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Home Loans – five things to watch out

April 4th, 2011

Homeowner loans can be a quick and easy way to finance major investments and purchases. With home loans, you can tap into the value of your biggest asset in order to pay for things that are important to you. Those ‘things’ are virtually unlimited – you don’t have to account for how you spend the money you borrow against your home to anyone but yourself. It can as easily be spent to finance a year trotting across the Continent as it can to pay for your education, make improvements to your home or pay for a new car.

With all the loan products available, nearly anyone who owns a home can find a loan company in the UK to offer them a home loan. The wide range of UK lenders who will be happy to advance you money on the security of your home also means that there’s a lot of competition for your business. And that means that if you shop around, you can find some outstanding deals on home loans when you need one. Unfortunately, it also means that there are many loan companies offering products with lots of hooks and traps in them. To help you avoid those traps, here are five things to watch out for when you’re shopping for home loans.

1. Look beyond the APR.

While the APR is generally considered the single best way to compare one home loan with another, the way that APRs are calculated is not quite standardized. Unscrupulous lenders have found ways to ‘hide’ charges from the APR calculation, making their loans a bit more expensive than the APR would lead you to believe. A better calculation for comparing loans is total loan cost which takes into account the repayment of the loan, all interest charges and other fees that will be paid before you’re done with it.

2. Be careful of repayment insurance.

Repayment insurance is meant to assure you and the loan company that your loan will be paid off in full if something should happen to your ability to make the payments. Some lenders will offer you repayment insurance through the company that they choose – often at rates so high that you’ll pay nearly as much as you borrowed in the first place. Shop for repayment insurance just as you do for the loan itself. You are not ever obligated to accept the repayment insurance offered you by the loan company or bank.

3. Know all of the fees you’ll have to pay up front.

Arrangement fees – sometimes called origination fees – are paid when you apply for a loan. In some cases, those fees will be due whether you are approved for the loan or not, and whether or not you accept the loan. Some of those arrangement fees can add up to £700 to the total cost of your loan.

4. Check into how interest is calculated and compounded.

The way that interest is calculated can save or cost you a surprisingly large amount of money. If interest is calculated annually, you’ll pay far more in interest fees than if it is calculated daily. If possible, check your expected monthly loan repayments on the loan company’s own loan calculator for comparison purposes.

5. Exit fees can make it difficult to get into a lower-cost loan arrangement later.

Checking the exit or early repayment fees on the loans you’re considering can be especially important if you’re shopping higher cost home loans because of temporary credit difficulties. If you hope to transfer to a lower interest loan when you can qualify for one, then you’ll want to be certain that the exit fee doesn’t make it impractical to do so.

You can compare all facets of home loans at moneyeverything.com, from arrangement fees to APRs. Remember, no matter what your situation, you’ll get the best

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Refinancing home loans – things you should know before refinancing your home

February 28th, 2011

Refinancing home loans has increased significantly throughout the past year as interest rates continue to hover around all time record lows. Not only are interest rates at all time lows, but the Government recently initiated several programs and policies that make refinancing your home even more financially attractive. If you have a current mortgage and would like to look into refinancing for a new low fixed rate mortgage then there has literally been no better time in history to refinance your home. There are some important things that you need to consider though before you jump right in.

The first thing that you should consider is how long you plan on living in your current home. Generally, refinancing home loans only makes financial sense for someone who plans on living in their current home for at least another 3 years. If it’s any less than 3 years then the mortgage closing costs are going probably going to be higher than you savings. However, if you plan on living in your current home for 5 years or more, then you really need to look into the benefits of refinancing your home. There are more financial incentives to refinance your home that it would be foolish to not at least consider it.

You should also have an idea of what you would like to accomplish by refinancing you home. Do you want to lower your monthly payment and take advantage low interest rates? Maybe you want to take cash out of the equity line on your mortgage and put it in your pocket. Maybe you want to make your monthly payments the same every month by switching your adjustable rate mortgage for a fixed rate mortgage. Whatever your reason, it is important to identify your goals before talking to a mortgage loan professional.

Mortgage loan professionals will help you out by doing a cost/benefit analysis to further identify whether refinancing your home makes sense for you. I would strongly encourage you to get multiple quotes from different lenders. This way you are able to compare the lenders and go with the one who was able to offer the best deal and whom you feel most comfortable with. There are online services that make the application process more convenient to consumers and will provide you quotes from 3-4 top lenders by filling out just one application. Interest rates are low now but they won’t be that way forever so now is time to at least consider refinancing your home.

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Home Loans – Things to bear in mind when taking one

January 22nd, 2011

In today’s modern world every average person dreams of a house that he can call his own. Some want it for luxury, some as a need, some as future security, while others feel it is the best way of investing your money guaranteeing the maximum return in minimum time. In metros though the definition of a house has now changed to multi-storied apartments.

Gone are the days when a house meant one with a lawn and garden at the front, a car garage at the side and a kitchen garden at the back. All you get to see now are spaces with walls literally suspended in mid-air. Yet people are ready to pay lakhs of rupees to be able to own one of these. You can see them all around you. Cities are now a complete concrete jungle, yet no one wants to be left out from the race.

Finding a house is not difficult as you have a housing project in almost every locality. Even in the weirdest of places one can imagine. So is it really that easy to acquire one? Not really, the cost being a major deterrent. A single bedroom apartment may cost from 8lakhs to somewhere above a crore depending on the locality, builder reputation, construction quality and amenities provided. So how does one fulfill his dream? Is there no way out?

HOME LOAN – a respite for anybody wanting a house But I really wonder if it is really so. Almost every bank has a home loan department now offering loans at an interest rate varying from 8% to 12.5%. Just when you are wondering if you should also buy a house like your friends but how, you receive calls from various banks offering you home loans at the cheapest rates possible.

You could not have asked for something more. The call is like a life savior for you. But is it really the case? If you are not cautious enough you can end up paying more than four times the cost of the house to the bank. So should one avoid taking home loans completely? Not really. You just need to keep certain things in mind while going for one listed below.

1. Keep the duration of the loan as less as possible. All the banks offer home loans for duration of 20 years at the maximum. So if you take a home loan of Rs 30,00,000 at an interest rate of 9% for 20 years your monthly EMI (Equated Monthly Installment) to be payable to the bank comes to Rs26,992. Quite cheap you think. But then think again.

If you sit back and calculate, you pay a total of Rs 64,78,080 to the bank. Which means a total of Rs 34,78,080 only as an interest. If the same loan was for duration of 10 years your monthly EMI would come to Rs 38,000 but the total loan amount that you pay is just Rs 45,60,360. Much more economical for you in the long run.

2. If the bank at any point lowers the interest rates they give you an option of reducing the EMI that you pay each month. Instead, insist on paying the same EMI but getting the loan duration reduced. Any day a better deal for you.

3. Fixed loan of interest is better if you plan to pre pay your loan in small installments at the earliest. It gives you a chance to plan your finances for a particular duration of time in advance. You can then easily plan and save money to pre pay the loan at the earliest as it helps in reducing the interest amount you pay. Banks do not charge interest for part pre payment of loan done if below 90% of the total loan.

4. While going for a loan transfer from one bank to the other offering a lesser rate of interest do your calculations well before going ahead. Every bank charges 2% to 4% pre-payment charges on closure of the entire loan amount. The bank you are transferring to might be charging some processing or mortgaging fees on the total loan that you want.

There might be a case where you end up paying more rather than gaining by the transfer. A certain friend of mine had a home loan of 45 lakhs with a bank and transferred it to another, which was providing the home loan at 1.25% lesser interest rate. Obviously a better deal anyone would think. But then after adding the prepayment closure charges paid to the previous bank and adding the mortgaging fees of the newer one her home loan now stands at 48lakhs. Did she really gain by the transfer? I don’t think so.

5. Understand the statistics and the calculations even if maths has been your weak area. It will help you in avoiding situations such as my friend landed herself in. It is not necessary that every person-transferring loan gets a non-profitable deal. There would be no loan transfer offers being given if such was the case.

6. Make sure that the amount paid as a pre-payment closure fees to the previous bank is not added to the principal of the loan you take from the other bank. You will only pay unnecessary interest on the amount.

Most of us do not really bother to go into details, but I can assure you getting into the details of the home loan amount actually paid. Anyone out there ready to fleece you of your money, it's you who should take care that no one succeeds.

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Things to Note Before taking a home loan

November 5th, 2010

Every individual has a dream of having one’s own home and property. For those who cannot afford to spend huge sums of money in one go, to purchase the dream, home loans are there to help. There are numerous mortgage providers out there in the market, ready to help you. But before you opt for any home loan or choose a provider, you need to keep in mind some things.

In mortgages itself, there are a variety of loans. Some of them are home purchase loans, home extension loans, home improvement loans, home conversion loans, land purchase loans and bridge loans. From the names itself, the purpose of the loans can be understood. Bridge loans need an explanation. These are to help people who want to sell their existing house or property and buy a new one. Bridge loans will help the customer in buying the new property and work until the older one is sold.

There are other factors which are to be considered before taking a home-loan. First of all, think of whether you can pay back the amount you take as loan. You should have a clear understanding about the payback period and interest rate offered to you by the loan service provider. The credibility and reputation of the provider also needs to be verified. There are people, agents and institutions which might cheat you. Do your background research well enough.

Asking the advice of your friends, colleagues or acquaintances can help you a lot in taking a good home loan. There will be people who have already taken these kinds of loans and they will know what to do and where to go. Whatever you decide, you should keep in mind that later it should not be a burden for you and make your life miserable. Your dream must not shatter your life.

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Negative Mortgage Amortization, Things You Must Know – Do Not Take a Home Loan Before You Read

June 4th, 2010

A negative amortization loan is a loan where the monthly payment does not decrease your loan principal. In other words the payment being made doesn’t pay back the principal on the loan. In fact the payment being made doesn’t even cover the minimum monthly interest payment. As a result your home mortgage will increase overtime.

How does it work?

Well, your monthly payment is composed by the loan amount, interest rate, and the years that the loan will be paid back. Normally a mortgage payment will include sufficient money to be applied towards interest and principal, in order to effectively reduce the balance on the loan. In a negative amortization, you don’t even pay enough to cover the interest being charged by the bank.

What does negative amortization mean to you?

Since the payment in a negative mortgage doesn’t even cover the minimum interest charge, the amount that wasn’t paid gets attached to the principal balance (loan balance will increase with every payment). In other words, every time you make a negative amortization payment it’s like you’re taking out another loan on your home. When you amortize a loan it simply means that you’re paying it off, therefore the name negative amortization is given to this particular situation.

What is the practical use of a negative amortization?

The main purpose of this type of amortization is flexibility in payments. This type of amortization was designed with a certain type of borrower in mind. Normally this is a type of payment that is suggested for people without regular income, such as commission employees and business owners. The idea is that people without regular income might have a down month where making a full payment is not likely to happen, instead of missing a payment they would have the option to apply the minimum amount, avoid missing a payment, and add the rest to the back of the loan. On the opposite side, if they have a good month then making a bigger payment is also possible in order to catch up on the negative amortization months, thus allowing the borrower to pay off the principle balance.

Keep In Mind:

This type of amortization is not for every home owner, as time goes on and more negative amortization payments are made, the larger the amount of money that will be owed by the borrower to catch up the loan.

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