As a borrower compares interest rates from one lender to another when making a decision about which mortgage company to use, the process can be a bit confusing, to say the least. However, the federal government, in all their wisdom, issued a directive for all consumer loans to disclose the Annual Percentage Rate, or APR, to help the borrower compare loan offerings.
The APR is defined as the cost of money borrowed expressed as an annual rate and takes into consideration not only the interest associated with the loan but additional fees needed to close the loan as well. For example, a 30 year mortgage loan at 4.00% on a $200,000 note results in a $954 monthly payment. If the lender also charged a $2,000 origination fee, the APR figure is 4.08. If the lender charged $4,000 in origination fees the APR is 4.17. The higher the lender charges the greater the disparity between the interest rate on the loan and the APR number.
But what are those fees used to help calculate the APR? They’re called finance charges. And all lenders have them.
Finance charges are fees charged directly by the lender or are charges for services required by the lender in order to issue a mortgage loan. A lender can have a $500 processing fee, a $400 underwriting fee and a $2,000 origination charge. Those fees, charged by the lender for lender-performed services are included in the finance charges.
A lender will require several reports before issuing a mortgage yet not perform those services themselves. For example, a credit report and an appraisal will be a required report but performed by third parties. Since the lender will require certain third party reports those third parties will provide the requested information but the borrower will ultimately be responsible for paying them.
The greater the amount of finance charges, the higher the APR number will be compared to the interest rate. Even if two lenders offer the same mortgage rate, they can have two different APR numbers. The lender with the lowest APR in this example will have lower closing costs compared to the other lender. This is how you compare loans from different lenders. Notice the APR and understand how it’s calculated.
Do you ever really stop and look at your entire credit card statement when it comes? Most consumers look for the minimum due payment and that is what they send. The Credit Card companies know this and count on it. The vast majority of profit made on credit card portfolios is derived from finance charges and other fees.
I will be the first to agree with anyone that says that credit cards should come with a warning label attached, much like cigarettes. Credit Cards are the driving force behind most people’s financial cancer. During the heady days of 20 percent yearly equity lifts on your property, it didn’t really much matter. Everyone could just go and refinance their house, pay off all those cards and start fresh. Or so everyone thought!
I am not one of those people that feel bad for all those poor mortgage people that are out of work right now because frankly they fueled the problem. When mortgage brokers were pulling in $20k or more in monthly commissions giving loans to people that they had no right doing is unconscionable. This behavior is the exact reason that I left the credit industry.
Finance charges are the reason that if you had a $2000 credit card with a 19 percent interest rate will take you 17 years to pay off if you only paid the required monthly due and never use the card again. Now most banks have altered their required payments from 2 percent to 3 percent to reduce the payoff time. Don’t confuse this change with the banks and credit card companies wanting to do the right thing for the customer. They were required to in an effort to quiet the buzz that has recently been brought to light through congressional inquiries.
If you keep nothing other than the Card itself when the new plastic is sent to you, SAVE THE CONTRACT. This is singularly the most important document in understanding how your finance charges are calculated. Make no mistake here every piece of that contract is there to protect the bank and to increase their profitability. Visa and Mastercard have certain requirements that are also built into the contract.
Now there are so many different types of methodologies that the card issuers use to calculate your finance charges that I could write an entire book on the subject and five minutes later it would be out of date. There are groups of analysts at every since credit card company that their primary job requirement is to determine new ways to “squeeze” money out of the portfolio.
Steps you should take to understand your finance charge calculation methodology:
1. Call every credit card company that you do business with and request that they send you a copy of your agreement. Make sure they send you the most updated version, because they typically change them every year. a. Some banks may try to charge you for this information; however you can usually talk them into giving you a freebie. This can be dependent on how long you have been a customer of the card company.
2. Create a file to keep all of these copies.
3. Once you get the contract, READ IT! Yes, you will need to get out a magnifying glass because they all use tiny fonts to get all this information on one 3 fold piece of paper.
4. If there are terms in your contract that you do not understand, use the web to figure out what it means or better yet call your credit card company and ask. This is a great way to find out how well the companies that you do business with actually train their people. (You may find that you will be talking to someone in India, Costa Rica or any other low cost outsourcing country.
5. Always read every piece of paper that comes addressed from your credit card company. They are notorious for sticking the “Change in Terms” inside the statement that no one reads.
On a final note, with the “green movement” taking over every company and becoming so en vogue, I personally do not opt in to the “online statements”. The credit card companies are using this green movement to line their pockets. Guess what, it costs them millions of dollars in paper and postage to mail all those pesky statements to their customers. I personally like the paper statements. Call me old fashioned but it makes it a whole lot easier to sit down and do your budget and pay your bills when you can actually hold them.
Since the housing market is at an all-time low, many homeowners are considering the option of financing their home to a buyer themselves, rather than waiting for the rare buyer who can still get a good loan in this economy.
The benefits to owner-financing home mortgages are plenty. In our economy, homes are sitting on the market for up to a year. If you are willing to finance your home yourself for a buyer who cannot get a conventional loan, or to someone in your close circle of friends and family who you can trust, you could really help out a family that needs somewhere to live but can’t, or doesn’t want, to take out a bank loan.
Money is perhaps the biggest reason to finance your own home. Individuals can often charge a higher interest rate than is going in the current mortgage market, since they are taking on more risk. This is especially true if the buyer does not have really great credit. They will agree to a higher rate because they are thankful that you are giving them the chance that has been denied them through banks, credit unions, and other lenders.
If your home is in danger of slipping into foreclosure, a deal like this could save your home from being lost completely. If the buyer can give you enough money up-front to catch your mortgage up-to-date, then you could allow them to pay slightly more than your monthly payments. This saves your home and gives you a little extra money to pocket each month. You do still have to move out of the home with this option, but it saves your credit from the devastating hit of a foreclosure.
The possible monetary windfall from financing out your own home comes with enough risks to dissuade some people from the deal. The obvious downfall is that you are likely dealing with people who have a history of defaulting on their obligations, and you will have a mess on your hands if this happens again. As long as you do the paperwork correctly and contracts have been signed, you will legally have the right to reclaim the home and then either occupy it yourself once again or sell it off, hopefully in a better market at that time. There are uncomfortable circumstances that come with this legal duty, such as having to evict the buyers from the property yourself. No one wants to have to do that, especially if there are children involved or you know the people personally.
Another risk is serious damage to the home. If the buyers trash the home, it is their property in the future and you can do little about it, but if they suddenly pick up and move then a damaged home with greatly reduced value is on your hands.
Before deciding on owner financing home mortgages, it is important to consider all of the risks and benefits and decide if it is worth it. If you can find buyers that you know personally, they will be less likely to harm the property and will be a lower risk.
If your car insurance is due for renewal and you are considering buying another policy then this article will provide you with important facts that you should know about. Car insurance policies are getting increasingly expensive and you should do all that you can to reduce your costs. How much you have to pay for your car insurance is dictated by a variety of factors as they apply to you and your vehicle.
In this article we will examine coverage limits, your age, gender and marital status, your location and insuring other household members. All of these factors will have a great influence on how much you will have to pay for your policy.
Coverage limits are generally dictated by the price that you are willing to pay for your insurance. A higher level of coverage will generally result in higher premiums. The best way to find a good value policy is to comparison shop. Nowadays it is generally accepted that the best way to do this is by using a car insurance comparison website.
Your age, gender and marital status will have a great effect on the auto insurance rates that you are offered. Insurers rate drivers using a variety of criteria, if you are a young single male driver you will usually have to pay higher rates. If you are a middle-aged female married driver then your rates will be lower. Insurers calculate the best car insurance rates for you by comparing levels of risk. Those groups which are statistically more likely to be involved in an accident have to pay correspondingly higher rates.
Location plays an important part in deciding how much your premiums will cost. Drivers who live in an urban environment will usually pay more than those from a rural area. This is because drivers who live in cities and heavily populated areas are more likely to be involved in an accident, or to have their car stolen or vandalized. Insurers generally offer better rates if you’re able to demonstrate that you keep your vehicle in a garage at night. You may also be able to improve the security arrangements of your automobile by fitting an alarm, immobilizer and steering wheel lock.
Insuring other household members will have an influence on the cost of your policy and the best car insurance rates that you offered. If you have teenage family members living with you and they are added to your policy, then your costs will increase. This may still work out cheaper than if your teenage driver were to have a separate policy in their own name.
In conclusion, there are a variety of different factors which can affect your ability to be offered the best insurance rates. Some of these are coverage limits, how old you are, whether you are male or female and whether you are married or single. Your rates will also be affected by the area where you live and whether other household members are included in your policy.