Falcon Academy

Archive for January, 2010

So you need some money for unexpected expenses. The roof took on a leak, the deck rotted through and a new family addition tightened living space. You bought too much Christmas on credit now the bills are overwhelming. Junior got accepted to that Ivy League school. Tapping into your home equity can help ease your financial burden. Before deciding on borrowing ask yourself a few questions first.

1. Do I need a home equity loan or a home equity line of credit?
If interest rates are low, a loan is a smarter choice. You can borrow the full amount at once ant get a fixed rate on the entire amount. The advantage allows you to know how much to budget for monthly payments.

On the other hand, a line of credit will let you borrow from a revolving line of credit with variable interest rates. You access the money just like a checking account by writing a check for the purchase. Then the amount used is paid back. If the rates fluctuate, your payments will also.

2. Are there restrictions on how I use the borrowed money?

Most loans and lines of credit can be used for a variety of things. Whether you want to consolidate all your debts into one, do some home improvements or pay for college tuition, an equity loan or line of credit can be the answer.

Be sure to ask yourself if you can afford the extra payments. Is your budget flexible enough? Will adding another payment won’t over-extend a tight budget?

3. How do I find the best interest rate?

Your best bet to determine the variety of interest rates offered by financial services companies is to shop around. Ask questions. Try to find a company your comfortable doing business with. Look for ones that don’t charge application fees. Ask about charging a penalty for early payoff.

4. What is the term of the loan? Is it better to get a 5- 10- or 15 year term?

You’ll want to determine what your financial future strategy is when deciding on the term of the loan. If you’re planning to retire soon, you may want to ask for a shorter term. The longer your loan terms, the lower your monthly payments.

5. Are there any tax advantages to borrowing with a home equity loan?

There are many good tax advantages to home equity loans and lines of credit. The interest is tax deductible on your federal income tax. Be sure to consult your tax advisor before applying for a loan to be certain of the deductions.

6. Is the loan application lengthy and how long before I get an answer?

More and more lenders are allowing consumers to apply for loans over the phone or on the Internet. It can take as little as 10 minutes for the application process. And many pre-approvals can be delivered in a few hours. Final approval often takes any where from 5 – 10 days while evaluating your house is taking place. Often the entire process can be completed without leaving your home with final documents and checks being sent through the mail.

Tapping into your home equity to ease financial burdens can be a good idea. Do your homework. Shop around. Set up your budget. Use the money for what you need.

1. Interest Backdating
Most card issuers charge interest from the day a charge is posted to your account if you don¹t pay in full monthly. But, some charge interest from the date of purchase, days before they have even paid the store on your behalf!

REMEDY: Find another card issuer, or always pay your bill in full by the due date.

2. Two-Cycle Billing
Issuers which use this method of calculating interest, charge two months worth of interest for the first month you failed to pay off your total balance in full. This issue arises only when you switch from paying in full to carrying a balance from month to month.

REMEDY: Switch issuers or always pay your balance in full.

3. The Right To Setoff
If you have money on deposit at a bank, and also have your credit card there, you may have signed an agreement when you opened the deposit account which permits the bank to take those funds if you become delinquent on your credit card.

REMEDY: Bank at separate institutions, or avoid delinquencies.

4. Fees Are Negotiable
You may be paying up to $50 a year or more as an annual fee on your credit card. You may also be subject to finance charges of over 18%.

REMEDY: If you are a good customer, the bank may be willing to drop the annual fee, and reduce the interest rate ‹ you only have to ask! Otherwise, you can switch issuers to a lower- priced card.

5. Interest Rate Hikes Are Retroactive
If you sign up for a credit card with a low “teaser” rate, such as 7.9%, when the low rate period expires, your existing balance will likely be subject to the regular and substantially higher interest rate.

REMEDY: Pay in full before the rate increase or close the account.

6. Shortened Due Dates
Most card issuers offer a 25 day grace period in which to pay for new purchases
without incurring finance charges. Some banks have shortened the grace period to
20 days‹but only for customers who pay in full monthly.

REMEDY: Ask to go back to 25 days.

There are many great reasons to refinance. With lower cost, adjustable rate, and 0-down options, traditional loan programs like 30-year or 15-year fixed rate mortgages don’t always allow us to meet our financial goals. Today, even reducing your mortgage interest rate a little can save you big over the life of your home loan. Take a look below at 5 great reasons to refinance.

1. Lower Your Monthly Payment
If you plan to live in your home for a few years, it may make sense to pay a point or two to decrease your interest rate and overall payment. Over the long run, you will have paid for the cost of the mortgage refinance with the monthly savings. On the other hand, if you plan on moving in the near future, you may not be in your home long enough to recover the refinancing costs. Calculating the break-even point before you decide to refinance can help determine whether it makes sense.

2. Switch From an Adjustable Rate to a Fixed Rate Mortgage
Adjustable rate mortgages (ARMs) can provide lower initial monthly payments for those who are willing to risk upward market adjustments. They’re also ideal if you don’t plan to own your property for more than a few years. However, if you have made your house a permanent home, you may want to swap your adjustable rate for a 15-, 20- or 30-year fixed rate mortgage. Your interest may be higher than with an ARM, but you have the confidence of knowing what your payment will be every month for the rest of your loan term.

3. Escape Balloon Payment Programs
Like adjustable rate mortgage programs, balloon programs are great when you want lower rates and lower initial monthly payments. However, if you still own the property at the end of the fixed rate term (usually 5 or 7 years), the entire balance of your mortgage is due to the lender. If you are in a balloon program, you can easily switch over into a new adjustable rate mortgage or fixed rate mortgage.

4. Remove Private Mortgage Insurance (PMI)
Zero or Low down payment options allow homeowners to purchase homes with less than 20% down. Unfortunately, they also usually require private mortgage insurance, which is designed to protect the lender from loan default. As the value of your home increases and the balance on your home decreases, you may be eligible to remove your PMI with a mortgage refinance loan.

5. Cash In on Your Home’s Equity
Your home is a great resource for extra cash. Like most homes, yours has probably increased in value, and that gives you the ability to take some of that cash and put it to good use. Pay off credit cards, make home improvements, pay tuition, replace your current car, or even take a long-overdue vacation. With a cash-out mortgage refinance transaction, it’s easy. And it’s even tax deductible.