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One of the greatest culprits for serious debt problems are credit cards. Obviously it is our bad use or management of credit cards that causes the debt problems, you can’t blame a gun for what its owner does with it. Nevertheless some guns are more trigger sensitive than others, and it’s not the same to own an automatic machine gun than an air gun. It’s all about understanding the rules of the game and what the real cost of your credit is. The Obama administration have backed the implementation of new credit card rules that will help many of us to save money and stop paying so much of it to the banks in fees and penalties.

What are the new rules?

Raise interest rates on existing balance. This is a great victory for consumers. This is a little known tool banks had in their arsenal of money making methods. In fact most of us probably didn’t know the bank could increase the rate of interest on our credit card without asking. If you think of it that is pretty crazy because the interest rates on credit cards are already huge.

Payments will pay off your most expensive debts first. Borrowers using credit cards, especially when transferring balance from one card to another, can find themselves with different rates of interest for debts on the same card. Previously there was not guideline or rule on which part of the debt banks must use your monthly payments to cover. Obviously banks had an incentive to pay the cheaper interest rates first and leave the most expensive rates to last. With this new credit card rule that will not be a legal course of action for banks that must allow borrowers to pay off their most expensive credit card debt first.

Other cards can’t penalize you for missing a deadline on another cards. We all know that banks are a closed knit community. They might compete against each other but when they are dealing with borrowers data, credit record and payment history they are happy to share their knowledge. They can still share information on delinquent credit card payers but can’t hold it against them.

None of these measures will stop the banking industry from making more and more money on our misuse of credit cards but it has plugged some holes banks will no longer abuse.

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How can you get out of the cycle of debt and have a fresh start. Those looking for easy fix solutions will have to continue looking but those that are determined to work hard with their problem and are willing to make big changes in their lifestyle and habits can find a solution.
We must start by saying that some debt problems are too extreme to solve in any practical way and bankruptcy is the only real solution, but that is an extreme measure you should leave as the very last resort as it will destroy your credit rating and affect your ability to get a loan, a lease or even a job for years to come.

So what steps can you take to break the cycle of debt?
Maybe you started with some small time debts, maybe a small investment loan to start a business and it all went wrong, you then required another loan, or credit card to pay for your debts, or your monthly payments and now you can’t afford to pay the interest on your debt payments, throw in a car loan and a mortgage and you can quickly find yourself in a seemingly no way out situation.

The steps you must take are surprisingly simple, which makes some think they can’t possibly work, unfortunately they are also slow and require endurance and “stickability” to make them work.

Step 1.
Sit down and work out exactly how much you owe and the rate of interest you are paying on each loan.

Step 2.
Assess what your or your family’s income is and what you can afford to pay towards your loan payments. You should aim to pay as much as you can without completely strangling your family’s economy and leaving  you with some breathing room if interest rates rise.

Step 3.
This is the hard step, to change your lifestyle and habits to reduce your expenses to a complete minimum. You are in serious debt, this is not a game, you are under moral and legal obligation to do everything you can to pay your debts and that means going without  your precious luxuries and saving every buck you can. Where people often fail when trying to break the cycle of debt is by trying to reduce their debt without changing their lifestyle.

Often people in a cycle of debt are “addicted” to spending and living above their means, just like an alcoholic is addicted to the feeling alcohol provides, in both cases a complete lifestyle change is often required.

Step 3.

If you cannot find a way to pay for your current loan payments with your income you  are going to have to find a way to reduce your payments or increase your income. Increasing your income in the short term is often difficult, although sometimes one of the spouses does not work and can start doing so to pay towards the loan.
Another solution is to consolidate your loan in a large debt consolidation loan that will allow you to reduce your monthly expenses. Although this can be a good solution beware of the high fees and interest rates that can make the loan uneconomical.

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We live in a dog eat dog world that works for the loans, mortgages and DVD rental companies when you are late in returning a DVD, there is no mercy, you have to look after yourself and know what you are doing or get ready to lose some serious money. Finding a good deal in a competitive and complicated market like the credit industry is no easy task, fortunately it is not impossible and you don’t have to be a MENSA member to find a good loan modification for your mortgage or loan. You do however have to understand the basics of mortgages, loans and their respective modifications.
It is useful to view mortgages as the most basic investment a bank can make, that is an investment in you. They give you cash and get a steady return on their investment in the form of interest payments while they get their initial capital back with your principal payments. The rate of interest will depend on the going rate when you contracted the loan, how good your credit record was, how savvy you were when negotiating the loan conditions or a combination of all three of those factors.
Depending on the world economy, the going interest rate set by governments and a number of other factors banks are willing to lend at a lower or higher interest rate. If you can find a bank (it can be the same lender you are using now, or another one) that will lend you money at a cheaper interest rate you might be able to modify your mortgage to a lower interest rate. Similarly if you are struggling to make your mortgage payments you might be able to find a lender that will lend you the same amount but allow you a longer period of time to pay back, this will have the effect of lowering your monthly payments while increasing how much interest you pay on your mortgage. You can also modify your loan to increase the amount of cash you borrow or you could decide on any combination of all three options, lower interest, longer tenure and larger loan.
The key to find a good deal on your loan is to first check how expensive modifying your loan will be. To find this out you will need to know all the fees and costs your current lender is planning to charge you (a.k.a prepayment penalty fee) for paying early and depriving them of the interest you promised to pay and the fees your new lender will require to process the new loan with the modification you want. If you use a middleman business to process your application you will have to pay for their fee also. We don’t necessarily recommend this as most people can handle the paperwork themselves and the application businesses can’t do anything for your mortgage that you can’t do yourself.
Once you know the cost of a loan modification you need to know how much you are going to save with the loan modification. Savings can come in the form of lower interest rates or a shorter tenure. If you pay lower interest rates your overall interest payments for the mortgage can drop considerably and pay off your loan modification expenses in a matter of one or two years reaping substantial savings.
Of course the reason you want to modify your loan maybe not so much to save money but to make your payments affordable and this might involve lengthening your mortgage which will make your mortgage more expensive but at least you won’t lose your home.
It is as simple as that, compare the cost (real cost) of the loan mod and compare it to your savings, if there is a substantial saving you have found yourself a good deal.

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What does no-cost loan refinancing cost you?

If you are shopping for a loan modification or home mortgage refinance you have probably heard of no-cost mortgages and loan modification. If you have done some research into loan modifications and mortgage mods you know that they are far from free, in fact a good rule of thumb for loan modifications fees and costs is anything from 3 to 5 percent of the outstanding principal (money you still owe) on your loan.

So how can lenders and banks offer no-cost loan refinance? Well as you probably guessed lenders have their own definition of no cost. In fact the exact definition can change from lender to lender so it is a good idea to ask the salesperson or customer care assistant what they specifically mean by no cost.

In any case you can be confident that lenders don’t mean they are going to waiver all the fees and pay for you to get your loan modification. No-cost mortgages refer to an arrangement between the lender and borrower to avoid paying any up-front fees for the mortgage refinance or loan modification by paying the fees in the future. No cost loans are like icebergs, most of the cost, in fact more than you would ever expect, is hidden. There are two main no cost loan options lenders offer:

No fees but a higher interest.
In this option the lender offers to cover all the expenses related with the mortgage with the condition that the borrower accepts a higher rate of interest. The higher rate of interest will be charged during the whole lifetime of the mortgage. It is important that you ask for detailed estimates of the real costs of this no-cost alternative. This estimate should show the cost of the mortgage fees and how much extra interest you will be paying with the higher rate of interest.

Taking a loan to pay the loan fees.
This option of no-cost loan modification actually involves taking on a loan to pay for a loan, or at least the loan fees. With this option the lender covers the mortgage modification fees but includes the fees as part of the loan. This will mean the borrower will have to pay for the fees with interest as part of their modified mortgage. Again it is important to understand what the real costs of your no-cost mortgage modification will be. Ask for an estimate that details the real cost of your mortgage fees after paying interest on them for the length of the loan.

Lenders will often try to include a prepayment penalty clause in the mortgage or loan contract to discourage borrowers from changing loans in the early years of the modified loan. As far as you can you should try to avoid or reduce this penalty as they will reduce flexibility when trying to find a better deal in the future.

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What To Look For In A Loan Modification?
You have heard about the great deals people are getting on their mortgage modifications or mortgage refinance and you want a piece of the action. You might wonder how you can save money on a mortgage you have already signed for. You might have no idea what to look for when searching for a loan modification that can save you cash instead of costing you.  Let’s have a go at answering those two excellent questions, even though I say so myself.

How can a loan modification save you money?
The key to understanding how a loan modification can save you real cash on your mortgage is to understand how mortgages work. A mortgage is a promise to pay back an amount of money plus interest. How much interest is paid is either a fixed amount stipulated between you and your bank or a variable interest that changes depending on the going interest rate, or a combination of those two options, like a fixed interest for 6 months and then a variable interest. Depending what interest rate you agree to, or the going rate of interest your mortgage will be more or less expensive.
When you modify or re-negotiate a mortgage you can try to reduce the interest rate to save you money on the interest.

The big question is why a lender is going to choose to reduce their interest rate. Government regulations tend to force lenders to accept early payment even though you might have an early payment fee included in your mortgage agreement. The new lender that you renegotiate your mortgage simply buys your debt from your previous lender and attaches the new interest rate.  That is how mortgage modifications can save you money but they can also be expensive things and they are rarely as simple or beneficial as the example we just used to illustrate how a mortgage refinance can save you money.

What to look for when searching for a mortgage modification or refinance?
Your first step is to check your mortgage’s early cancellation fee. Often mortgages will have clauses that charge a percentage of the amount of the principal paid early. If your early payment is too large it might not be worth your time renegotiating your mortgage.
When you apply or respond to a mortgage refinance you must make sure what costs and fees you will be charged. An apparently great deal can be a mistake if you don’t take into consideration the real cost when including fees, commissions and other costs.

Make sure you are not borrowing more without realizing it. Most mortgages providers sell mortgage refinance at better interest rates as bait to increase your mortgage principal. That is fine if that is what you want but not so good if you are simply trying to reduce interest costs on your mortgage.

Make sure the savings you are making on your monthly payments are not simply a result of lengthening the loan period. Many consolidation loans and mortgage refinancing packages simply extend the loan period increasing the interest rate payable, lower monthly payments being just a side effect with little real benefit for the borrower.

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Buying your first home can seem intimidating, especially when faced with many different loan types. When researching general information about the most popular home loan types, remember it is not as simple as finding the cheapest interest rate. At first taking out a mortgage may appear daunting, but once you break it down, it becomes straightforward. As with any financial decision, the first step in the process is to educate yourself about the process.

What IS a Mortgage?

What is a mortgage really? A mortgage is a lien on the real property that gives the lender the right to take the property by foreclosure if you default on the loan. Because most people cannot afford to buy real estate with cash, nearly every real estate transaction involves a mortgage. Contrary to popular belief, a mortgage is not a loan; it creates a lien on the property, which serves as a lender’s security for the debt. The party who borrows the money is the mortgagor; the party who provides the money is the mortgagee. A mortgage gives the lender the right to sell the secured property to recover funds if you do not pay the debt. .

While the choice of mortgage product affects the amount of the monthly mortgage payments, there are plenty of other aspects of homeownership, such as homeowner’s insurance, property taxes, maintenance, and homeowner’s dues, that need to be factored into your overall cost. The mortgage note, in which the borrower promises to repay the debt, sets out the terms of the transaction:

• The amount of the debt
• The mortgage due date
• The rate of interest
• The amount of monthly payments
• Whether the lender requires monthly payments to build a tax and insurance reserve
• Whether the loan may be repaid with larger or more frequent payments without a prepayment penalty
• Whether failing to make a payment or selling the property will entitle the lender to call the entire debt due

When comparing monthly payments from various lenders, be sure to ask if the lender included monthly taxes and insurance costs in the total payment. Often times if your downpayment is large enough, inclusion of taxes and insurance won’t be required, but you will instead pay your insurance company and real estate taxes directly.

It can not be emphasized enough that preparation is the key to ensure a smooth process. If you are working with a real estate attorney, he or she should walk you through the entire process in advance.

Pre-Qualified vs Pre-Approved

First, its important to understand the differences between a home mortgage prequalification and preapproval. Pre-Qualifying helps you determine what you can realistically afford in order to start your shopping. It provides an indication of what you expect to be qualified for. However, it is not a sure thing and doesn’t carry the same weight as being pre-approved. Home loan pre-approval is a more involved process, which includes submitting a formal application and documentation and provides a conditional commitment from the lender for the exact loan amount. Essentially you are getting your home loan approved prior to selecting a property. A pre-approval will require income and asset documentation. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying. A pre-approval can help you negotiate a better price with the seller, since being pre-approved is very close to having the cash to pay for the house.

Formal Application

Once you locate your property you wish to purchase and have a successful offer, it’s time to begin the formal application process. If you were not pre-approved, at this stage you will need to provide more detailed documentation to your lender, including assembling your financial records. Mortgage loan qualification guidelines typically differ depending on the loan program and the lender. The costs of your transaction may vary depending on the loan program you select with your lender, and any changes you decide upon during the loan process. The type of loan you choose is a very important aspect of the loan process, and one you should completely understand before making any kind of commitment. Once the lender receives all this information, they will verify them and start the decision making process. The appraisal is ordered and is done during the same time that the processor is verifying information. Whether it’s during the pre-approval stage or during the approval process itself, the essential question the lender’s underwriters are asking is “How good of a long term risk is the borrower?”

Approval

The loan processing (approval) stage is typically the longest in the process. During this step there isn’t really much you can do but wait. Again, be aware that any material changes in your financial situation can impact this stage, so before you do anything that could have an affect, make sure you discuss it with your lender. When the underwriter is satisfied, the borrower will receive an approval and be cleared to close.

As well as your home loan costs, there are other fees and charges associated with buying a property you need to consider, such as loan origination or underwriting fees, broker fees, transaction, settlement, and third party costs. Costs associated with property surveys and searches may be required. Make sure you look into the closing costs and other costs in detail. It is very important that each client fully understands all of the costs associated with their mortgage loan. Be aware that other fees and costs vary by program and by lender, so when you are shopping for a loan, make sure to get all of the associated costs so you can make a proper comparison.

Closing

The final step in the mortgage process is the closing meeting. You should have a good understanding of what is involved in the closing process, because there are a number of things that you can do to make sure that it goes smoothly and on time. The closing is a meeting, most often at the title insurance company, where the lender, homebuyer and seller meet to complete the sale and mortgage process. Closing costs may vary among companies and also throughout the nation because of differing local laws and customs.

A couple of fees to be aware of:

• Origination fee: This is the fee charged by a lender for processing a loan.
• Loan origination fee: Lenders charge these fees for processing of the mortgage agreement and other paperwork.

As with all the fees, rates, and points involved in a mortgage transaction, don’t shy away from negotiating these down or even out of the agreement. Keep in mind that knowing the process and having knowledge of the competitive marketplace enables you to be a more successful negotiator.

Parting Thoughts

With all of the finance programs available to the consumer, from conventional, adjustable rate mortgage and interest only, having an experienced mortgage professional on your side will help you achieve your goal of buying a home and should save you money in the process. Certainly your interest rate is important, but getting the right mortgage, receiving the true costs of the transaction, and getting sound counsel can be far more valuable than a fraction of a percentage difference in your rate. Improving your expertise and knowledge before you start will help the whole loan process be a smooth and relatively painless one.

Has The Mortgage Refinancing Season Ended

Mortgage refinancing has become as exciting as watching the stock market. The once droll and wonderful (for home owners) business of seeing interests remain pretty much stable while house prices increased with any sign of stopping has been exchanged for the much more exciting activity of seeing how low the interest rates can be dropped and how far the Government can bend back to lower them further.

This has created an excellent opportunity for those conservative people that were boring and smart enough to save when everybody was spending of being prudent when prudence seemed pointless, because if you have cash now and an excellent credit score you could get the deal of your life. With 30 year interest rates at historical lows you could buy the house of your dreams for around 4.25%.

This window of opportunity is of course not the main outcome the Government is working towards although it may very well prove to be a benign side effect that can further contribute to jump start the credit and housing industry.

The main issue Government is trying to deal with when lower is as we mentioned to incentivize the buying of new and built homes while giving home owners that have fallen in financial difficulties the possibility of renegotiation their mortgages at a more advantageous rate of interest. If a family renegotiates their mortgage wisely the significant drop in interest rates could mean the difference between affording the monthly mortgage payments and not.  For those home owners that are not in any particular financial strife it can mean paying off the mortgage sooner or financing the purchase of a car or a home improvement on the interest drop.

However the fear for those that are planning to modify their loans  or are in the process of getting their paperwork or credit in order is that they will miss the train. That the Government’s incentives will work raising interest rates and closing the window of opportunity that currently exists.

Should we worry?
If we are to trust the Mortgage Bankers Association’s chief economist the answer is no. Jay Brinkmann the MBA’s chief economist predicts that in the next the current interest rates should hold for the next six to seven months. That is music to the ears of home owners that see how their loan modification and mortgage refinancing procedures take more than they expect or is experiencing delays in getting to the closing table.
If you are wondering who to thank for the drop in interest rates thank the Uncle Sam for investing so heavily in Banks, providing cheap money for banks to invest in insured loans and mortgages.

The sobering question is how long can this continue for, the short to mid-term may be safe but can this continue in the long term? It can’t if you listen to Dan Cutaia, president of Fairway Independent Mortgage Corp who recently said at an MBA’s conference: “The government can’t keep printing money and buying mortgage backed securities forever”.

Historically the secondary housing market has been a meeting place for investors and borrowers where offer and demand created its own prices and conditions. The government has modified the “natural” state of things by using its muscle to provide the money few are willing to invest.

What will happen in the long term is a bridge we have yet to cross, however if you are currently in the market to refinance or buy a home don’t worry you will not miss train, low interest rates are here to stay, for now.

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