Tuesday, December 30, 2008

Two Common New Year Resolutions: Finance and Fitness

The New Year is almost here, barely a few hours left for the grand celebration to begin. This is the time when people make a number of resolutions. However most of us fail to accomplish them and forget about it as the days pass by.

Now this year most of us are worried about the financial future after the major downfall of the finance market. So everybody might be thinking of improving their own financial condition in the coming year. Together with this, since nowadays people have become much more health conscious, the fitness factor will also be there at the corner of their minds too.

We all probably know that finance and fitness go hand in hand. Many research has also been done to prove the relationship between finance and fitness. A healthy and fit person is bound to be more productive - he will miss lesser days, work hard for longer period and make more money. Similarly, the other way round is very obvious. A financially stressed person will be suffering more from headaches, sleep disorders, ulcers and many more side effects, that would restrain him from performing to his capability.

However some of us are really bad at maintaining a balance with our expenses, we tend to spend much more than what we can afford. Creating a monthly budgeting plan would be a useful strategy in such cases which would as a result reduce some stress and help us to be mentally as well as physically fit. Try to save whatever you can, be it a very negligible part of your income. For example, instead of thinking to save say 30% of the income and fail to accomplish it, just save around say 4,5, or 6 percent. This would turn out to be quite a good amount in future.

By the way, I came across a very innovative and different way of representing financial fitness using mathematical formula. That was something like this:

Spend less + Extra Income - Debt * (Savings & Interest)/Monthly Budget

So, let this be your prime resolution for the coming year.

Happy New Year!

Wednesday, December 17, 2008

Real Estate Predictions for 2009

We know that not even a fortnight is left for the New Year to arrive. People are busy with their preparations to celebrate Christmas and welcome New Year in a grand way. But at the back of their minds there are several queries and thoughts regarding the financial scenario in the coming year: What will be the effect on Real Estate market? Whether banks will pursue foreclosure? Will they modify the existing loans?...

These are some of the real estate predictions for the year 2009 as predicted by some of the realtor experts and news channels.

  • There will be a rise in the number of foreclosures. Banks will prefer to foreclose rather than revise or modify the loans, which will result in increase in the number of tenants than home owners.
  • The existing home prices will highly depend on foreclosures. As the foreclosures start going down, the home prices will go down as well, and vice versa.
  • Continuation of slow down in homes sales. According to the statistical records provided by National Association of Realtors (NAR), 2008 proved out to be the third consecutive year in which the home sales have fallen.
  • There will be a decline in the number of Real estate agents and brokers. This is mainly due to the downfall of real estate market and also nowadays internet makes it easier for people to do any real estate transaction.
  • The experts predict that the mortgage rates will definitely increase but won’t be more than 8%.
  • The increase in demand will affect the rental rates. It will go up drastically since new constructions will grind to a halt. A perfect time for all the landlords.
  • More and more agents will increase their commission rates. Due to the availability of lesser homes to be sold, they will take the benefit of buyer’s market.
  • Last but not the least the Internet will become much more effective than the agents. More and more people will opt for buying or selling a property through internet, instead of relying on the agents.

Please do give your advises or any suggestions that you think will be helpful here, or if I have missed out on any important factor.

Thursday, December 11, 2008

Basic Tips to avoid the Nightmare of Mortgage Fraud

The number of Mortgage fraud cases is increasing rapidly in US causing financial as well as emotional damage to homeowners. You have to be cautious especially if you are a first time home buyer, belong to minorities or you are a senior citizen. They are the main targets for the fraud scam. However that does not mean that the rest of them will turn a blind eye.

Listed below are some of the tips to avoid mortgage fraud:

  • Shop around and gather the sufficient real estate knowledge so that you are aware of your needs and requirements.

  • Do not make any hasty decision regarding the mortgage agents. Check out the background and previous records of the professionals, and whether they are licensed or not.

  • Figure out your own finances – how much you can afford, your credit score and credit report, the total debt you have till now and other such related factors that affects your personal finance. Never borrow more than your limitation.

  • Check properly the history of the property you are going to buy. Confirm whether the seller actually owns the property from your local tax assessment office.

  • Never ever give false or incorrect information about your income, debt, credit history or your employment, etc. Otherwise this can prove out to be a nightmare of foreclosure in future.

  • Do not sign any document without properly understanding all the particulars filled in or which has some blanks left unfilled. Check for the minute details, and if something which is not important is written, don’t sign before correcting them.

  • Avoid any third party involvement when you are arranging for loan. Work directly with the mortgage broker or the lender.

  • Do not allow any other person, however friendly you are with him/her, to use your name and Security number for the purchase of property.

  • Insist on getting all the closing documents and check that each and every necessary detail is mentioned appropriately. Keep a copy of all such papers and documents.

Hopefully I am able to provide you with the basic steps that you need to be cautious about to avoid mortgage fraud. Please do give your suggestions or comments so that I can cover up whatever I have missed out here.

Saturday, December 6, 2008

Effect of Credit Scores on Mortgage Rates

To talk about credit scores, it's one of the most important factors which needs to be considered for almost every kind of loans. Nowadays, most of the people are aware of this number thing. Let me just give you an idea of the term 'Credit Score' for them who are new in this field. It is a 3-digit number calculated using a mathematical formula based on the credit report information. And this report contains the history of whether you have paid your bills on time, your willingness to repay your debts, any open credit, your employment record and all such information that will affect your credit worthiness.

The basic concept of credit score is to determine who will qualify for a loan. When qualified the next two crucial factors will be the interest rate and the credit limits. Based on this score, you will be judged by the lenders for any future investments. A high credit score means that the chance of getting the mortgage loan approved is much more, and possibly with lower rate of interest. They are more likely to get prompt responses from the lenders, who could also propose low down payments. You can also get an offer of a higher loan amount, provided you have a bit of luck too. Naturally, with low credit score you are prone to rejection than approval. Here the risk factor involved increases a lot which in result affects the mortgage financers and refuse to approve the loan, to be on a safer side.

The credit scoring system is decided by the three major credit bureaus, namely Equifax, Experian and TransUnoin. The credit scores can be categorized as low or high as defined by the mortgage industry. Generally, the range of 760 and above is considered the highest tier. You are well placed here in the market of getting loans and need not worry. If your score lies in the 600 to 700 range, you won’t be having any problem in getting the loan but the interest rate would be higher. But a score around 500 has the least possibility of loan approval. You have to work hard and shop around in order to qualify for the mortgage loan.

As you know, this three figured digit not only affects the mortgage rates but also other factors like applying for a car loan, getting a student loan, how much you have to pay credit and the insurance policies. So it’s a wise decision to keep checking your debt, do the payments and update your credit score for better loan opportunities.

Please feel free to give your comments and valuable suggestions to cover up whatever I have missed out here. All comments will be highly appreciated.

Tuesday, December 2, 2008

Some Basics on Mortgage Refinancing

Refinancing is a process of replacing your current mortgage loan, usually at a reduced interest rate, to gain better use of equity. That is to pay off your existing debts with another new loan, based on more suitable terms that you can afford to manage. It is also known as 'Loan Consolidation' and is generally done to improve the overall cash flow.

In recent years, the graph representing the idea of refinancing your mortgage among Americans, is showing a considerable rise of its usage. If you go by the statistical analysis done by the Mortgage Bankers Association of America, refinancing hit an all time high in 2003 which maintained its position in both 2004 and 2005. However you need to consider certain steps to make sure you get the better deal. Some of them are:

  • Check Whether you should refinance your mortgage.
  • Get to know about the various kinds of mortgages available and try to understand them.
  • Be aware of the disadvantages of mortgage refinancing.
  • There will be some closing costs and fees associated with the new loan, you need to consider them as well.
  • Find a mortgage broker and pick the right, rather the best one for you.

So its recommended to go, shop around and get the updated information on refinancing. Also there are a number of Refinance Calculators available online that are easy to use and you can estimate the total costs and savings, according to your needs and requirements.

Monday, December 1, 2008

Did you know about the Tax Benefits of HomeOwnership?

"Owning a home is a keystone of wealth...both financial affluence and emotional security"
Probably, one of the biggest dreams of an American is to own a home. And this is one of the most important decisions in terms of investment. But are you aware of the fact that borrowing to pay for one is a Taxpayer's dream? This is because home ownership is associated with many tax benefits.

Let me brief you with some of the tax benefits. However you are advised to consult a tax professional for further details.

Deduction of Mortgage Interest
For most people, the biggest incentive from owning a home is that the mortgage interest is tax-deductible. This deduction, which is applicable up to a limit of $1 million, applies to any type of home - like a new one, a second home or if you are refinancing. In case your mortgage loan exceeds the limit, then some of the interest will not be deductible. In addition to this, there's also "Home Equity Loan" exception, where you are allowed to deduct interest on an additional $100,000 debt for any purpose. But do remember that the loan is secured by your home, failure to pay the payments could make you lose your house to foreclosure.

Real Estate Tax Deduction
Homeowners are also provided with the facility of deducting their real estate taxes, irrespective of taxes imposed by the state, county, township or any other local government body. The only condition being that the person who owns the house can claim the deduction.

Deduction of Closing Cost
When you buy a home, you usually pay "points" to the lender. These 'points' are nothing but the fees charged by them when you are taking a loan secured by your home. Together with points, there are generally a number of closing costs. For example, the fees associated with attorney, title search, documentation, etc., all belong to the list of closing costs. You can also deduct points and the closing costs as mortgage interest, provided you meet certain requirements.

For further details and information on tax benefits do check out the favorable treatment of home ownership by Internal Revenue Service (IRS).

Thursday, November 27, 2008

Pre-qualify for a Mortgage Loan

Pre-qualification is just a term used for an assurance given by the lender in form of a certificate or letter specifying the maximum loan amount. This helps you to determine your budget, before buying a house or any such property. Based on your financial status, like your earnings, credit history, savings and debt, they decide the net mortgage loan you can qualify for. In short, with the help of financial information you provided, the lender calculates your affordable loan. This however is useful for all the three parties involved: the lender, you (the borrower) and the seller.

The pre-qualify process is usually free of fee payment. Also you can go online, like mortgage calculator, to find out how much you qualify by just giving the details of your income, credit score and debt ratio. Once you are done with this pre-qualification, you can go ahead to decide how much loan you would like to take. Few of the advantages of using pre-qualify method are:
  • Thousands of dollars are saved during negotiation with the seller and paying a lower rate.
  • You get to know your actual price range.
  • You will be considered as a serious buyer for the real estate agents.
  • The overall procedure of mortgage application will be faster, since you have already provided the lender with your financial information.

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Tuesday, November 25, 2008

Why do you need Mortgage Brokers?

At first let us consider the term Mortgage Broker. Just like an insurance broker, a Mortgage broker works with you to secure the deal that best suits your needs. He is basically a middleman between the lender and the borrower. The Mortgage brokers are independent and trained professionals dealing with various financial institutions, instead of only one, which helps them to assist you with different kinds of mortgages available as per your needs and requirements. The brokers are given a commission based on the borrowed amount.

In today's fast paced life, the most important factor is Time. Everybody is so much involved with their day to day activities, there is hardly any time to spend on researching the mortgages available, about interest rates, fees and closing cost, and their comparisons. Moreover, if you approach any lender, a number of forms need to be filled again and again for the several approaches,thus being a time consuming business. Whereas, with a Mortgage broker, the form filling work is done only once that they use for different quotes. At the same time, you are able to access around 75-100 lenders, banks, investors and other financial bodies.

The mortgage market is not that simple to understand for an individual who does not have any finance background. Undoubtedly a broker is far better placed and also have the details on the latest offers available. Sometimes, there might be situations when you have a bad credit rating, like you got to take in more loan than the property is worth. Normally no one but a mortgage broker can take the best possible route. Choosing the wrong one can cost you huge amount of money. Mortgage Brokers excel because of their knowledge of financial institutions, and thus can help you save on your mortgage dollar.

So don't forget to call your Mortgage Broker first!

Friday, November 21, 2008

Which one to choose : Fixed Rate Mortgage Or Adjustable Rate Mortgage?

It is a difficult task to choose between a fixed rate mortgage or an adjustable rate mortgage (ARM), as it greatly depends on the present market scenario and on your individual needs. Let me briefly describe these two types of mortgage rates and their pros and cons.

Fixed Rate Mortgages

According to these loans you have to pay the same amount of interest throughout the term of the loan.That is here you are able to fix the interest rate that suits your needs. Although the interest and the principal varies for every month,the net payment remains the same,which is very convenient for most of the homeowners.

The Fixed Rate is quite simple to understand and helps you to know where you'll exactly stand in near future.The main advantage being you are not affected by the sudden hike in the interest rate. This is recommended for long term loan when the interest rates are comparatively less.

However, once you have the fixed rate mortgage, it is a cumbersome task to take advantage of the dropping rates as it needs a lot of paperwork and an extra cost in refinancing.

Adjustable Rate Mortgages (ARMs)

With an adjustable rate mortgage, the rate of interest is on a constant move, of ups and downs.Most of us are attracted by this because initially you need to give a "teaser" (discounted) interest rate , which is much less than the fixed rate. Then after a certain period of time,the rates will fluctuate according to the general market value.

This is a good option for those people who are aware that their income will increase in future and/or you are about to sell your house within 5 years or so. Also you don't have to refinance when the interest rate falls.

Hope now you have some idea on which of these mortgage rates will be beneficial for you. Regardless of the choice you make, do remember to check out all the probabilities required to avoid costly mistakes.

Wednesday, November 19, 2008

Insure your Old Age with Reverse Mortgage

It is truly said that old age is accompanied by its own share of problems.At this stage of life the expenses are generally much more than his/her earnings. Mostly its the limited pension that is the source of income. Together with the health care problems and financial insecurity comes the dependency factor which prevents them to lead their lives respectfully. To avoid such scenario and get financial security, insure your old age with Reverse mortgage.

What is Reverse Mortgage?

In short, it's a government sponsored and insured loan for the senior homeowners, who have attained the age of 62 years or more, to convert the home equity into cash. They can take it as an ongoing income or a lump sum amount. One of the conditions being that your home must be your own primary residence during the period of the loan.That is here you are using your home as your tax-free income provider, without making any repayment until you are moving out or selling the property. So its basically a life time financial support for the senior citizens.

So if you are one of them who would like to spend your golden old age independently without any financial crisis and with self respect, go for Reverse Mortgage. However please do consult a professional for the better results.

An Acronym for Mortgage Payment : PITI

In many situations when you are dealing with Mortgage Loan or some related articles, you will come across the term PITI. Though the pronunciation is similar to the word 'pity', obviously the actual meaning is far too different. PITI is an acronym used by the lender for the periodic, typically monthly, mortgage payment.The abbreviation stands for the four components: Principal, Interest, Taxes and Insurance. Let me give you the basic idea of PITI.


Mortgage principal is referred to as the original balance of your loan. As the monthly payments are made you are gradually reducing the outstanding amount together with the interest due for that month. You will also notice that in the early years the principal component is very less as compared to the later stage of the mortgage period.


This is a percentage of the principal amount that is charged by the lender from you to give the loan to purchase the property. There are two types of interest rates: Fixed and Adjustable. In the first case, the interest rate does not alter during the term, whereas for the latter, the rate changes at regular interval of time.


The third component represents the taxes associated with mortgage loan. It can be a considerable portion of your overall mortgage loan, and the rate changes for different places. Hence it is advisable to check out the local tax rate before investing.


Homeowner's insurance provides protection to your property from unforeseen calamities or damages.This is generally collected by the lender to pay your insurance company.

You can watch this video to further clear your concept of PTTI.

Friday, November 14, 2008

What is Mortgage Insurance?

"The only thing certain about life is that nothing about it is."
The Mortgage Insurance refers to a special type of insurance policy which helps you to buy any property with a low down payment. This kind of policy guarantees to repay your mortgage loan in the event of death, or perhaps disability of the mortgagor (i.e,one who borrowed the mortgage). This ensures that your family need not worry atleast for ownership of the property in your absence.

MI provides a level of security to both the mortgagor and the mortgagee. It protects the financier from excess risk when around 80% or more of the total amount is taken as a loan.

*Private Mortgage Insurance - It is a default mortgage insurance provided by the private companies.In other words,this is to protect the lenders from loss in case of default (who has not met legal agreement).Hence another term for PMI is Lenders Mortgage Insurance or LMI.In this case, comparatively lower down payments are allowed.

*Mortgage Insurance Premium - Similar to PMI, this also provides protection for the lender in the event of non-payment,however here they are generally Government loan products.

Regardless of the type of mortgage insurance you're on, like business mortgage, rental mortgage,medicine mortgage, home mortgage or whatever, the most important aspect is to have a Mortgage Insurance.

Wednesday, November 12, 2008

Figure out Monthly Payments using Mortgage Calculator

Everybody is familiar with the word Calculator. It's an electronic device used for performing a wide range of simple and complex computations. As the name suggests, we can infer that Mortgage Calculators must be used for calculations of mortgage loans.

Mortgage Calculator is an important software tool which is a very convenient way for the loan applicant to calculate various mortgage offers. It can be used based on the information given by the borrower.The factors, for example are, the loan amount, the down payment, interest rate options, estimated annual tax and annual insurance. The basic format looks somewhat like this:

If you are interested in determining your monthly payments, use the Calculator.

The figures are only a guide, please do refer a professional on Mortgage Loan for the exact result.

Tuesday, November 11, 2008

Home Mortgage in Layman Words:

A home is more than just a house — it’s the foundation of a long-term financial and emotional security for you and your family.These days you hear people talking about their home mortgages a lot . Home mortgages are also everywhere and yet many people still have a idea about what a Mortgage really is.

A mortgage is not really a loan but a method of using property as security for the payment of debt. It is a document that protects the interest of the lender with your property itself. To be more specific regarding the terminology, you are the borrower who is referred as the mortgagor, and the lender,who takes and hold your mortgage, is called the mortgagee.

Home mortgage can be used for purchasing the home, constructing a new home, refinancing the home, or restructuring the home. You need to compare various loan lender information to fill the form, which contains details like loan amount needed, loan purpose, estimated value, monthly income, borrower contact details etc. The way it works is : the buyer and the seller comes to an agreement regarding the final amount of money required for down payment,to purchase the home.The remaining is then figured in with the current taxes,interest rates,insurance costs and other related charges in relevance to the type of loan you are getting.This net amount is what we call Mortgage.

The most important thing for you and your family is obtaining the best program paired with the best interest rate. With all of today’s conveniences, obtaining a home purchase mortgage is really pretty simple.