What is Mortgage Amortization and How Does it Work? #mortgage #questions


#mortgage loan amortization

#

What is Mortgage Amortization and How Does it Work?

Paying off a mortgage is an overwhelming task.

A mortgage is a big debt—almost as big as your house—so the best most of us can hope to do is to shorten the term by prepaying as much of the loan that we can as quickly as we’re able.

Why should we want to do that?

Owning your home free and clear is a good place to be. You’re living in your home with no mortgage payment and that’s when saving money and life in general get easier.

But there’s something more.

The cumulative interest on mortgage loans makes your loan balance even bigger.

A mortgage of $200,000 will require nearly $350,000 in monthly payments over a 30 year period. Anything you can do to shorten the term can save a lot of money.

What is Mortgage Amortization?

Amortization —the built in payoff calculation contained in most mortgages—is your best tool in the process of getting your loan paid off. Amortization, simply put, is the difference between your monthly mortgage payment and the interest portion it contains .

By making prepayments on your mortgage, either by increased monthly payments or by periodic lump sum payments, you decrease the amount you owe AND the monthly interest payment. As the interest portion of your payment declines, the principal portion increases, and with it, the remaining term of the loan gets shorter.

Paying off your loan in 20 years instead of 30 will save nearly $120,000 in payments (based on a $200,000 loan), freeing up money for investing or for what ever else you want to do.

The Good and Bad News on Amortization

The good news on amortization is that it offers a guaranteed way to pay off your mortgage.

Even if you make no extra payments, because of amortization, you’ll own your home free and clear by the end of the loan term. In addition, with each payment that you make, your equity will grow just a little bit.

During the “interest only” frenzy of a few years ago, this concept seemed to get lost in the all consuming drive for lower monthly payments.

The bad news is that amortization is slow very slow!

Like snail slow.

Like, I paid how much towards my mortgage but the principle only went down that much. slow.

Because interest is front-loaded on a mortgage (most of the interest is paid in the early years, most of the principal is paid in the later years), it will be many years into your mortgage before you’ll start seeing any meaningful decline in your loan balance.

By making prepayments you can accelerate the amortization process, enabling you to pay your mortgage off early .

An Example of How Mortgage Amortization Works

The best way to see how mortgage amortization works in real life is with an example.

Let’s assume you take a 30 year fixed rate loan of $200,000 with an interest rate of 4.00%, how will that look at different intervals?

Beginning of loan, first payment:

Your mortgage amortization tells you how much you are paying in interest versus principle every month.

Monthly payment: $954.83
Principal portion: $288.16
Interest portion: $666.67
Remaining loan balance: $199,712

After five years, payment number 61:

Monthly payment: $954.83
Principal portion: $351.85
Interest portion: $602.98
Remaining loan balance: $180,543

After ten years, payment number 121:

Monthly payment: $954.83
Principal portion: $429.60
Interest portion: $525.23
Remaining loan balance: $157,139

As you can see from this example, about 70% of the first payment is interest—you’re hardly making a dent in the principal balance. In fact, you’ll have paid off less than $3,500 in principal during the first year of the loan.

After five years, your principal portion has only increased by about $64 per month and you still owe 90% of the original loan amount!

You’ll have to hit payment number 153—12 years and nine months into the mortgage—before the principal portion of your payment first edges out the interest portion!

And at that point, nearly 13 years into the loan, you’ll still owe a balance of $142,608, or more than 70% of the original loan balance. And you’re nearly halfway through the loan term!

Moral of the amortization story: amortization is a slow process, which is why it’s so important to begin prepaying your mortgage as early in the term as possible .

Try playing around with a mortgage calculator to see how much money you can save by accelerating the amortization process with extra payments.

A little each month or a lump sum here and there can make a big difference .

How Amortization Can Work Against You if You Refinance

As you can see from the example above, amortization works its magic very slowly over a long period of time.

Because of this, you have to consider the impact that a refinance will have on your efforts to one day own your home mortgage-free.

One of the primary reasons people refinance is to lower their monthly payment.

Getting a lower interest rate is one way to do this, but another is to lengthen the term of your new loan.

If you’re ten years into a 30 year loan, and you refinance back to another 30 year loan, your new payment will be lower, but you’ll achieve that by starting the amortization process all over again.

The best course—if you want to keep yourself on the original payoff schedule—is to set the term of the new loan to no more than the number of years you have remaining on the old loan, or in this case 20 years.

If you’re seven years into a 30 year loan, a refinance should be limited to 23 years—the same number you have to go on your current mortgage.

The recasting of loan terms back to 30 years was one of the biggest reasons why so many people watched their equity evaporate during the housing meltdown.

If you keep recasting your mortgage back to 30 years, your amortization will remain stuck in slow motion robbing you of the best chance you have to payoff your mortgage. Think about this the next time you decide to refinance.

Finally

Amortization is something of an strange term, but you don t have to shy away from it. What it basically means is your loan was set up in a way that will take a specific amount of time to repay it. As you go along, some of your payment goes to the interest and some to the principle. How much goes to each will change over time.

With mortgage amortization you pay a lot more interest in the beginning than principle. Keep this in mind if you ever want to refinance since you ll have a new amortization schedule.

Also, realize that the quicker you can start paying more toward your principle, the quicker you build up your equity and you pay off your loan faster too.

Mortgage amortization can help and hurt you, depending on how you use it.

Disclaimer

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What is APR? How does APR differ from standard interest rates? #pre #approval #mortgage


#apr formula

#

What is APR? How does APR differ from standard interest rates?

Article Category: Finance |

In an ideal world, taking a loan would be simple. Apart from filling out the paperwork and receiving approval all you’d need to know is the amount of interest you have to pay. Take out $1,000 at 5% and your total repayment sum comes to $1,050. But, depending on the terms of your finance, on top of this you’ll need to consider any additional costs such as processing fees, etc.

Simple, right? In theory, yes. The confusion starts to set in once you factor in APR (Annual Percentage Rate).

Before we move on to look at the specifics of APR, let’s start with some very basic explanations.

What exactly is an interest rate?

An interest rate is a fee, calculated as a percentage of the total loan amount, that you are charged for borrowing money. Most lenders refer to this as a base rate.

What is APR?

We’ve already delved into the question, what is compound interest and how can it help you?. But to save you having to jump back and forth between pages, here’s a quick explanation:

When you take out a loan the lender calculates interest on a sliding scale. This figure is then used to work out what your monthly repayments will be.

Here’s a quick example:

You borrow $1,000 with an APR of 3% over 3 years (assuming an annual APR calculation).

Year 1 interest. 1,000 x 0.03 = 30 and 30 + 1,000 = 1,030
Year 2 interest. 1,030 x 0.03 = 30.9 and 30.9 + 1,030 = 1061
Year 3 interest. 1,061 x 0.03 = 31.83 and 31.83 + 1,061 = 1,092.83

In total, you’ll pay back $1,092.83 at the end of the finance period.

Note: advertised APR figures are normally higher than the advertised interest rate because lenders bundle additional costs and fees into the rate shown. For peace of mind, and to ensure you know what you’re going to pay, ask your lender exactly what fees are included in the APR figure they offer you.

So, what is the difference between interest rate and APR?

We’ve touched on it very briefly already, but let’s go a little deeper. When you accept any kind of loan offer you should be shown two interest rates: the APR and the flat rate of interest.

The yearly interest rate you see is exactly what it says: it’s only the charge (in the form on interest) that you pay for borrowing money. There are no grey areas here – if the figure is 10% then that’s the base rate you’ll be charged. So, if you’re lucky enough to find a lender who charges you only $45 for borrowing $1,000 then the rate you pay is 4.5% (45/1000).

Annual Percentage Rate (APR)

As we noted earlier, the way APR is calculated is a little more complex as it combines a number of additional fees charged by your lender. Included in the cost are prepaid interest, insurance, closing fees and any other costs that may be associated with the transaction. Combined, these factors mean the APR you’re shown is higher than the base rate that lenders use to advertise their loan plans.

Another factor to consider is the cost of moving loans from one supplier to another. APR is worked out on a sliding scale and your lender shows you figures based on the assumption that your debt will be held by them until it’s finally paid off. If at some point you decide to shift your debt to another company then we strongly advise you check the sums. Although those lower interest rates look very appealing, if you keep jumping from one supplier to another, you might end up paying far more over the term.

As with any form of lending, it’s important to understand the terminology that money lenders wrap around their offers. But, even more important, having a reliable tool you can use to work out the financial impact of borrowing money will stand you in excellent stead before you even start the application process that’s why we’ve created an interest rate calculator to give you an accurate view of both the interest and APR payments you’ll be required to meet. If you would like to learn more about the different types of interest rate, read our article, what is the difference between nominal, effective and APR interest rates?

Written by James Redden

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  • Second Mortgage: How Does It Work? #what #is #arm #mortgage


    #second mortgage

    #

    Get a free assessment

    Second Mortgage

    What is a second mortgage?

    A second mortgage is a charge over a property that already has another mortgage on it. The mortgages are ranked in the order in which they were lodged. In the event that the debt isn’t paid and the property is sold the lenders will receive their money in order of priority with the 1st mortgage being paid back before any money is paid to the 2nd or 3rd mortgagee.

    For example if you had a mortgage with Westpac for $100,000 secured on your home and you then applied for a $100,000 loan with ANZ this would be set up as a 2nd mortgage behind the Westpac loan. In the event that you didn’t pay back your loans and the property was sold for $190,000 then Westpac would be repaid in full and ANZ would receive whatever was left over.

    Why would you use a second mortgage?

    Most people prefer to refinance their loan to another lender rather than obtain a 2nd mortgage. However there are some situations where a 2nd mortgage is more appropriate:

    • Fixed rates: If your 1st mortgage is a fixed rate loan then there may be high exit fees or you may not want to refinance because your fixed rate is much lower than the current variable rates. In this situation you may borrow additional money using a 2nd mortgage.
    • Guarantor support: If you are helping your children buy their first home then you may guarantee their loan using a 2nd mortgage over your property as additional security for the bank.
    • Private lenders: Many private lenders that can advance funds within 48 hrs will take a 2nd mortgage behind a major bank as security for their loan. We recommend that you avoid using private lenders at all costs.

    How much can you borrow?

    • 2nd mortgage with the same bank: up to 95% of the property value.
    • 2nd mortgage with a different bank: up to 85% of the property value.
    • Low doc: Not available except through private lenders.
    • Discounts: Lenders rarely offer rate discounts on 2nd mortgages.
    • Note: The lender that has the 1st mortgage has to consent to you obtaining a 2nd mortgage on your property. They do not usually stop you from doing so, but will usually charge a fee of around $300 for assessing your request.

    Why are the banks so conservative?

    By their very nature 2nd mortgages are very poor security for a loan compared to a 1st mortgage. Because of the complexities of two lenders being involved and the low priority of the debt in the event that you default on your loan, most banks limit the amount you can borrow or refuse to do business with you.

    Hello. How do we arrange the second mortgage consent for my parent s property as they ll providing guarantee for me to purchase my home next month.

    Hi Rose, your parents will have to contact their lender to arrange second mortgage consent. Usually, the lender will provide consent for the second mortgage.


    How does remortgaging work? Money Advice Service #100 #mortgage #financing


    #remortgage

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    How does remortgaging work?

    Remortgaging is where you pay off your existing mortgage and switch to another lender. There are good reasons to consider remortgaging, but you need to consider the costs before you do.

    At a glance

    1. Check the value of your property. It may have increased in value since you last checked. The higher the property value in relation to the mortgage, the more deals may be available to you if you decide to remortgage – and you may be able to get cheaper deals.
    2. Check the market for mortgage deals. This is your starting point for comparing what you’re paying now with what you might be able to get elsewhere.
    3. Make sure the benefits of switching outweigh the costs. Even though there may be lower rates available you need to take into account any fees associated with switching and the remaining length of your loan.
    4. Take what you’ve found to a mortgage broker. They have access to mortgages that aren’t available on comparison sites so may be able to improve on what you’ve found. They’ll also double check the costs and benefits of switching. Ask for an advised service.
    5. Set a reminder to review your mortgage each year. If you remortgage you may get an introductory deal on your interest rate – when this ends you’ll usually be put on a less competitive variable rate.

    Check the market for mortgage deals

    Comparison websites are a good starting point when you’re trying to find a mortgage tailored to your needs.

    We recommend the following websites for comparing mortgages:

    • Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
    • It is also important to do some research into the type of product and features you need before making a purchase or changing supplier.

    Use our Mortgage affordability calculator to find out how much you can afford to borrow.

    Take advice

    Taking advice from a qualified expert offers you extra protection because if the mortgage turns out to be unsuitable, you can complain to the Financial Ombudsman Service (FOS).

    If you choose to go down the ‘execution-only’ route (where you make decisions on your own without advice), there will be fewer circumstances in which you can complain to FOS.

    When it pays to switch and when it doesn’t

    In the two examples below you can see how the size and remaining term of your outstanding mortgage can affect whether or not it’s worth switching.

    In the first example, the cost of switching (£500) is greater than the saving (£239.04), so there’s no point in remortgaging. In the second example, it’s clear that switching mortgage saves money.

    If you change your mortgage before the end of your deal you may have to pay a fee (called an ‘early repayment charge’).

    You can use the links below to check current deals and work out what you might save by switching. But remember to check associated fees and costs.

    Use our Mortgage calculator to see how much you could save by switching.

    Check the costs

    Before you switch be sure to check out the costs. Some lenders might offer fee-free deals to tempt you, but if they don’t you’ll have legal, valuation and administration costs to pay.

    You can use the Annual Percentage Rate of Charge (APRC) to help you compare deals. The APRC is a way of calculating interest rates that incorporates some mortgage related fees in the calculation, giving you a way to compare mortgage deals.

    What might look like a money saving deal could end up losing you money if you don’t do your sums first.

    Reducing your loan-to-value to get a better rate

    Every mortgage deal has a limit to how much you can borrow when compared with the current value of the property.

    This is shown as a percentage and is called the ‘loan-to-value’.

    When you remortgage, the lower the loan-to-value you need, the more deals that may be available to you – and you may be able to get cheaper mortgage deals.

    How to calculate your loan-to-value

    1. Divide your outstanding mortgage amount by your property’s current value.
    2. Multiply the result by 100.
    • Your outstanding mortgage is £150,000
    • Your lender thinks your property is worth £200,000
    • 150,000 divided by 200,000 = 0.75
    • 0.75 x 100 = 75 – so your loan-to-value is 75%

    Use the links below to get an idea of your home’s current value.

    Your lender’s valuation

    Bear in mind that when you apply for a mortgage, the lender’s valuation may just involve checking the outside of the property from the street.

    If you think the valuation is much too low – and that you’re losing out on a better rate as a result – ask the lender to reconsider.

    To support your case, you could provide evidence of the sale price of a few similar properties in your area and, if relevant, list the cost of any expensive home improvements you’ve carried out.

    If as a result of cost savings you can make by remortgaging, you’re wondering whether to pay off your mortgage early, read our guide below.

    Remortgaging to get a better interest rate

    When you take out a new mortgage, you normally get an introductory deal – for example a low fixed or discounted rate or a low tracker rate for the first few years of your mortgage.

    Introductory deals normally last for between two and five years. Once the deal ends you’ll probably be moved onto your lender’s standard variable rate, which will usually be higher than other rates that you might be able to get elsewhere.

    So when your introductory period ends, take a look at the market to see if switching to a new mortgage deal will save you money. It’s also worth reviewing options before interest rates change .

    Bear in mind that if you only have a small outstanding mortgage the amount you stand to save may be too low to make switching worthwhile.

    Remortgaging for more flexibility

    Remortgaging may also enable you to get a more flexible deal – for example if you want to overpay.

    Or maybe you want to switch to an offset or current account mortgage, where you use your savings to reduce the amount of interest you pay permanently or temporarily – and have the option to draw your savings back if you need them.

    Remortgaging to consolidate debt

    If you have a lot of debt, you might be tempted to borrow some extra money and use it to pay off your other debts.

    Even though interest rates on mortgages are normally lower than rates on personal loans – and much lower than credit cards – you may end up paying far more overall if the loan is over a longer term.

    Instead of adding your debt to your mortgage, try to prioritise and clear your loans separately.

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  • Government help if you can’t pay your mortgage


    Second Mortgage: How Does It Work? #top #mortgage #lenders


    #second mortgage

    #

    Get a free assessment

    Second Mortgage

    What is a second mortgage?

    A second mortgage is a charge over a property that already has another mortgage on it. The mortgages are ranked in the order in which they were lodged. In the event that the debt isn’t paid and the property is sold the lenders will receive their money in order of priority with the 1st mortgage being paid back before any money is paid to the 2nd or 3rd mortgagee.

    For example if you had a mortgage with Westpac for $100,000 secured on your home and you then applied for a $100,000 loan with ANZ this would be set up as a 2nd mortgage behind the Westpac loan. In the event that you didn’t pay back your loans and the property was sold for $190,000 then Westpac would be repaid in full and ANZ would receive whatever was left over.

    Why would you use a second mortgage?

    Most people prefer to refinance their loan to another lender rather than obtain a 2nd mortgage. However there are some situations where a 2nd mortgage is more appropriate:

    • Fixed rates: If your 1st mortgage is a fixed rate loan then there may be high exit fees or you may not want to refinance because your fixed rate is much lower than the current variable rates. In this situation you may borrow additional money using a 2nd mortgage.
    • Guarantor support: If you are helping your children buy their first home then you may guarantee their loan using a 2nd mortgage over your property as additional security for the bank.
    • Private lenders: Many private lenders that can advance funds within 48 hrs will take a 2nd mortgage behind a major bank as security for their loan. We recommend that you avoid using private lenders at all costs.

    How much can you borrow?

    • 2nd mortgage with the same bank: up to 95% of the property value.
    • 2nd mortgage with a different bank: up to 85% of the property value.
    • Low doc: Not available except through private lenders.
    • Discounts: Lenders rarely offer rate discounts on 2nd mortgages.
    • Note: The lender that has the 1st mortgage has to consent to you obtaining a 2nd mortgage on your property. They do not usually stop you from doing so, but will usually charge a fee of around $300 for assessing your request.

    Why are the banks so conservative?

    By their very nature 2nd mortgages are very poor security for a loan compared to a 1st mortgage. Because of the complexities of two lenders being involved and the low priority of the debt in the event that you default on your loan, most banks limit the amount you can borrow or refuse to do business with you.

    Hello. How do we arrange the second mortgage consent for my parent s property as they ll providing guarantee for me to purchase my home next month.

    Hi Rose, your parents will have to contact their lender to arrange second mortgage consent. Usually, the lender will provide consent for the second mortgage.


    Ask the Expert: Does mortgage insurance make sense? Dec #cash #call #mortgage


    #mortgage disability insurance

    #

    Think twice before buying into one of the many pitches for different insurance products.
    December 19, 2003: 9:31 AM EST
    By Walter Updegrave, CNN/Money contributing columnist

    NEW YORK (CNN/Money) – I am being offered mortgage protection insurance. Is it worth the cost?

    — James Lawrence, Tampa, Florida

    Before I answer your question, let’s be sure we’re both talking about the same type of mortgage insurance. There are actually two kinds, and they provide very different types of coverage.

    First, there is the type known as private mortgage insurance, or PMI as it’s known in lending circles.

    If you are buying a home and putting up a downpayment of less than 20 percent of the home’s value, then generally you don’t have a choice of whether to buy this type of insurance. The lender requires it.

    Why? Because PMI isn’t there to protect you — it’s there to protect the insurer in the event you default on your home loan and the lender isn’t able to re-sell your home for enough money to pay off the mortgage.

    The cost of PMI varies, but a rule of thumb is about one half of one percent of the loan amount.

    So if you’re buying a house for, say, $150,000 and putting 10 percent down ($15,000), the annual cost of PMI on your $135,000 mortgage might run $675 a year, or $56.25 a month.

    In years past, some lenders would continue to collect PMI premiums even after the mortgage balance had fallen to well below 80 percent of the home’s original value. But Congress passed the Homeowners Protection Act of 1998, which allows homeowners to request that the lender cancel PMI when the mortgage loan-to-value ratio falls to 80 percent and requires the lender to cancel it when the ratio falls to 78 percent.

    By the way, appreciation in the home’s value isn’t taken into account in calculating this ratio — only the decline in the mortgage balance counts.

    There are also some other qualifications that may affect your ability to cancel PMI. For more on what the bill requires of you and the lender, click here.

    Mortgage life insurance

    The second type of mortgage insurance is the type that usually goes by the name mortgage life insurance.

    Here, you’re being offered the chance to buy an insurance policy that will repay your mortgage in the event of your death, disability or some incapacitating disease.

    This offer — typically by mail — often comes from your lender or an insurance company affiliated with that lender.

    This type of insurance is purely voluntary, however, so the question is, should you buy?

    Generally, I’d say the answer is no.

    It rarely makes sense to buy insurance for narrow reasons — to insure against a specific disease or a single calamity or to provide funds to pay off a single liability, in this case your mortgage.

    In the case of life insurance, for example, you’re much better off analyzing your overall insurance need based on what kind of liabilities your spouse or other dependents would face and how much income they would have to replace if you were gone, and then buying enough insurance to meet that need.

    Fact is, if you died tomorrow, your dependents would need to replace your income for a variety of reasons, not just to pay the mortgage.

    Indeed, it might not even make sense to pay off the mortgage. Your spouse or other survivors might be better off continuing to pay the loan — assuming that’s possible — and putting insurance proceeds to other purposes.

    In other words, you should take your overall financial picture into account when buying life insurance.

    And the way you should do that is to have a financial planner or life insurance agent perform what’s known as a “needs analysis.” You can also use any one of a number of insurance needs calculators online, including the calculators at The Life and Health Insurance Foundation for Education site and TIAA-Cref site.

    Of course, that leaves the question of what type of insurance you should buy — whole life, term, etc. — and the issue of how to shop for the best price for a policy.

    For more on those topics, see a column I wrote last year called “Life insurance made easy .”

    The same goes for disability insurance. You should consider a long-term disability insurance policy not just because you have an outstanding mortgage, but because you would likely need to generate income for a variety of reasons even if you were disabled and unable to work. For more on choosing a disability policy, click here.


    How Does a Reverse Mortgage Work – We Explain Everything You Need #mortgage #loans


    #reverse mortgage wiki

    #

    How Does a Reverse Mortgage Work?

    A reverse mortgage is a loan for senior homeowners that uses the home s equity as collateral. The loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. Any remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage.

    Eligibility For a Reverse Mortgage

    To be eligible for a HECM reverse mortgage, the Federal Housing Administration (FHA) requires that all homeowners be at least age 62. The home must be owned free and clear or all existing liens must be satisfied with proceeds from the reverse mortgage. If there is an existing mortgage balance, it can be paid off completely with the proceeds of the reverse mortgage loan at closing. Generally there are no credit score requirements for a reverse mortgage.

    Outliving the Reverse Mortgage

    Generally speaking, a reverse mortgage loan cannot be outlived and will not become due, as long as at least one homeowner lives in the home as their primary residence, continues to pay required property taxes and homeowners insurance and maintains the home in accordance with FHA requirements.

    Estate Inheritance

    In the event of death or in the event that the home ceases to be the primary residence for more than 12 months, the homeowner s estate can choose to repay the reverse mortgage loan or put the home up for sale.

    If the equity in the home is higher than the balance of the loan when the home is sold to repay the loan, the remaining equity belongs to the estate.

    If the sale of the home is not enough to pay off the reverse mortgage, the lender must take a loss and request reimbursement from the FHA. No other assets are affected by a reverse mortgage. For example, investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the reverse mortgage.

    Loan Limits

    The amount that is available generally depends on four factors: age (older is better), current interest rate, appraised value of the home and government imposed lending limits. Use the calculator to estimate how much you could be eligible for.

    Distribution of Money From a Reverse Mortgage

    There are several ways to receive the proceeds from a reverse mortgage.

    • Lump sum a lump sum of cash at closing.
    • Tenure equal monthly payments as long as the homeowner lives in the home.
    • Term equal monthly payments for a fixed number of years.
    • Line of Credit draw any amount at any time until the line of credit is exhausted.
    • Any combination of those listed above
    • Begin here to calculating the proceeds you may be eligible to receive: Calculate

    Difference Between a Reverse Mortgage and a Home Equity Loan

    Generally a home equity loan, a second mortgage, or a home equity line of credit (HELOC) have strict requirements for income and creditworthiness. Also, with other traditional loans the homeowner must still make monthly payments to repay the loans. A reverse mortgage generally has no credit score requirements and instead of making monthly mortgage payments, the homeowner receives cash from the lender.

    With a reverse mortgage the amount that can be borrowed is determined by an FHA formula that considers age, the current interest rate, and the appraised value of the home. Typically, the more valuable the home, the higher the loan amount will be, subject to lending limits.

    To summarize the key differences, with traditional loans the homeowner is still required to make monthly payments, but with a reverse mortgage the loan is typically not due as long as the homeowner lives in the home as their primary residence and continues to meet all loan obligations. With a reverse mortgage no monthly mortgage payments are required, however the homeowner is still responsible for property taxes, insurance, and maintenance.


    What is APR? How does APR differ from standard interest rates? #amortization #chart


    #apr formula

    #

    What is APR? How does APR differ from standard interest rates?

    Article Category: Finance |

    In an ideal world, taking a loan would be simple. Apart from filling out the paperwork and receiving approval all you’d need to know is the amount of interest you have to pay. Take out $1,000 at 5% and your total repayment sum comes to $1,050. But, depending on the terms of your finance, on top of this you’ll need to consider any additional costs such as processing fees, etc.

    Simple, right? In theory, yes. The confusion starts to set in once you factor in APR (Annual Percentage Rate).

    Before we move on to look at the specifics of APR, let’s start with some very basic explanations.

    What exactly is an interest rate?

    An interest rate is a fee, calculated as a percentage of the total loan amount, that you are charged for borrowing money. Most lenders refer to this as a base rate.

    What is APR?

    We’ve already delved into the question, what is compound interest and how can it help you?. But to save you having to jump back and forth between pages, here’s a quick explanation:

    When you take out a loan the lender calculates interest on a sliding scale. This figure is then used to work out what your monthly repayments will be.

    Here’s a quick example:

    You borrow $1,000 with an APR of 3% over 3 years (assuming an annual APR calculation).

    Year 1 interest. 1,000 x 0.03 = 30 and 30 + 1,000 = 1,030
    Year 2 interest. 1,030 x 0.03 = 30.9 and 30.9 + 1,030 = 1061
    Year 3 interest. 1,061 x 0.03 = 31.83 and 31.83 + 1,061 = 1,092.83

    In total, you’ll pay back $1,092.83 at the end of the finance period.

    Note: advertised APR figures are normally higher than the advertised interest rate because lenders bundle additional costs and fees into the rate shown. For peace of mind, and to ensure you know what you’re going to pay, ask your lender exactly what fees are included in the APR figure they offer you.

    So, what is the difference between interest rate and APR?

    We’ve touched on it very briefly already, but let’s go a little deeper. When you accept any kind of loan offer you should be shown two interest rates: the APR and the flat rate of interest.

    The yearly interest rate you see is exactly what it says: it’s only the charge (in the form on interest) that you pay for borrowing money. There are no grey areas here – if the figure is 10% then that’s the base rate you’ll be charged. So, if you’re lucky enough to find a lender who charges you only $45 for borrowing $1,000 then the rate you pay is 4.5% (45/1000).

    Annual Percentage Rate (APR)

    As we noted earlier, the way APR is calculated is a little more complex as it combines a number of additional fees charged by your lender. Included in the cost are prepaid interest, insurance, closing fees and any other costs that may be associated with the transaction. Combined, these factors mean the APR you’re shown is higher than the base rate that lenders use to advertise their loan plans.

    Another factor to consider is the cost of moving loans from one supplier to another. APR is worked out on a sliding scale and your lender shows you figures based on the assumption that your debt will be held by them until it’s finally paid off. If at some point you decide to shift your debt to another company then we strongly advise you check the sums. Although those lower interest rates look very appealing, if you keep jumping from one supplier to another, you might end up paying far more over the term.

    As with any form of lending, it’s important to understand the terminology that money lenders wrap around their offers. But, even more important, having a reliable tool you can use to work out the financial impact of borrowing money will stand you in excellent stead before you even start the application process that’s why we’ve created an interest rate calculator to give you an accurate view of both the interest and APR payments you’ll be required to meet. If you would like to learn more about the different types of interest rate, read our article, what is the difference between nominal, effective and APR interest rates?

    Written by James Redden

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  • What does authentication mean #what #does #authentication #mean


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    Penn State University Libraries

    Q. Trouble Logging In and Authentication Errors: What does this error message mean?

    Sample Error text:

    Authentication Failure: The database that you selected is for use by the students, faculty and staff of the Pennsylvania State University only.

    or your PSU Access ID and password is not accepted by a specific database.

    If you are having trouble logging in to access library databases, links to Course Reserves, or full-text articles, please review the information below.

    • You are off campus and trying to access a database directly.
    • Your browser cache is conflicting with the sign on process
    • You re logged in with an incorrect credential (Friends of Penn State instead of student Access ID)
    • You are not a current PSU faculty, staff or student
    1. Make sure you are connecting to the resource via a Library page such as the Databases by Title (A-Z) list. LionSearch. or a subject guide .
    2. Try clearing your browser cache/cookies. This is usually found in the browser settings, but instructions are different for each browser. you can Google clear cache (your browser name/version) to find instructions on the web OR see http://www.wikihow.com/Clear-Your-Browser%27s-Cookies
    3. Try closing and reopening your browser OR try a different browser
    4. Try logging into another authenticated resource –like ANGEL, Canvas, LionPATH or My Library Account, and try the database link again
    5. If off campus, try downloading and installing the LIAS VPN

    If you re still seeing the authentication error, then you may be logged in with your Friends of Penn State (FPS) account instead of your Access ID. This is more likely if your Access ID is numbered in the 5000 range (ABC5001, DEF5002, etc.), and if you created identical passwords for both types of account.

    You can usually fix the problem by going to work.psu.edu and changing your Access password. Then, close and reopen your browser, log in with your new password and try the resource again.

    If you re still having trouble after changing your Access account password, then you ll need to visit an ITS helpdesk with a signature station or call 814-865-HELP (4357). 865-HELP is available 24/7, except on holidays


    What does bonded and insured mean? #how #does #term #insurance #work


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    Should your housekeeper be bonded and insured?

    You’re looking to hire someone to clean your house, mow your yard or baby-sit your kids.

    But can you just hire the retiree across the street or the teen down the block, or do you need to find someone who is licensed, bonded and insured?

    It may all come down to how much risk you’re willing to take on.

    “It’s a value judgment people have to make on their own,” says William K. Austin, co-founder of Austin Stanovich Risk Managers LLC, an independent risk management consulting and insurance advisory company with offices in Massachusetts and Rhode Island.

    When it comes to hiring people such as lawn-care workers and housecleaners, “with routine stuff like that I’m not really worried,” Austin says.

    But he and other insurance experts say it s important to have the proper insurance in place on both your side and the service provider s, and ensure that it will cover things that might happen, he says.

    So if your cleaning woman falls down your stairs and injures herself, it would be covered under the liability and medical payments to others portions of your homeowners insurance policy .

    But you also need to consider whether your insurance will cover you if the person you hire does something that injures you or damages your property, he says. If someone is mowing your yard and a rock flies up and hits you in the head, your health insurance should cover whatever medical care you might require, Austin says.

    But you should verify that you have the coverage you need.

    “There’s a good chance these workers will be covered by your homeowners or renters policy, but each company treats things a little differently,” says Randy Petro, vice president of claims for Mercury Insurance in Orange County, California.

    Even if the injury or damage is covered, a significant claim on your homeowners policy can have a big impact on what you pay for coverage, says Insurance.com Managing Editor Des Toups. Some homes are already difficult to insure. You don t want to file a claim that might make insuring them with a standard policy impossible, he says.

    Why you need coverage for service workers

    If someone is injured while working at your home and you file an insurance claim, you would still have to pay the deductible, and if someone suffers a serious injury, it could result in a claim that exceeds your policy limits. (This is one reason homeowners buy additional liability coverage under an umbrella policy .)

    Teresa Leigh, owner of Teresa Leigh Household Risk Management, with offices in New York City and Raleigh, North Carolina, is a big advocate of hiring only those people who are properly licensed, bonded and insured.

    That means they have a business license, have the proper insurance and have made payments to a surety company for protection by a bond.

    The insurance company or surety company will be responsible for covering any financial losses. For example:

    • If you’re hiring someone such as a painter or chimney sweep, Leigh says you should request that the individual or company provides you with a copy of their certificate of insurance, Leigh says.
    • If the work you’ve hired someone to do isn’t completed correctly or in the time frame scheduled, you can file a claim with the surety company and be paid. The bond may also cover damage or theft that occurs.
    • If the worker is injured at your home or your property is damaged or stolen, their insurance company would cover the loss, not yours.

    Austin also recommends requesting a certificate of insurance from anyone you hire who is undertaking a bigger job, such as installing a pool or reroofing your house, where there is a greater risk that someone might be injured or your property might be damaged.

    “I would definitely recommend hiring licensed and bonded workers or contractors if you can, as that means they will have their own workers comp insurance that will cover them while they work in your home,” says Petro.

    Protection against shady contractors and scammers

    That is also the recommendation of the Better Business Bureau, which says hiring a house cleaner who is licensed, bonded and insured is “crucial,” and you need to verify that the information is legitimate and current.

    That verification also protects you from scammers, Leigh says, helping “you select out the people who are legitimate.”

    You also need to be sure that the person you hire to do work for you isn’t considered your employee under federal law. If they are, it could open up a whole array of tax issues. It also means you may need to be providing workers compensation insurance, Leigh says.

    “Many homeowners will get this confused and think they aren’t responsible when they are,” Leigh says.

    One way to avoid those kinds of problems is to hire someone who is employed by an agency, or be sure that the individual you hire is licensed, bonded and insured.

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