Primer on the Difference Between an FHA Loan and a Regular “Conventional” Mortgage Loan

It is in every borrower’s best interest to understand the difference between a Conventional and an FHA loan, especially if they owe more than 80% of their home’s value or are interested in purchasing a home with less than 20% down payment.

First FHA will allow a borrower who wants to refinance, or purchase a home, the opportunity to borrow up to 96.5% of their home’s value. This is also known as LTV or the “loan to value” ratio. If it is a refinance, and they want to borrow 96.5% LTV, then the borrowers are not allowed to take out any cash. The only refinance that will be accepted is one where the borrower benefits with a reduced monthly payment from a lower interest rate.

A borrower can work with a Conventional loan if they only have to borrow 95% or less LTV. It’s usually financially better to secure a Conventional loan than an FHA loan because of the 1.75% up front fee that FHA requires. This can be a significant extra fee if the loan amount is three or four hundred thousand dollars. For example, the extra fee on $300,000 is actually $5,250.

So if you have at least a 5% down payment on a purchase, or have at least 5% equity in your home when you are ready to refinance, you might qualify for a Conventional loan and forgo the 1.75% up front fee. If you can afford a 10% down payment, or have 10% in equity when you are ready to refinance, you have an even better chance of securing a Conventional loan. This is because there are several restrictions on Conventional loans between 90% and 95% LTV and many borrowers will not be strong enough financially to qualify. For example, the credit score must be exceptional (over 720 points) to get a loan over 90% LTV.

One advantage to an FHA loan is the cost of their Mortgage Insurance Program. Mortgage Insurance is an extra fee that must be paid alongside the regular monthly Mortgage Payment. Regardless if it is a Conventional or FHA loan, anytime a borrower needs a loan that is over 80%, they will be required to add a Mortgage Insurance Premium to their monthly payment.

FHA’s mortgage premium is a standard .50% of the loan amount. In other words it does not matter if you borrow 81% or 94%, if you borrow over 80%, the Mortgage Insurance Premium would be the same at .5%. A .50% Mortgage Insurance premium on $200,000 would be $200,000 x .50%, which equals $1,000. This is an annual premium and so it needs to be divided by 12. Therefore, the Mortgage Insurance Premium on an FHA $200,000 loan would cost an extra $83.33 per month ($1,000 divided by 12 = $83.33).

With a conventional loan there are different percentages associated with different LTV’s. For example a borrower who needs a loan that is over 80% but under 85% LTV will have a smaller Mortgage Insurance Premium than someone who needs to borrow 90% or 95%.

The Mortgage Insurance Premium payment under 85% LTV is about the same as the FHA premium, but the Mortgage Insurance Premium (also known as MIP) on a 90% or 95% LTV loan is much higher than FHA. So where as the FHA loan asks for a large upfront fee of 1.75% and a smaller monthly Mortgage Insurance Premium, the Conventional lender does not ask for an upfront fee, but collects a larger Mortgage Insurance Premium during the life of the loan. A good loan officer can crunch the numbers and figure out which type of loan is in your best interest.

I hope that this explanation clarifies the differences between the two loans and shows the advantages and disadvantages of each type.

My name is Allen Sayble and I have been a loan officer since 2001. I specialize in hard to find loans through FHA and USDA for borrowers with less than stellar credit, or who want to borrow over 80% of their home’s value. I also enjoy helping borrowers in a sound financial position. You have worked hard to keep your credit strong and keep your financial ship moving in the right direction. In return, I will work hard to get you the best interest rates the industry has to offer.

 

How Does a Loan Officer Get Paid and What are Points

You hear the commercials everyday on the radio. You see the billboards along the highway. ‘No Points,’ ‘No Closing Costs.’

The mortgage industry has become extremely competitive in recent years, with literally tens of thousands of licensed brokers in California alone. How did it get this way? In recent years with interest rates at record lows it was an easy way for even inexperienced people to make a ton of money with little training, and no experience. The calls to refinance came pouring in. If you could answer the phone you could make good money in the real estate lending business.

I’m not trying to slander real estate professionals. Most are very good at what they do. It is simply that in any field as over crowded as this one has become you will find those who will bend the truth, who will forget to mention certain things, prevaricate or outright lie to get your business.

Let’s set the record straight, shall we? Nobody does this for free. I myself have seven children and a beautiful wife to support. I need to get paid. For my pay I provide a quality service. Most of us in this industry work on commission; the funny thing is I get to set my own commission on each and every loan, by charging ‘points.’

You may have heard the term ‘points.’ What is a point? Simply this, a point is one percent of the loan amount. It’s called origination, or points. If I charge 3 three points on a $100,000 loan it equals $3000. I get to decide how many points I’m going to charge. The law in most states limits the number of points I can charge. To go beyond that is usury, and simply not allowed. That limit is as high as 6% in California or even higher in some states. I myself very seldom charge more than three points. I also seldom charge less than three points. The number of points being charged is disclosed along with all other closing costs on the Good Faith Estimate or GFE.

A word on GFEs, they are an estimate, and some less scrupulous lenders really make the most of that fact. When I do one I try to be as close to actual costs as possible or even a little high. Sometimes things as simple as the day the loan closes or the amount a notary will charge can affect the actual amounts. On every loan I do I build in a pad of $250. The reason is simple. I estimate everything on the high side of reasonable and put in the pad, because I’ve never had a client complain that they got $31,000 at closing instead of the $30,000 they asked for. Now imagine you needed to refinance and take $30,000 cash out, and I delivered on $28,712 instead of the $30,000 you needed.

Make sure your loan professional discloses ALL fees and not just his own. Often they will show you only the fees that broker is charging and not put in the title insurance fee, or the escrow fee, or any other third party fees. Ask, “Are these all the fees I’ll pay?” If the answer is “No,” run don’t walk to an honest loan officer.

Typically the only part the loan officer gets paid on is the origination. Of that they will usually get a split with the broker. I’ve seen splits that range from a flat $500, to anything from 25% to 85%. The broker in most places makes their money from the other fees. Application fees, processing fees, admin fees, tax service fee, underwriting fee, wire transfer fee, and more. Some are legitimate some are merely padding the price of the loan.

Points are not the only way we get paid. We also can get a rebate from the lender. Let’s say I went to a lender with your file and they quote me an interest rate of 6.5%. I turn around and tell you I can get you 7%. For this I receive a one-point rebate from the lender. While at first glance this may seem sneaky and dishonest, remember I’m getting a wholesale rate. If you went there direct you would not receive the 6.5% rate. They offer it to me with room for me to make a profit. Some lenders will limit how much I can raise the rate from what they offer me.

The base rate that they offer is called ‘par.’ Those of you who are golfers will understand the term. It means basically the base rate. Even. No adjustment up or down. That rate can go up for a rebate, or it can go down, IF you buy it down. Often when doing this you are only buying it down for a specific period so beware.

These are the biggest two ways to get paid but there are others. Let’s say you took out a ‘Pay-Option-Arm’ or ‘Pick-A-Pay’ type loan. This loan comes with the opportunity to choose one of four payment options each and every month for five years. You might choose to make a 15-year, or 30 year fully amortized payment. You could also choose interest only, or even a minimum payment based on 1% interest, with the rest of the true rate tacked onto the backside of your loan. Fully discussing this loan is a subject for another article, but suffice it to say this loan can be perfect or a disaster and you’d better understand the ups and the downs of it from the beginning.

On this type of loan all kinds of promises are made. “I can do it for Zero points! One point! 1.5 points!” Whatever.

The reason is the high backend rebate. It may not be charged to you directly but your still paying for it.

The rebates on this can be as high as 3.4 points. Selling you on a three-year prepayment penalty does that. It also means a higher fully indexed interest rate. If you’re getting into this loan for the 1% payment only, then maybe you don’t care. If your real estate market is going up faster than the loan amount is climbing, maybe you don’t care. If you are getting into this type of loan, make sure you’re asking about the rebate. If you are being charged points up front and the loan officer is getting a high backend rebate he’s ripping you off. One or the other, or a reasonable combination of both. One point up front combined with a 2.5-point rebate is reasonable. It makes the total commission 3.5 points. Two and a half up front and 1.75, for a total of 4.25 is a little high, in most cases. Sometimes the amount of work involved justifies the extra pay. As a general rule I think three points is fair to all concerned.

How do you know what your loan officer is making on the back? It is disclosed, but you need to know what you are looking at. It’s called ‘yield spread premium’ or YSP. Be careful of this though. Just because you don’t see it does not mean it’s not there. When your loan officer is selling you a loan from his own company, he does not need to disclose the YSP. The YSP is what the ‘broker’ charges over what the lender offers. If dealing direct with the lender there is no YSP. Even if the loan officer can get you that 6.5% and sells you the 7% instead, because he woks for the lender there is no YSP. Ask if he is a broker or direct lender. As with almost anything either can be sold well.

If he’s a direct lender he’ll say things like “Our money, our rules.” Or “we can control it all because we don’t have to play by the other guys rules.”

If he’s a broker he’ll say “I deal with 30, 50, 200 lenders so I’ll get you the best deal.”

Reality is that while where I work we’re approved with over 50 different lenders I’ll price a loan with no more than half a dozen and usually I know before I begin who will get the deal. Each loan is different and one of the reasons I get paid is to know who does this kind of loan. Is it ‘A’ paper or sub-prime? Is it a single-family residence, or a condo? Is it investment property of primary residence? Do we need to do a stated income loan or full doc?

I get paid for my expertise. I get paid because I not only take your loan to the guy with the best interest rate but also to the guy will get it done quickly and efficiently. If for example you were borrowing $200,000 at 7.25% your monthly payment would be $1364.35. What if you turned down the guy who told you he could get it at 7.5% even though you thought he was the more qualified? You’re chasing the rate. How much did that save you? At 7.5% that same $200,000 costs you $1398.61 per month. The difference is only $34.26 per month. Now let’s say you go with the cheaper guy. He came in cheapest because he was chasing your business. When you don’t know what you’re doing the only way to compete is to try to undercut the other guy on price.

For $34 a month you get a guy who maybe can’t even get it done. The lender has poor service so the loan doesn’t close on time and someone else buys your dream house.

For $34 a month I’ll take your loan to someone who will make it happen smoothly and quickly.

As with anything you get what you pay for. Quality service costs a little more. Beware of the guys who are either too cheap or too costly. Either is a sign to beware of.

Too cheap and they are chasing your business because they really need it. Maybe they are very good and just really want to give you, a total stranger the deal of the century. Possibly they are that good and just in a slump. It happens.

Too expensive and they are gouging you. Trying to make all their money off this one loan.

If they are in the business for the long term, they’ll want to build a relationship of trust with you. I want all my clients to come back again and again. Ideally I’ll help them into their first house. Refinance it for them so they can improve on it, and then help them buy a bigger and better house when they start growing their family. Maybe we’ll refinance it to pay off the kid’s college loans. Then when the last kid is safely on his own, I’ll help them downsize into a beautiful condo by the beach.

This kind of relationship only happens when there is trust going both ways. That trust is only built by providing quality service and sound advice.

Your home is typically the single largest investment of your life. Don’t trust it to just anyone. Make sure you understand how much you’re being charged and why. Pay for expertise. Pay for honesty and integrity. Don’t pay for inexperience or to pad a greedy loan officer’s already overstuffed pockets.

Steve and Stacie Scheunemann husband and real estate professionals with five years experience.

Stacie has been an educator, small business owner, and professional organizer.

She is a Nutritional Herbalist who keeps her family and friends healthy and eating well. Hers is the strong will and relentless drive for perfection that makes the team what it is.

Steve is a Marine veteran who served in the Gulf War and Somalia, as a helicopter crewchief. After the Marines he followed in his father and grandfather’s footsteps and became a police officer. As a police officer he received many letters of commendation from the department and the community.

He’s been a Technical Instructor in the telecom field and even worked as a cowboy on a Texas cattle ranch.

Both are active in the community, volunteering time for the Cub Scouts and fire department with their ‘Fill the Boot’ Campaign getting all seven kids into the act collecting donations outside a local mall side-by-side with the firemen.

Choices For Buying Loan Protection Insurance

It is important to realise that you do have options for buying loan protection insurance and to know about the differences. The vast majority of policies are sold alongside the loan when taking it out, however you can also choose to buy a policy at a later date after taking the loan. By choosing to shop for a protection policy yourself you can make around 80% savings on the cost of the premiums.

Loan protection insurance is a policy that is taken out to insure against the fact that you might lose your income. A loss of income can come about due to you suffering an accident or an illness which meant you were unable to work. A policy would also include you being made unemployed through reasons not of your own such as redundancy. The cover would payout an income that was tax-free which would allow you the luxury of being able to continue meeting your loan/credit card repayments using the money you insured for when taking out the policy.

If you were to lose your income and have substantial loan or credit card repayments to make then life could become an uphill struggle if you wanted to remain debt free. It is important to keep out of debt as at the very least you would see your credit rating destroyed. If this happens then for sometime in the future you could have many problems obtaining credit of any kind and a bad credit file can take a long time to repair. In the worst cases of debt the lender could take you to court and this means that you could have a County Court Judgement against you and have bailiffs come into your home to take your possession to sell to recover what you owe. For a small premium you can guard against any of this happening by keeping up with your mortgage repayments as though you were still working.

If you have the protection added into the cost of the loan then the lender could add interest on top of it and this could almost double the cost of the borrowing. Another downside to taking out protection this way is that often little information is given regarding exclusions and the other terms and conditions of the policy.

Taking out the protection with a standalone provider you will be given access to all the information on their website which would allow you to ensure a policy would be suitable. When choosing a policy there are many things that need taking onto account besides the exclusions, you need to know if cover would be backdated and when and for how long it would payout. All of these can differ with independent payment protection specialists.

Some providers offer a loan protection insurance policy with the conditions that you wait for the 30th day before claiming. With others it could be as long as the 90th day. Some will continue paying out for 12 months and with other providers payment could last for 24 months.

FICO, Credit Cards, And Home Loans What Do They Have To Do With Me?

#1. – OPEN ACCOUNTS! – I have worked with several people that either had a Bankruptcy or got in trouble with credit cards and canceled them all. They use cash only now, thinking that is the best way to go. Well that is a great way to do things. However not if your trying to get a home loan or any other type of loan. In fact sometimes people don’t even generate a FICO score because they don’t have any credit at all! Thats bad news. You need three active credit accounts, preferably for one year to help your cause. “That means I have to use credit cards again? In the past they ruined me!” Well yea thats pretty much what it means. But lets understand how credit cards and loans effect your FICO score. First of all a FICO score doesn’t look at your job or how much money you make. You could have no debt and a $100,000.00 a year job but if you dont have active accounts, your FICO score may still be low. That means higher interest rates on loans. Here is what you can expect in terms of interest rates in relation to what your FICO score is:

  • FICO score:– APR:
  • 760-850—– 5.918%
  • 700-759—– 6.140%
  • 660-699—– 6.424%
  • 620-659—– 7.234%
  • 580-619—– 8.777%
  • 500-579—– 9.670%

Many people aren’t aware that you cant really negotiate the rate much with lenders. That FICO score indicates your risk factor. You may know you can pay your loan but they don’t. When they see a 500 credit score they think there is a huge risk you will default on your loan, so they give you the interest rate that makes them the most amount of money in the shortest amount of time. Don’t think the lenders actually care about you or your circumstances they don’t, they care about money, thats it, thats the bottom line. They see your score and offer you that high risk rate loan. No matter how good a loan officer/Broker is they cant get a 6% interest rate for someone with a 550 score. It doesn’t matter how long you shop around. They can however lower their fees for you, give you great service, give you a no Yield Spread Premium loan, etc. Thats why its good to shop around for loan officers and find someone who honestly cares about you, your goals, and your money. I like to treat everyones loan who comes to me as if it were my own. Any way back to credit cards and how they help. OK so you have a credit card with a $1,000.00 limit. If you carry a balance of $850 on it you will actually hurt your credit score. You see FICO wants to see how you manage your money and bases a score on that. If it thinks you aren’t managing your money wisely then you get a lower score. If however you are carrying a balance of around 30% and making your payments on time every month that will help your credit score, looks like your managing your money well. Now it doesn’t make a difference if you have a credit limit of $300 or a Platinum $10,000 limit card it works the same way. So if you’ve had problems in the past with credit cards my suggestion is use them for small things like gas and make sure you have the money to pay them off. Remember Credit Cards are basically LOANS NOT cash! You have to pay them back and sometimes at substantial interest. Please don’t ever think of credit cards as cash. Credit cards help your FICO score by showing that you can manage your money responsibly and pay your debts on time. Your score gets higher as you continue to pay every month for years. Which will help you get a higher score a lower risk factor with the lenders and a better interest rate saving you $1,000s and $1,000.00s of dollars.

#2.- NEVER GO OVER 30 DAYS LATE ON ANYTHING! – Many people want to refinance their homes because they have gone 1,2,3 or even more months late on their mortgage. They have a 7% interest rate and suppose they can refinance at the same and take some cash out as well. If you have gone even once 30 days past due on a mortgage that is a killer to your FICO score. It causes it to just tank! So once that happens your going to end up in the High Risk score column. Your account moves to the “unsatisfactory” column on your credit report and Your refinance loan may be 9% or more and you may not even get financing. Remember the lenders just want to make money. What do you think they see when someone is 3 months past due on their current mortgage at 7% and they can only offer them a 10% loan at $300 more per month. They see default. If you think you might be short of money and before you go 30 days past due try to get refinancing then! Don’t wait till its too late because your going to be stuck with this high interest loan until you can clean up your credit report and your score goes up. That could take 1, 2, or even 3 years or more! Don’t ever go 30 days late on your credit cards! You may get charged a fee, and your interest may go sky high after you accidentally pay 10 days late, but, if you don’t go 30 days or more it wont go on your credit report. 30 DAYS LATE=TANKING FICO SCORE. Remember that.

#3.- CHECK YOUR CREDIT REPORT – Get a copy of your credit report so you can see if there are any inaccuracies on it. Most people actually have one or two inaccuracies on their report. You may have old collection accounts that should be removed. These should be looked at carefully and then disputed with the credit agencies. There are 3 credit reporting agencies. EQUIFAX, EXPERIAN (formerly trw) and TRANS UNION. You will need to order a copy from each and dispute each individually they are separate companies. You should try to do this BEFORE talking with your loan officer/Broker/Lender. Your score can go up significantly in 30 days or less by removing inaccurate information. It could be the difference in a 9.75% loan and a 6.9% loan. You cant take that chance. ORDER, REVIEW, DISPUTE!

Your Loan Repayment Can Be Protected With Loan Payment Protection

When you take on a loan no matter what happens you have to be able to carry on meeting the monthly repayments. Your lender will not let your repayments slide if you should lose your income and be unable to meet your repayments. While your lender might be willing to make an agreement with you in the short term, if you remained out of work for many months then you could be facing problems. Loan payment protection can give you an income to replace your own if you are made redundant. It can also provide for you, should you have to take time off from work due to becoming ill or if you were to have an accident.

The cheapest way to take out valuable loan payment cover is by going online and choosing to buy it independently. By searching and buying your policy this way you are able to get the information necessary to make sure cover is suitable. You will also be able to compare not only for the cheapest premiums, but also when the cover would start and for how long it would payout. These dates vary with the provider as does the premium. Loan cover can be taken with your loan from the high street lender and in some cases lenders are known to add on the cover without asking.

If protection is added on this way then you could quite possibly see your borrowing double. This is due to the protection being added onto the borrowing and then the interest is calculated on the total amount of the loan and the protection for it. You should always ensure that protection has not been added on when taking out a loan and when buying a loan online make sure that you are not being tricked into taking out protection at the same time. Sometimes when buying a loan online you have to un-tick a pre-ticked box if you do not want the protection including.

Usually providers will payout on your policy for between 12 and 24 months and during this time you receive a tax-free payment each month you remain unable to work or unemployed. There is also a period of time which you would have to wait before the cover would begin paying out and again this varies. Some providers will begin paying you after 30 days while others could ask you to wait for up to 90 before beginning payout. There are providers who would also backdate your benefit to the first date of unemployment or incapacity; again you have to check the conditions before buying.

Loan payment protection is a perfect solution to stop you worrying about how you would be able to continue meeting the repayments. It guards your credit score, as if you get behind on your repayments this would be affected and then future borrowing could be impossible. If you have large debts by way or loans or credit card the lender could take you to court. If this happens you could get a County Court Judgement against you and see bailiffs seizing your belongings to pay the lender what you owe.

Need Bad Credit Loan: Get It With These Simple Steps

If you have been knocked out of your loan application because of blemishes on your credit, it can be hard for you to deal with everyday life. Good thing, you have lots of options available to get the loan you are looking for, while, at the same time, rebuilding your credit.

Tips to follow before getting a loan

1. Consumers should be aware about the importance of checking credit history. A credit history is included in the credit report and is usually checked for inconsistencies and discrepancies before taking out a loan. The report allows the consumer to detect if something wrong has been reported, because this can affect their credit rating and the decisions of creditors giving out loans for bad credit. Keep in mind that a bad credit score limits an individual’s ability to get premium loan offers, but checking credit history will help decide what type of loan best suits him/her given that his/her current credit standing isn’t doing good.

2. Try other options available for you, like seeking assistance from family members or friends. Before applying loans at major lending institutions, ask significant others first if they can extend a loan to you. This could be very beneficial for both parties, because there’s no need for them to check your credit history. Aside from this, you could save a lot from the high interest rates of bad credit loans, as well as the time it would take to get your loan application approved. Just be responsible in paying them what you owe, or your relationship could be injured.Another option could be through P2P (or peer-to-peer lending) – usually found online. P2P is a win-win for both the borrowers and lenders. Borrowers have to pay low interest rates than regular loans, while independent lenders could earn high interest rates.

3. Check with the credit union or your personal bank first. These are two common places that best suit individuals with poor credit. Your personal bank may approve your application without too much inconvenience, because they are more than willing to work with long-time clients – like you – than with first-time strangers. Keep in mind, though, that your banks will still impose applicable interest rates on your bad credit loans, but they are more lenient in extending a loan to you, because you have money in them. Credit unions, on the other hand, are more suitable for those who have a stable paycheck. Loans from credit unions are usually offered through an employment. Clients with jobs are more agreeable option because credit unions are guaranteed to have the loan repaid properly. Usually, the loan is deducted from the employee’s salary.

4. Loan-seekers can also search online to look for companies that give out loans for bad credit. Make sure to read the terms of conditions before applying, because you might get caught up on hidden fees and charges. Finally, see to it that the company is well-established and has a good consumer rating.

5. The fastest way to obtain a bad credit loan is to look for payday loan. This loan can be applicable for someone who has emergency with no other options of obtaining cash. However, payday loan carry high interest rates and has an extremely short life. If an individual cannot repay on time, more interest is added and the life will be extended. Proceed with caution before taking this option into consideration. If necessary, opt this as your “last resort.” Don’t just go for payday loans if you aren’t sure of repaying on time, because this can cause serious problems on your credit and your finances, as well.

 

Premium Auto Loans That Won’t Leave You Running on Empty

How many times have you heard the story about somebody who spent so much on their new car they can scarcely afford the monthly repayments on the auto loan, let alone the petrol to run the darn thing?

Sadly, it’s a story that occurs all too often. You are blinded by the glare off the gleaming duco, your senses are heightened by the plush leather trim, the blast from the quad speaker system, the dashboard that looks like it was pulled straight from the cockpit of an F111, and that’s it – you’re sold.

Repayments of $2357.43 per month? Sure thing! I can do that if I give up drinking, smoking, um…eating. And if I stop taking toilet breaks, the boss might give me overtime? Yeah!

Okay, so that scenario may be a bit extreme, but car dealerships can certainly make even the most basic sedan look like a Maserati, well, maybe a Mazda, with the right lighting and a spit of polish. And who knows what can happen one year into your 5 year loan term? A change of location…a job layoff…a new baby…you just never know what’s around the corner.

So, we’ve decided to get serious and look at how you can secure the best possible auto loan for the best possible auto without going down the gurgler.

* Always do your homework before you commit yourself to any loan – particularly car loans. Ensure you are getting a premium loan package with the best possible auto loan rate. Check out all the major financial institutions first and then make a decision based on the best value for money loan.

* Don’t buy a car on impulse. Even if it’s the bargain of the century and the sales assistant tells you there are 12 people backed up behind you waiting to grab it out from under you. Chances are, he’s lying (about all the people) and if you’re meant to have it, it will still be there tomorrow. Be realistic.

* Do your sums. Don’t let the salesperson do them for you – he will have you bamboozled in no time at all. That’s his job.

Work out the total cost of the vehicle including registration, stamp duty and insurance costs and deduct your deposit – assuming you have one?

Then go online and find a car loan calculator (they are everywhere!) and input the figures to give you a rough estimate of the monthly repayments over different repayment periods, like 3 years, 5 years or 7 years.

* Look at your current family budget and factor in the loan repayment. Can you meet all basic expenses and have surplus funds to fund the repayments. Add in ‘contingencies’ of 20% over your current budget for the items you didn’t count on. Can you still meet the monthly repayments? If you can’t, scrap the idea.

* Remember: the more you borrow, the more you have to repay. And the longer the duration of the loan, the more interest you’ll be paying on the total package. In addition, the longer the loan term, the more likely it is that circumstances may change – and not always for the better.

Sure. In a worst case scenario you could sell the vehicle, but you rarely, if ever, recover the amount you originally paid; unless you bought a ’71 XY Falcon GTHO from a bloke’s back shed for $1,750 that you’ll restore and sell for $1.75million, in which case you wouldn’t need a loan and you wouldn’t be reading this article.

Now that most of the negatives have been covered, we can look at the positives.

One of the best ways to check out the best auto loan rates is to go online. Most of the major banks and lending institutions all have loan packs available with all the information you’ll need, including an application form.

Or instead, you can visit one of the quality online loan providers who use a vast panel of lenders to provide you with the best auto loans on the market, and one that is specifically tailored to suit your needs.

Once you have provided them with your personal and financial details, they will verify and confirm your financial situation and can usually get back to you within 24 hours with a response. How’s that for service?

And if you should happen to find that XY Falcon GTHO for $1,750 in the back shed, please let me know, okay?

Is Life Insurance Premium Financing a Smart Move For You?

Although people may understand the need for life insurance, sometimes it can be a burden to pay the monthly premium. This is particularly true for senior life insurance as retirees are often living on fixed incomes and have limited ability to pay their expenses.

Premium financing options are available to allow people to keep up their payments and maintain their policies.

How Life Insurance Premium Financing Works

When the insured doesn’t have the income to cover the monthly premium, the payments are borrowed from a third-party lender such as a bank or from the insurance provider itself. The amount owed the lender will increase over time. Every month the insured borrows the premium amount plus the accrued debt earns interest.

In most cases, the lender is reimbursed upon the death of the borrower by taking a portion of the life insurance value before it is passed on to the beneficiaries. Although the amount owed steadily rises, as long as it is less than the total value of the policy then the beneficiaries still receive a benefit. This is considered preferable to canceling the policy due to inability to pay, thus leaving the beneficiaries with nothing after the policy holder dies.

Who Should Consider This Option?

Life insurance premium financing is a viable option in several cases. Premium financing is a popular option among retirees. They often have their assets tied up in investments and may not wish to liquidate their assets to provide cash. Some investments can’t be sold or can be sold only at substantial discounts so borrowing is a better financial option.

Some individuals without substantial assets also consider premium financing. Even considering the cost of the loan, leaving something to their heirs is deemed more important than losing the policy completely.

In some cases the interest rate on the premium loan may be less than the return on investments, making liquidation the less preferred choice. Or the interest rate may be less than the rate of return on the life insurance, making borrowing preferable to canceling the policy. There are also situations where this arrangement carries tax benefits.

Seek Expert Advice Before Making A Decision

There is no simple formula for determining who would benefit from life insurance premium financing. As with all investment choices, the advice of an experienced financial counselor will help you determine if this is the right option for your set of circumstances.

If you decide that this is the right financing option for you, there are some details that will need to be attended to. A trust will need to be created to coordinate payments from the financing company to the insurance and from the policy to the beneficiaries after the policyholder passes away. If the trust is not set up, the payout may be held up in probate or subject to substantial estate tax.

 

How Does Premium Finance Life Insurance Work?

Premium Finance Life Insurance is not something that you hear about every day, mostly because so few people are eligible to apply for it. Those who can qualify for this type of life insurance policy funding stand to gain a great deal of money if all of the variables associated with the transaction remain in their favor. In fact as much as 15% of the face value can be seen in a return only two short years later-with no investment! With millions and millions of dollars involved in the transaction, you can calculate just how lucrative a 15% return would be.

This is how Premium Finance Life Insurance Works. You must first have an insurable net worth or asset value, called an insurable interest, of more than two million dollars. These policies have been written for up to $100 million. You apply through a premium finance broker for the life insurance policy and the financing at the same time. If the lender approves your Premium Finance Life Insurance loan, you will be given the premium money for the policy for two to five years or “life”, depending on what your requirements are. Obviously the insurance policy will be quite substantial, as there are a great deal of assets being covered. Therefore the premium payments are also going to be quite significant. This is why a low interest loan to cover the cost of these premiums is so appealing. At the end of the two year period you will then have the legal option of selling this life insurance policy into a secondary market for 3% to 15% of the face value, less the paid-to-date premiums loan and interest charged by the lender, and settlement fees.

This type of arrangement definitely sounds too good to be true, but it can be just that easy to make a huge return on no investment if you play your cards right. First you have to realize that not just anyone can apply for Premium Finance Life Insurance. You typically have to be at least 69 years old but no older than 85 to even apply. If you meet these requirements and are approved for both the loan and the policy, you must live through the two year repayment period in order to have an opportunity to sell the policy to the secondary market. If you die prior to the two year mark, your beneficiaries will receive the face value of the policy less the paid-to-date premiums and interest charged by the lender. An example : Assume a five million dollar policy with annual premiums of $350,000 and a 10% interest rate. The beneficiaries receive $4,230,000 if the senior passes at the two year mark.

Obviously, life insurance companies are aware of what Premium Financing is all about and have added that anyone looking to apply for it needs be in decent health. They may ask for a detailed estate plan. Insurance companies are also unhappy when life insurance policies are sold to secondary markets because then those policies become much less likely to lapse. Insurance companies count on the lapsing of insurance policies to keep their earnings high. This is because if the policy holder allows his or her policy to lapse, the insurance company gets to keep all of the premium money that had been paid minus any small accrual of benefits that have cash value. When all high profile life insurance policies are guaranteed eventual payment, it certainly puts a strain on insurance executives’ pockets.

It is anticipated that for these reasons insurance companies may soon find ways to make premium financing less available and attractive. Already, during the underwriting process they will ask the senior if anyone has talked to them about selling their policy in two years, and if the answer is “yes,” the company will not underwrite the policy. But for now the buzz of possible investment dollars is being heard loud and clear on Wall Street, and interest in the secondary market purchase and sale of life insurance policies is growing rapidly. Lenders like Goldman Sachs find this an attractive area, and investors like Warren Buffet see the investment of paying premium money for these life insurance policies as a very small sacrifice for a return of about 12 to14%, the industry average.

 

What Is a Return of Premium (ROP) Life Insurance Policy?

At the company that I previously worked for the Return of Premium Life Insurance Policies were the new thing. They had two different versions. There was the ROP-20 & ROP-30. That’s a 20 year term and 30 year term policy. So what’s so great about this policy versus other ones out there? Well, the selling point is that if you outlive your policy all premiums paid in are returned to you when the term expires. What you can expect from this type of policy: It’s a great policy if you can afford it. The premiums are generally more expensive than normal term policies. But, if you have the money to pay for it then it’s a great policy. It’s sorta like a Savings Account that you can’t touch. At least that’s how I approached it when I sold this type of policy. Also, with most term insurance policies you can usually convert the policy to a type of permanent insurance if your needs change. The features of the policy can vary from company to company, but here are some of the features that were offered at the company I worked for:

Dividends – This policy does allow for them, but as with other policies they are never guaranteed.

Premium Banding – This type of policy will normally offer rate bands. Usually you will see something like banding at $250,000, $500,000 and 1 Million. Typically with banding the premium per $1,000 of coverage will decrease as the amount of coverage you bought moves into the higher bands. So if your thinking about purchasing a policy with a death benefit of $200,000, it could possibly be cheaper or more beneficial for you to purchase $250,000 because of the premium band.

Riders – With the ROP, usually there are not as many riders offered. You will probably see the “Wavier of Premium” and “Children’s Term Rider” You will want to double check though that the premiums you pay in for the riders will be returned to you. Not all companies will return the premiums for some riders.

Loans – You can still take out a loan against the cash value on your policy. With these policies the Cash Values usually starts a little later, with most companies it’s around the 5th policy year. At the company I worked for the cash value was equal to a percentage of all premiums paid into the policy. Then the percentage increases each year after the 5th year until it reaches 100% of the total premiums paid at the end of the term. Don’t forget that you are still charged interest on your loan. Also, any death benefits will be reduced by any outstanding loans and interest you may have. Some companies also offer “Automatic Premium Loan Provisions” With this, if your at the end of your Grace Period and the premium due has not been paid, a policy loan will automatically be made from your policy’s cash value to pay the premium. This is to prevent the unintentional lapse of your policy. This is usually an option on the application when you sign up for the insurance.

Renewability – As with most Term policies, this type of policy is renewable annually after the initial term period with annually increasing rates. So if you get the ROP-20, then on year 21, you would be able to renew this policy each year.

Death Benefits – The death benefit is paid to the beneficiary, federal income tax free, as long as the policy is still in force. If the insured person dies prior to the end of the term, the Return of Premium Benefit is not paid in addition to the face amount. All the premiums paid up to that point and any cash value would be kept by the company. They would however pay out the death benefit, but you can not have both.

Taxes – The Return of Premium benefits are taxed, but only to the extent that premiums paid for a WPD (Wavier of Premium Rider) are returned. Tax laws do not allow for inclusion of WPD premiums. So, only those portions of the premiums paid for a WPD Rider are taxable. Keep in mind that not all companies return the premiums paid for the WPD rider, so this would only apply if your company does. So is it worth the extra money? This really depends on how you look at it. With most term policies, it’s sorta like your renting a house. You pay your monthly Premiums (rent) but when your term expires you have nothing to show for it. The return of premium policy is the exception to this. That is usually the biggest complaint about Term policies. You pay in but have nothing to show for it in the end. But, with the ROP, if you outlive your policy then you get all your premiums back. So it sounds like a win/win to me.

During my time in the insurance industry I did sell a ROP-20. It was to a younger couple who was planning on using the money to pay for their child’s educational costs in the future. They figured that in 20 years, their child would be going to college and the Returned Premium would be a great way to help pay for that. So I personally think it’s a good policy to check into. As with any policy their are pro’s and con’s so it’s a good idea to sit down with your agent and go over all your life insurance options. There are many Life Insurance policies to choose from and now you can say that you know about one more.

 

How Crowdfunding Can Help Pay Medical Bills

Crowdfunding can help pay for medical bills… it really is that simple. You can crowdfund for just about anything, including medical bills. Many times people are placed in a medical crisis and aren’t sure where to turn. Medical bills can accumulate in no time and medical bankruptcy is a real thing. You’d be amazed by how many people in “your own crowd” are willing to help.

In a study published in January 2014 from the Center For Disease Control (CDC), one in four families experienced financial burdens of medical care.

This “financial burden” of medical care equates to medical bills that they can’t currently pay and are forced to pay monthly over time.

This study goes on to share that families with lower incomes were more likely to experience the financial burdens of medical care. Those families with incomes at or below 250% of the federal poverty level had the highest levels of any financial burden of medical care.

250% of the federal poverty level (based on guidelines for 2013) means that a family of four with an annual income of $58,875 or lower were at the highest level of the population feeling the financial burden of medical care for a loved one. That’s our middle class America. Those are the families living paycheck to paycheck and not prepared for a medical crisis.

The is a baby with his eyes closed and an oxygen canula in his nose. He was born with a bad heart, a weak immune system, and problems eating which caused a condition labeled by doctors as “failure to thrive”. Isaac spent the first year of his life in and out of hospitals in Las Vegas and at Stanford where he underwent multiple heart catheterizations and procedures, open heart surgeries, and had a feeding tube placed surgically to ensure he received the proper amount of nutrients. Isaac’s family had great insurance, covering 80% of all medical costs. But, they still spent over $100,000 out-of-pocket the first year of his life in deductibles and medical related expenses.

Shocking… right?

I know… My name is Kathy, and I’m Isaac’s mom.

I remember people asking us if they could have fundraisers for us, give us money… they would offer to do anything just to help. At that time, I could not have imagined the costs that we would incur, nor could I imagine all the things that insurance doesn’t cover. You assume that you pay for insurance, you’ll have a deductible… The End.

If that were only so.

Words of Advice:

Start a Crowdfunding Campaign Immediately

Don’t be too humble to let other people offer to help you. You really can’t imagine the costs of things in the medical world and how they add up. It is TOO hard to think about money when you’re talking about the healthcare of someone you love. You want anything and everything done… you’ll worry about the bills later.

From a Mom that’s Been There

Don’t expect the people in the middle of a medical crisis to be thinking clearly (well, I sure wasn’t). If you’re related to the family or just a loving friend… talk to them about the medical bills and the reality of the situation. Talk with them about what they need now and what their needs may be in the future and help them come up with a budget and plan to get everything their loved one needs. From bills, equipment, therapy sessions… even therapy dogs, all these things can be a necessity now or in the future.

How exactly will crowdfunding help pay my medical bills?

Well, they can’t send a check to the hospital for you, but they can offer you a platform that will help you tell your story as well as share it with your friends and family. The right crowdfunding platform will provide support for you all along the way, from guidance writing your story, picking pictures to post, sharing on the social media channels, and even help writing press releases to get national exposure.

Crowdfunding can help you pay for your medical bills by allowing YOU to take care of your family and letting your “crowd” help YOU. Donations will be made by people you have inspired and want to help you. These people will have a platform to donate to you on their schedule and an amount that is within their means. They will be assured that the funds are going directly to YOU and not an anonymous organization.

You are not alone in your medical crisis. Crowdfunding is a viable source for helping to pay for medical bills and other medical related necessities.

The Process of Car Repossession – Understand It So It Doesn’t Happen to You

In a perfect world, things would always go as they should.

Sometimes that’s just not the case.

If you’ve found yourself in a bind or on the verge of falling behind on your payments. The best thing to do is contact your credit card, mortgage or auto loan companies and explain your situation.

Take action

If you have a car loan, you understand the importance of paying your loan on time. If you cannot make your payments on the exact due date.

You are granted a 30-day grace period to make a payment without having this late reported to the credit bureaus.

If you don’t think you’ll be able to make a payment before the 30-day grace period ends or foresee yourself being in a bind that will last longer than 30 days, there is something you should know.

Ignoring calls from your creditor is the wrong route to go.

*While you may feel embarrassed or reluctant to contact your creditor, you are not alone. Thousands of people fall behind on their payments due to financial hardships. The person on the other end of the phone is trained to handle these types of calls and will be more than willing to help you the best way they can.

What should you do?

Most car loans have a stipulation that allows you to defer your payments for a short amount of time while you get your finances situated. Other options besides deferment might be offered such as lower payments until you can make the full payment.

Your options will depend on your specific car loan and terms agreed upon at the time of sale.

If you are currently in good standing:

Call your creditor and explain that you’ve had some setbacks and ask about your options to defer your loan payment until you can make payments. This will usually give you about 2 months to catch up.

If you are currently not in good standing(late beyond 30 days):

Call your creditor back and explain that you’ve had some setbacks and would like to make a plan to catch up on your payments or defer a future payment. Ask about your options to defer your loan payment until you can make a payment. You will usually be asked to make your account at least current up to 30 days before a deferral can be granted.

How will this help you?

Car repossession doesn’t end well for anyone. Not you and certainly not your creditor. Once a car is repossessed, it is usually sold at an auction for a fraction of the cost. This is a lose-lose situation for everyone.

While your loan is in deferment you will not be reported late to the credit bureau as you have made an agreement with the company to pay at a later date.

The downside to this, of course, is that your loan agreement will be extended and you will end up paying more interest in the long run. This is, however, a better alternative to having your vehicle taken.

When can your car be repossessed?

It all depends on the specific car loan you have in place. You are usually considered in default of your loan agreement as soon as you miss a payment.

With that being said, you are granted a 30-day grace period. Some states allow cars to be repossessed after one missed payment. The longer you take to make your payment is one step closer to having your car taken and a serious ding on your credit report.

A repossession will remain on your credit for up to 7 years and hurt your chances of obtaining other car loans in the near future. Even after a repossession, you may still owe the difference between what you owed your lender and what your car was sold for. This is called a deficiency balance. A deficiency balance is usually the norm especially if you purchased a newer vehicle.

Please note that these options are for those experiencing temporary hardships. It is not recommended for long-term foreseeable situations.

All You Need to Know About 2 Wheeler Loan Finance

With growing demand in semi urban and rural areas, 2 wheeler industry is a high growth sector. The industry is estimated to be Rs.6, 000-Rs.7, 000 crore in size. This means there is abundant opportunity for 2 wheeler finance companies. There was limited awareness about financing for a 2 wheeler in the olden days but with the increasing penetration of financial institutions across the country, it has become possible to obtain 2 wheeler finance quickly and conveniently.

Getting 2 wheeler loan finance has become easy. The eligibility criteria, documentation requirement and the process has been mentioned below:

Eligibility:

Individuals above the age of 18.
Salaried individuals who have been employed for more than a year.
Business owners who are running a business for over a year.

Documentation:

Identity Proof
Address Proof
Income Proof
Valid KYC documents
Passport size photographs

Procedure:

In order to apply for 2 wheeler loan finance, the applicant needs to scout the market for various Banks and financial institutions offering the loan. Based on the terms and conditions of the respective financial institutions, the applicant should choose the one that suits his requirements. The application process is quick and transparent. The applicant needs to meet the eligibility criteria in order to apply for the loan. Further, the applicant needs to submit the application form and provide the required documents to the financial institution. The customer executives are friendly and will guide through the entire process of application. The application will be processed within 48 to 72 hours and the loan will be approved in no time.

It is advisable to seek a loan from a trustworthy financial institution. They offer flexible tenure and easy repayment options. With a low rate of interest and a flexible repayment tenure, purchasing a 2 wheeler has become quick and easy. Individuals with a positive credit history can get the loan approved quicker and are also eligible for the special schemes. Once the loan amount has been disbursed, it is not possible to change the tenure and amount, hence it is important to give the loan application a good thought and settle for a repayment tenure which is possible based on the monthly income of the applicant. Financial institutions offer customized solutions to the applicants based on their requirements. Depending on the type of 2 wheeler to be purchased, the loan amount will be sanctioned.

The applicant will only be required to pay a small amount as down payment and the balance can be converted into a 2 wheeler loan which is to be repaid in easy monthly installments. Upto 95% of the on road price of the vehicle is available as a loan to the applicant and the repayment tenure ranges between 12 months to 48 months. With the increasing demand of 2 wheelers across the country, Banks and financial institutions are offering loans which meet the requirements of the consumers and they also settle the terms accordingly.

Some of the Biggest Mistakes When Looking For a Motorcycle Loan

The Essentials in deciding On Motorcycle Loan.

Sometimes the necessity or excitement of owning a motorcycle cast a bad spell on our buying decisions, especially when the purchase form is a loan. So, before making that impulsive mistake only to regret later consider these essential factors when deciding to apply for a motorcycle loan.

  1. Interest Rates:

The moment you think of a loan, the interest rate coupled with it should ring a bell. Most often attract interest rates over shadow the risk factors involved. Always begin with good amount of research and comparison of interest rates. You do not want the burden of high interest rates steal the joy of riding your new bike!

  1. Smart negotiation:

When you are about to make a purchase decision, do not merely focus on the form of payment and negotiate on how you intend to go about it. A smart negotiation effort would include, negotiating on the payment. Payment always precedes the payment method!

  1. Loan Inclusions:

Discuss with the lender all the accessories that the loan is inclusive off. You do not want to pay additional bills besides paying off your loan. The wiser discussion and decision would be to know about the inclusions and the exclusions of the loan you have applied for.

  1. Loan security:

Always consider what is at stake should you face difficulty in paying off your loan. Some lenders hold the purchased motorcycle as the security, failing to pay will mean ceasing your bike. Some other lenders may consider other collaterals as security. Unsecured loan plans are other alternatives but comes with a high cost of increased interest rates. So, your loan security should be well thought through deliberate decisions considering all the risks involved. You do not want to risk something in vain!

  1. Loan penalties:

Pause before you sign your loan agreement. Although knowing the details of the penalties tailed to your loan amount can be cumbersome and you want to skip through it, it may not be the best of your decision. At best, avoid signing loan agreements that come with stringent penalties. A decision in time, saves you from a future disaster!

  1. Easy loan termination:

Most lenders allow early clearance of your loan and some do not. It is best for you to verify the termination policies before you sign that loan agreement. You do not want to pay with interest rates, while you own the money to clear a credit.

Owning a motorcycle is useful as well as exciting, but what is more important is sustaining both while using it. Using the right loan tailored to your needs is worth every effort.

Hidden Advantages of Outsourcing Services for the Car Loan Industry

Let us face the reality that today, we live in a ‘do-it-yourself’ way of life. As they should, people want to show off their auto repairs, home improvement projects, and many other tasks that majority of us would more often not seek professionals to perform the task, as they just prefer to do it by themselves.

It is absolutely a great value in a number of ways. You can gain expertise from your experience. Sometimes, it does not necessarily mean that it is a better way to go from doing something by yourself because oftentimes, it pays more to hand over and look someone for help.

Many of the car loan businesses are beginning to worry about not only getting in the game but also in maximizing their returns with all sizes racing to compete in the lending market. To outsource car loan business services, many industry experts understand that it is often considered more cost-effective.The most obvious reason for doing this is because industries don’t have to hire new staffs or underwriters solely for car loan operations and services. You have to keep in mind that those industries are also avoiding the other expenses related to assisting the infrastructure associated with an internal underwriting team.

But the advantages don’t stop there because there are a number of hidden advantages that many businesses fail to consider when entertaining ideas of outsourcing their car loan business processing that includes staffing and funding. Here are some of the hidden advantages of outsourcing for car loan business:

Increase the Number of Loans that Leads to More Net Profit

Just consider it as any consumer business committing to sales. As this dealer management is all about being able to see, looking for your niche and catering your offers to the biggest needs of your dealers. Better and stronger relationship with dealers and having more dealerships in the network in order to drive portfolio growth is one of the end goals of outsourcing some services when you are in the car loan business.

Improved Relationships with Customers

Your staff will be able to intensify its focus on strengthening relationships with your customers- making visits, gathering feedback and better addressing their needs that will drive growth for your car loan business portfolio.

A Guideline that Allows the Outsourcing Provider to Serve as an Extension of Your Car Finance Team

Your outsourced car loan provider should be able to efficiently, quickly, and easily customize its financing scorecard to fit your representation. By doing this, it guarantees that making a decision for car loan financing is consistent and fits your appetite and business plan.

Access to Consultation and Expertise

It allows your business to avoid common pitfalls that businesses fall victim to when trying to get in-house functions off the ground when outsourcing your car loan business processing. Through outsourcing, those businesses must hire the expertise that is readily available.

After-Hours Process

By waiting until the next business day to respond to proposals, don’t miss out on those deals especially over the weekend when many consumers have time to hunt for motorcycles, cars, and trucks.

It will absolutely offer a significant benefit over businesses with in-house operations that are confined to traditional business hours when you have an access to after-hours processing service.

Are you ready to revolutionize the way you do business? Grow your business by outsourcing.

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