foremost option. Banks then contacts to complete the formal application and mail the application to you. They also provide the checklist to be ensured by the borrower. The documents specified on the checklist are then to be sent to bank through post, mail or fax. A valuation will be ordered and agreement is sent after the verification of the documents. Arrangements can be done once the agreement is signed.

Banks has bent down to simplify the red tapes and formalities that harass the borrowers. One can attain the loan with easy rate of interest and flexible EMI. Online net banking has facilitated the customers to take advantage of quick service. They can verify and monitor the situation at any hour of the day.

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3 credits Modification Tips – Everything You Need to Know

December 3rd, 2010

Thousands of Americans today are being squeezed under the demonic weight of mortgage, but there’s still one last way that could save you- Loan Modification.

A loan modification is a reworking of your home loan which adjusts the interest rate, the duration of the loan and other variables to make it low enough for anyone to afford it each month

Loan modification programs earlier have often simply delayed the onslaught and homeowners soon found themselves in trouble again. This might get resolved by the initiative taken by the Obama administration with its Making Home Affordable modification program, which focuses on home modifications and refinances.

1. Start early:Previously loan modification was an option given only to homeowners who were in default. This was after their lender filed a motion to start with the foreclosure process, which was usually after 3months, or 90 days of late payments. With the present system, homeowners get help even. Though some services could require a period of 30 days to lapse after payment date which depends on your mortgage servicer and sometimes the negotiator you have been assigned.”However the new federal assistance does not make it imperative that homeowners be in default before they seek help.

2. Decide if you need professional help

You will have to decide whether you at all want to take professional help or not. Sometimes taking professional help might save you a lot of hassle. You could go for an attorney or even a n agency. A HUD- approved counseling service does not even charge for its services hence you might just decide to save on both time and money. In some states attorneys could charge up to $2500 which is reasonable given the services they offer.

There have also been many cases of loan modification scams hence it is advisable to be careful while making payments. Do not disclose sensitive information to anyone other than your loan servicer or bank.

3. Know who is your lender

These days the lender is usually not a single bank. It could also be broken down into parts and turned into a mortgage-backed security to be owned by many banks. The easiest way to find out who owns your loan is to approach your mortgage servicer and inquire as to who owns your loan. Given the new policies of the Obama administration of the project, service will be more than eager to help as they are the motivation for such services by the government.

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Can I Buy a home after Bankruptcy – Options for housing credits Bankruptcy Examined

April 10th, 2010

Trying to buy a home after bankruptcy can be a frustrating undertaking. If you are not sure where to go for a loan you will get constant denials, plus all the credit report pulls may drive your credit score down as well. So where do you go to get a home loan after bankruptcy and is there any programs available you qualify for?

The type of loan you qualify for and can use all depends on how far out of your bankruptcy you are and how you have re established your credit since your bankruptcy was discharged. Below is a list of loan programs you can use to buy a home after bankruptcy

After bankruptcy Home Loan Programs

Sub Prime And Hard Money-If you have just recently, within the last 12 months came out of your bankruptcy then you will have to find a sub prime or hard money lender. Both of these lenders will loan to people with a bankruptcy discharged as little as 1 day ago. But they only lend at very high interest rates and will require a down payment of 20-25% and charge very high fees to fund the loans.

FHA Home Loans-If you have been out of your BK for at least 2 years and have rebuilt your credit you will more then likely be able to qualify for an FHA home loan.

The FHA offers great rates but is not quite as strict as a standard conforming mortgage lender is. The only drawback is that the FHA does require at least a 580 credit score and some lenders bump this up to 620 so if your credit score is low you will be disqualified from this program.

Conforming Mortgage Loans- In order to get a standard low rate conforming mortgage to buy a home after bankruptcy you will need to be out of your bankruptcy for at least four years. You will also have had to rebuild your credit to perfect scores of 720 or higher and kept a stable job history. if you fit this profile then you are very lucky to have rebounded so quickly and can benefit largely from lower rates under credits offer.

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