There is more than one type of loan. Depending upon your situation, you might find that what works in one circumstance does not work in another. This means that it is very important for you to educate yourself about different kinds of loans so that you are more prepared when you speak with a lending officer, or with a financial counselor. It is especially important that you understand what the different sorts of loans entail so that you are not pushed into making a wrong decision by a lender that is more interested in a percentage rather than your financial well being.
Understanding the difference between a secured loan and an unsecured loan.
At their very basic, loans come in two kinds: secured and unsecured. Whether you are looking into business loans or personal loans, they will either be secured or unsecured. Credit cards, which are basically consumer loans, are also denoted with these names. However, you will find that most credit cards are unsecured, unless they have a very high limit.
A secured personal loan is one that requires a form of collateral. Collateral is something of value that the lender can possess if you fail to meet your obligations. A home loan is a secured loan. If you default, then the lender can take your home to cover its costs. Auto loans and car title loans are other examples of this. click here to read more
Here is a useful guide to secured loans. A secured loan is a loan that a lender provides on the understanding that a property is secured against the loan. Secured loans are also commonly known as a homeowner loan, home loan or home owner loan.
Secured loans can be a sensible way to borrow for certain expensive items, such as home improvements or debt consolidation.
This type of loan is usually provided with a lower interest rate than an unsecured loan because you will have secured your property against it. They are normally quicker to arrange because the lender has some security to offset against the loan should you default on the repayments.
A secured loan enables homeowners to borrow capital and offset the risk against the value of their property. This means that anyone taking out a secured loan is effectively using their property to guarantee the loan. If the borrower fails with the repayments, there could be a possibility their home is at risk.
Because the loan is secured against your home, the interest rate should be cheaper than an unsecured loan and you may be able to borrow more. One of the major benefits of a secured loan is that the interest rate charged by the lender tends to be significantly lower than that of an unsecured loan.
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These days, as people scramble for new and more creative ways to finance buying a home, the interest only mortgage is becoming more common and well known. An interest only mortgage is one in which you have the option of paying only the interest (or just the interest and a portion of the principal) each month in the early years of the mortgage loan. Interest only periods may be applied to adjustable rate mortgages, or 30 year fixed rate mortgages, depending on the lender.
In a traditional mortgage, each month your mortgage payment is divided in two parts - one part is paid on the interest charge, the other on the principal of the loan. The main feature of an interest only mortgage loan is that during a specified initial period of time - usually three, five, seven or ten years - you may choose to make a payment of the interest portion of the loan only. The option is flexible. One month you may choose to make an interest only payment, another you may choose to make an interest-plus-part-of-the-principal mortgage payment, or a full, standard monthly mortgage payment. Needless to say, an interest-only payment will be significantly less than a traditional mortgage payment.
The flexibility of an interest-only mortgage allows you to adjust your mortgage cost on a month by month basis, giving you more control over your monthly cash flow. In any given month during the interest-only period, you have the flexibility to pay as much or as little on your mortgage as you can.
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All About Mortgage Refinancing |
Refinancing your home is essentially a second mortgage, and is often referred to as such. People refinance their homes and take out second mortgages for many reasons: a lower interest rate on their home, large medical bills that need to be paid off, credit card balances, student loans and other high-interest debt. Refinancing can save hundreds of dollars a month that can be put towards other, pressing expenses.
Before refinancing, it's imperative that you shop around for the best deal possible. Research the market and find out what percentage the most current interest rates are at. If they are higher than or similar to your existing interest rate, wait until the market lowers to refinance. According to most mortgage experts, the best time to refinance is when the market percentage is at least 2 or 3% below the current interest rate on your home.
To put it into perspective, let's take an individual who has a 7% interest rate on their current mortgage, which is at $400, 000, payable over a term of twenty years; they are paying $3101 per month. Then the market drops to 3% and they refinance. They save $800 a month, and their total becomes only $2218 per month. The payment would be even lower ($1,686) if they extended the second mortgage to thirty years. From this example, you can see that refinancing your home can be an excellent way to save money and take a lot of stress off your pocketbook.
A couple of the most common rate options for refinancing your home are the fixed rate refinance loan and the adjustable rate mortgage loan. If you're looking for a steady, slower fixed rate, consider a fixed rate loan. A fixed interest rate is ideal if you plan on being a long-term homeowner. This loan is typically spread out over a period of fifteen to thirty years and comes with a fixed interest rate that never changes, making it ideal for a family or individual who plans on long term habitation.
However, if you plan on selling your home within five years or so, you may be best off choosing an adjustable rate mortgage. This entails paying off your house quicker, as well as higher house payments, but it also saves you more money in the long run because you're paying less interest than you would on a ten or twenty year loan. Keep in mind, though, that an adjustable interest rate does rise and fall with the market, so it entails somewhat more risk than a fixed rate loan. To this end, make sure you talk to your lender in depth about this option and the market trend in the next couple of years.
If you decide to refinance your home, use common sense and do your research. There are many good rates and many good lenders, so take the time and find the one that best suits your needs. A great place to look for lenders and compare rates is the internet; there are a number of helpful sites with tools like mortgage rate calculators to help you get an idea of your options. Most online lenders also offer a free consultation, so don't hesitate to get a bunch of numbers and call.
Author MortgageRefinancing-a1.com offers money-saving mortgage refinancing information, including a mortgager calculator, for the interested homeowner.
Energy Efficient Home Improvements |
Rising energy costs affect every homeowner. If you are planning a home improvement project, it's important to look at ways to incorporate energy efficient changes as well as merely cosmetic ones. The money you invest today can quickly pay for itself with savings on monthly utility costs, and on your mortgage as well.
Of course, it takes money to save money, and energy efficient home improvements do require a certain amount of cash outlay. Even if you don't have the budget on hand, there are options available to you. If you are planning on renewing or refinancing your mortgage, talk to your bank about borrowing a little extra to invest in making your home more energy wise. Energy efficient home improvements will immediately lower your monthly energy bills, and the interest on home equity loans and home mortgages is usually tax deductible.
Energy Efficient Mortgages
Another good option is to consider an Energy Efficient Mortgage. Owning a car involves real costs like maintenance and operating expenses; the same holds true for a home. Rising utility expenses must be factored into the costs of owning a home. An Energy Efficient Mortgage (EEM) can increase your comfort and save you money whether you are buying, selling, refinancing or remodeling your home. These plans can be applied to most home mortgages, and provide special benefits to borrowers who are buying energy efficient homes or are planning to install energy efficient improvements. Homeowners with lower utility bills have more money in their pocket at the end of each month, and are able to allocate a larger portion of their income to housing expenses.
There are many benefits to financing your energy efficient home improvements through an EEM:
* Qualifying for a larger loan amount allows you to purchase a better, more energy efficient home.
* You can finance your cost-effective energy saving measures as part of your mortgage.
* Older homes can be improved and updated to become more comfortable and efficient
* Stretch your debt-to-income qualifying ratio with a loan for energy-efficient homes.
* Increase your overall buying power.
Other Financing Options
Many utility providers and energy-related businesses are now offering loans and incentives for property owners to install energy efficient heating and air conditioning systems, insulation, windows and other energy efficiency improvements.
Further, utility companies are beginning to offer a range of improvements to help customers enjoy greater efficiency. In the United States, the Edison Electric Institute (EEI) offers a list of member company programs that offer efficiency services to homeowners, businesses and industrial plants.
More energy efficient services and ideas are available a number of websites, including the National Energy Affordability and Accessibility Project (NEAPP) site.
If you're thinking of renovating, make energy efficient home improvements your first priority. Your monthly savings will quickly make up for the initial building costs, and you'll be helping to preserve our priceless energy resources.
Barbara Williams contributes to several web sites, on home and family topics.
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