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Mortgage Articles

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posted by Prasanta @ 3:20 AM

Importance of Mortgage "Financing and Refinancing"

• Do you know what asset based lending actually is?
• Have you any idea of impact of interest rates in mortgage refinancing?
  
  Every prospective homeowner needs to know the basic financing and refinancing fundamentals before going for a mortgage deal. This article “Significance of mortgage financing and refinancing” is an effort to acquaint you in this direction.
  
  Mortgage Financing is a financing mechanism for the purchase or refinance of real estate, where the borrower pledges real estate to the lender as a security for the loan. It is recommended when the borrower wants to purchase a property, consolidate debt, refinance etc. It is a better way to take equity out of the property.
  
  Every person wants, to get at least the optimum financing required to have the home purchase deal. Mortgage financing comes as a stand-by for those who have difficulty in qualifying for a traditional mortgage loans. It is a very simple solution to home ownership, provided you have bad credit or very limited cash resources.
  
  When going for the mortgage financing the following questions are asked by the lenders:
  1. What is your gross income per month?
  2. What are your current monthly liabilities?
  3. How much money do you have available for down payment?
  
  There are varieties of finance programmes available in the market, at a very competitive rate. Getting a good and a reliable lender is a big challenge, which is confronted by many mortgage lenders. Getting a good lender is as important as getting a good mortgage deal. While shopping around for a mortgage lender it should be kept in mind, that the mortgage lender should be the member of mortgage bankers association of America. ( MBA ). Any mistake, in selection of a mortgage lender can make a mortgage financing process a bit confusing.
  
  Benefits of Mortgage financing:
  There are certain pros of mortgage financing. They are as following-
  1. It is a good tool for owners who want to make the purchase happen.
  2. It allows you to use your cash flow for other urgent needs.
  3. It is very beneficial for a prospective buyer as the terms of deal are very negotiable.
  
  Presently, when the rates of interests are continuously showing up an upward trend, many prospective homebuyers are thinking about refinancing their current mortgage deal.
  
  Mortgage Refinancing is a transaction in which a new mortgage is issued that is greater than the unpaid principal balance of the previous mortgage. It is a vehicle for taking out the cash from home’s equity.
  Before refinancing it is must that you should first determine your financial mortgage related goals-
  1. Are you looking to improve your monthly cash flow?
  2. Do you want to reduce your mortgage term?
  3. Do you want to spend the equity that has accumulated in your home?Only after the settlement of these goals, the obtaining of right mortgage for particular need could make any sense.
  
  Benefits Of Refinance Mortgage:
  Any mortgage product is compared by its pros and cons. In the case of refinance mortgage, the advantages are more than that of disadvantages.
  The following are the benefits of taking a refinance mortgage. It helps the borrowers to -
  1. Lower current interest rate.
  2. Convert adjustable rate mortgage ( ARM ) to a permanent fixed interest rate.
  3. Convert fixed interest rate into a ARM.
  4. Turn equity into cash.
  5. Convert to a shorter term to pay off the loan more quickly.
  6. Eliminate mortgage insurance.
  7. Lower monthly payments.
  8. Create cash flow.
  
  However, refinancing is mostly opted when the rates of interest are 2% lower than the current mortgage. Besides, by taking up refinancing you can avail benefits of no-cost mortgages, which include no non-recurring closing costs. You can also analyze how soon you can save money on your monthly mortgage payments.
  
  Concisely, both mortgage financing and refinancing are good financing mechanism, and play a vital role in the purchase and refinance of a real estate.
  

posted by Prasanta @ 3:01 AM

Bankruptcy "Fundamentals"

Nothing is certain in this world. We humans cannot predict the future. A millionaire business man today, can become an insolvent tomorrow due to financial fluctuations. We are only the helpless players, in the hands of destiny. Neither we can do anything to avoid themisfortune, nor can we run away from it. Great men have always said “One should be bold enough to face whatever bad happens”. So let’s talk about a financial failure, called as bankruptcy and discuss the various remedies for it.

Bankruptcy refers to that financial position in which a person is totally ruined, impoverished and totally depleted of all his financial belongings. In simple terms, it is a declared inability of an individual or a firm to pay to their creditors. It is a legal process.

There are two ways by which a debtor is declared bankrupt. They are:
1. Involuntary Bankruptcy- where creditors or lenders file a petition against the debtor (person in debt).
2. Voluntary Bankruptcy- where the debtor files a petition claiming inability to meet creditors' requirements. A court decides whether or not a debtor can declare bankruptcy. Borrowers, who have undergone bankruptcy, usually agree to give up their assets and control of their finances, so that they can get protection from legal action by their creditors.

In general, a bankruptcy process involves:
1. Debtor- person who files bankruptcy, also known as “the petitioner”.
2. Bankruptcy judge- Who presides over any hearings on dispute.
3. Creditor- any person, businesses, corporations or governmental agencies that claim money from debtor.
4. Case trustee- a person representing the interest of all unsecured creditors.

Bankruptcy is divided into four types, called chapters. They are:
1. Liquidation bankruptcy or chapter 7- It is commonly used by individuals who simply want to walk away from their debts. It may also be used by businesses that want to terminate their operations and liquidate their assets.
2. Wage earner plan bankruptcy or chapter 13- It is generally used by people with stable incomes, who want to repay at least some of their debts but currently are unable to do so.
3. Chapter 11- It allows the debtor to remain in operation while working out a reorganization plan, in which he proposes a plan of paying or settling the debts.
4. Chapter 12- It is designed to allow family farmers to remain in the business of farming, while reorganizing and attempting to pay off their debts.

Features of Bankruptcy are as following:
1. When a debtor is declared bankrupt, he is discharged of most of the financial obligations.
2. It allows the debtor to resolve his debts through the division of his assets among his creditors. 3. The bankruptcy rate is one indicator of the general economic wealth and prosperity of a country.
4. High bankruptcy rates may indicate a weakening of the overall economy.
5. It gives a debtor an opportunity to have a fresh start, by eliminating all debts and obligations.

Alternatives to Bankruptcy:
Anyone in financial trouble undoubtedly receives many letters from creditors demanding payment on debts owed. Even a very demanding creditor may have a change of heart because they know that bankruptcy means that they may only get a fraction of what is owed them. To avoid such circumstances the following alternatives can be undertaken:
1. Anyone confident that his or her financial problems are only temporary may want major creditors to accept new repayment plan that is-
a. To accept reduced payments for a short period.
b. To accept a short delay in making payments.
2. It is better if one takes the help from consumer credit counselor.

posted by Prasanta @ 3:07 AM

Significance of “Down Payment”

Home purchase is the biggest purchase that everyone makes within his/her life tenure. For this a person requires considerable amount of savings. Depending upon the circumstances and conditions, every person at least once goes for a mortgage deal.

Financial Impediment is a major hurdle, which comes in the way of fulfillment of individual’s home ownership dream. Even if a person goes for a credit for purchasing a home, accrued high interest rates on the borrowed principal amount, will change his/her life into a real misery. So a borrower is required to have savings in order to get a financial stake and to build a portion of equity in the home he/she purchases. Let us discuss about a tool known as “Down payment.”

The down payment presents the biggest single obstacle to homeownership for most buyers, especially first-time home buyers and those in lower income brackets. Borrower’s determination of how much money of he/she can have for down payment and closing costs affects almost every aspect of buying a home.This includes how-
1. He/She write his/her purchase offer.
2. The loan programs he/she qualify for.
3. Shopping for interest rates.

Down Payment is an initial, partial payment in cash that the borrower pays towards the purchase price of a property. The down payment is the difference between the purchase price and the mortgage amount.
1. It is traditionally 10 to 20 percent of the purchase price.
2. It is not included in the mortgage amount.

Relationship with Loan to value (LTV) ratio-In percentage the down payment is one minus the loan to value ratio.Down payment serves as a major criterion which greatly affects borrower’s ability to qualify for a loan. The first thing a borrower should do is to figure out how much money he/she has for the purchase. Most mortgage lenders require a cash down payment of 5, 10 or 20 percent of the sale price of the house.

Pros and Cons of Larger and Smaller Down payments:
1. By making a larger down payment borrower is borrowing less, and the amount he/she is borrowing is being paid off over a shorter period.
2. The larger the down payment, the less will be the borrower’s home costs in the long run.
3. Whereas a larger down payment on the borrower’s part, compels the lender to makeallowances or exceptions to the purchase rules.
4. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.
5. Small down payment by a borrower makes him/her liable to conform to the lenders underwriting guidelines.

There are many Down payments programs offered by the lenders. Few of them are:
1. 5% down payment program- 5% Down Payment program refers to that financing program which permits a borrower to make down payment of 5%, for getting a mortgage loan.
2. 25% to 30% Down Payment program- It refers to that financing program that permits the borrower to make down payment of 25 to 30 percent. It enables a borrower to enjoy the following benefits:
1. Lender may be willing to overlook past credit blemishes of the borrower.
2. The lender will approve borrower’s loan without verifying your income or both.

Negative Aspects Of Down Payment Program:But a down payment program has a negative side also. If a borrower come up short on the down payment, less than 20 percent of the purchase price, he may have to obtain private mortgage insurance to protect the lender before his/her loan is approved.

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posted by Prasanta @ 2:47 AM