Wednesday, July 26, 2006

Negative Amortization loans and Their Risks

The MTA (monthly treasure average) loans have become a very common type of loan in the mortgage industry. It has become very popular because it provides people the chance to afford a more expensive house. At the same time, it gives the home owner the flexibility to choose among four payment options every month.

In this article, we'll take a look at what this type of loan is all about, AND the main risks associated with it.

The MTA loans are based on the monthly treasuries average index; one of the most stable indexes in the market. By using this index, your payments won't change much during the first five years. Payment rates usually range from 1% to 2.95% for the MTA ARMS.

Please keep in mind that since the rates are so low, your monthly payment may not cover the interest charges causing the loan to create deferred interests (also called negative amortization.)
All MTA mortgage loans have a 5 year payment recast. A payment recast is a recalculation that is performed to figure out the payment necessary to repay the loan over the remaining 25 years. This is done by adding any deferred interest to the remaining loan balance and amortizing the payment over the remaining 25 years.

For example, A MTA loan of $400,000. After 5 years there has been $30,000 in deferred interest, your new loan will be $430,000 at the then current rate, amortized over the remaining 25 years. So, if your payment started at 1% or $1,286, in year one and rates were at 6.75% or higher, after year five, your new payment would be $2,970, or higher.

When you choose an MTA loan, you have four choices for your monthly payments each and every month:

1. Minimum payment option - The minimum payment accepted by the bank. Most of the time, it will cause deferred interests to be accumulated.

2. Interest only payment option - With this option, you only pay interests and you don't reduce the balance of the loan.

3. Full principle and interest - The same payment you would pay in a 30 year fully amortized loan.

4. 15 year amortization payment option - This is the highest of all payments but it's the one that reduces the balance of the loan the fastest.

Keep in mind that the MTA loan has several drawbacks:

1. It's an adjustable rate loan - No matter which one of the MTA's available you choose, these loans still have an adjustable rate. If you plan to live in your house for the next 30 years, you may be better off with a 30 year fixed mortgage.

2. MTAs usually require a minimum of a 5% - If you require 100% financing and wish for a low payment, you should consider 1, 3, 5 year interest only ARMS.

3. If you are tight with money, you may have to refinance the loan every five years (just before the loan is recasted and the monthly payments jump up.)

4. Also, if you choose this type of loan to afford a more expensive house, you may be in trouble when the payment goes up.

Please, take some time before deciding on choosing this type of loan. The most important advice I could give you is to talk to a certified mortgage broker who can study your financial situation and goals, and choose a mortgage that is suited to your needs.

In the next article, we'll take a look at how you can use MTA's in creative ways to fund your retirement, your children's education or the purchase of additional assets.

About the Author
For help on your mortgage needs in the South Florida area, please visit http://www.miamimortgagehome.com

Getsmart.com

Monday, July 24, 2006

The goodness of a bad credit mortgage!

A bad credit record becomes a stigma in any financial commitment. You lose your credibility as a borrower and it becomes a mountainous task to borrow a loan especially when you wish to build your own home. If such is the situation, you may secure a bad credit mortgage to buy your property.

You can procure a bad credit mortgage at a high rate of interest with a slightly shorter duration of repayment than the usual. It has become a common trend among lenders to demand a high interest rate to compensate for the greater risk involved with their money because of your not so perfect credit score. However, they have the legal rights of repossessing your property if you fail to pay off your loan amount.

You can apply for a bad credit mortgage as:
* First Time Buyer Mortgage if you are buying a house for the first time;
* Buy to Let Mortgage when you want to own a house to rent it out;
* Council Right to Buy Mortgage only when you successfully meet the different criteria fixed by the Council.

Of course, with ever-growing needs and responsibilities, it is very humane to miss out your repayments on a number of occasions and spoil your substantial credit record beyond repair. You also might not have faced any CCJ but your default and arrears are enough to ruin your credit history.

Moreover, borrowing a bad credit mortgage entitles you to repay your monthly instalments in time. You need to keep up your repayments to avoid further damage to your credit record and to secure your property. A bad credit mortgage is only a financial privilege that you get against your bad credit record.

Besides, you can always compare different interest rates available with different lenders and the flexible repayments options they provide on the Internet. Sign a good offer on a bad credit mortgage!

About the Author
The author is a business writer specializing in finance and credit products and has written authoritative articles on the finance industry. He has done his masters in Business Administration and is currently assisting Bad-Credit-Mortgage-Choice as a finance specialist.
For more information please visit: http://www.bad-credit-mortgage-choice.co.uk


Getsmart.com

Wednesday, July 19, 2006

The Use of Home Equity Loans - Wise or Not Wise?

Over the past few years many Americans have established lines of credit secured by the equity in their homes or have borrowed a lum sum amount secured by their home. For marginal borrowers this can turn out to be highly risky as it exposes these families to the loss of their homes.

Lenders tend to quickly change colors from friend to foe in times of financial crisis and will "take it away if you can't pay".

Prior to mortgaging or refinancing a home you should consider what your families finances would look like if one or more of your family members living in the home lost their job or came down with a serious illness.

How long could you keep the home payments current if there was an unfortunate long term loss of family income?
In spite of the dangers of refinancing or taking out a home equity loan there are times when it may in fact be wise.
Perhaps credit card debt has gotten out of hand. You can get a home equity loan at much lower rates, pay off the credit card debt, and lower your monthly payments, perhaps as much as by 50%.

A word of warning, however. You must not run up your credit card balances once again or you will end up in even worse financial shape than you were to begin with. The second time around trying to carry high credit card debt and a home equity loan payment may be more than painful. It may be financially fatal.
It would be far safer to avoid temptation by cutting up your credit cards and using a debit card instead.

There are other occassions when a home equity loan may be justified. Perhaps you wish to start your own business and are willing and able to take the risk that things may not work out as you plan.

Your home equity will likely be the cheapest source of start up capital that you will find other than going hat in hand to family members. For most families a "friendly" family loan is not recommended as the resulting strife that often takes place if things don't go as planned causes painful family problems.

Even when all does go well you may get tired of listening to advice from your unofficial business partners.
Perhaps you wish to purchase an existing business, one that should earn you a good income for a long time to come. Again your cheapest source of capital would likely be a home equity loan.
In general, one should consider a home equity loan when the loan proceeds are used to very likely improve ones financial position. This would be a wise use of the loan proceeds.
One should use extreme caution in using a home equity loan to purchase additional consumer goods, say a large expensive flat screen TV set or a new SUV.

The worst example of the use of a home equity loan that I know of was a couple who took out a loan in order to go to the Superbowl. Just think of how much that Superbowl trip will really cost over the years as interest payments are added in. What a terrible short sighted financial decision.

My advice. Use a home equity loan only to improve your financial position or to raise funds in a true emergency situation. Using a home equity loan to purchase things that will only lose value is a misuse of the loan proceeds that could cost you what is probably your most useful and valuable possession ... your home sweet home.

About the Author
David is an Internet business developer who works from Thailand. His newest project is Travel Cheap Flights Finder.Home Equity Loans information may be found at SmartLoanShop.

Home equity rates as low as 5.74% with intro rates as low as 4.74%

Sunday, July 02, 2006

Personal Loans Online

We now live in a world where everyone is on the go twenty-four hours a day, seven days a week. Trying to balance work and family is the name of the game for many people today. On this busy schedule when most people do their banking through the local drive through, when can a person find the time to apply for a personal loan? The truth is your answer is just a click away.

There are many types of loans available. Personal loans that you can get online are designed to be for any purpose you might want to use them for, for instance, a large home improvement project, a vacation, or some unforeseen expense. Whatever the need, a personal loan applied for online can save you time and money.
Personal loans online usually sport an upper lending limit. This keeps both the lender and the person borrowing from exploiting these types of loans. What sets a personal loan apart is that it is easier to obtain and in the long run you pay a lower interest rate. A personal loan also allows you to borrow what you need and nothing more.

A typical fixed rate personal loan offered online in the amount of $5,000 plus optional repayment protection insurance premium of $1,058.74 over 48 months is 7.9 percent. This is repayable by 47 monthly installments which fit pretty well into most peoples' budgets. The rates of course may vary depending on which on-line service you use. But there are some pretty low rates out there if you just do the research.

The opportunity to apply and receive an online personal loan in this fashion is catching on quickly. Even regular banks are jumping on board to offer their members a chance to apply for personal loans online. Some experts believe that the future of banking may well be internet based. This would allow not just the applying for personal loans but also home loans. Imagine the connivance of being able to come home from work and just hit a button in order to apply for a loan. The way it works currently is you fill out the paperwork on-line and then the money is deposited into your account when the loan is approved. Everything is completed online.

When you do apply for an on-line personal loan follow some extra precautions such as get a written copy of the rate quote and make sure to have copies of everything before you sign. The ability to get online personal loans is a new service and many loan institutions are still working out the kinks.

About the Author
Connie Barker is the owner and operator of several financial websites which deal with Personal Loans Online