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1.     Home Refinancing Basics

In recent years, Americans seeking to take advantage of low interest rates have lined up to refinance their mortgages. In fact, refinancings hit an all-time high in 2003, and remained high in both 2004 and 2005, according to the Mortgage Bankers Association of America.

But while it’s true that refinancing has the potential to help you reduce the costs associated with borrowing money to own a home, it is not necessarily a strategy that makes sense for every individual in every situation. So before you make a commitment to refinance your mortgage, its important to do your homework and determine whether such a move is the right one for you.

2.     To Refinance or Not

The old and arbitrary rule of thumb said that a refi only makes sense if you can lower your interest rate by at least two percentage points for example, from 9% to 7%. But what really matters is how long it will take you to break even and whether you plan to stay in your home that long. In other words, make sure you understand — and are comfortable with — the amount of time it will take for your overall savings to compensate for the cost of the refinancing.

Consider this: If you had a $200,000 30-year mortgage with an 8% interest rate, your monthly payment would be $1,468. If you refinanced at 6%, your new monthly payment would be $1,199, a savings of $269 per month. Assuming that your new closing costs amounted to $2,000, it would take eight months to break even. ($269 x 8 = $2,152). If you planned to stay in your home for at least eight more months, then a refi would be appropriate under these conditions. If you planned to sell the house before then, you might not want to bother refinancing. (See below for additional examples.)

3.     Remember — All Mortgages Are Not Created Equal

Don’t make the mistake of choosing a mortgage based only on its stated annual percentage rate (APR), because there are a variety of other important variables to consider, such as:

The term of the mortgage — This describes the amount of time it will take you to pay off the loan’s principal and interest. Although short-term mortgages typically offer lower interest rates than long-term mortgages, they usually involve higher monthly payments. On the other hand, they can result in significantly reduced interest costs over time.

The variability of the interest rate — There are two basic types of mortgages: those with “fixed” (i.e., unchanging) interest rates and those with variable rates, which can change after a predetermined amount of time has passed, such as one year or five years. While an adjustable-rate mortgage (ARM) usually offers a lower introductory rate than a fixed-rate mortgage with a comparable term, the ARM’s rate could jump in the future if interest rates rise. If you plan to stay in your home for a long time, it may make sense to opt for the predictability and security of a fixed rate, whereas an ARM might make sense if you plan to sell before its rate is allowed to go up. Also keep in mind that interest rates hovered near historical lows in recent years and are more likely to increase than decrease over time.

Points — Points (also known as “origination fees” or “discount fees”) are fees that you pay to a lender or broker when you close the deal. While a “no-cost” or “zero points” mortgage does not carry this up-front cost, it could prove to be more expensive if the lender charges a higher interest rate instead. So you’ll need to determine whether the savings from a lower rate justify the added costs of paying points. (One point is equal to one percent of the loan’s value.)

4.     Stick With What You Know?

Finally, keep in mind that your current lender may make it easier and cheaper to refinance than another lender would. That’s because your current lender is likely to have all of your important financial information on hand already, which reduces the time and resources necessary to process your application. But don’t let that be your only consideration. To make a well-informed, confident decision you’ll need to shop around, crunch the numbers, and ask plenty of questions.

Summary

• The decision to refinance should only be made if the long-term savings outweigh the initial expenses. To calculate your break-even point, divide the cost of the refi by your monthly savings. The resulting figure represents the number of months you will need to stay in the home to make the strategy work.
• Don’t select a new mortgage based only on its annual percentage rate.
• Also evaluate the term of the loan, whether the interest rate is fixed or variable, and the relative merits of paying up-front fees in exchange for a lower rate.
• Your current lender already knows you and has your financial information on file, so you may be able to get a better deal that way, instead of going to a new lender.
• To get the best possible refinancing deal, you’ll need to shop around, crunch some numbers, and ask a lot of questions.

1. The Federal Reserve Discount Interest Rate.

Banks and other lending institutions borrow money from the Federal Reserve Banks. The discount rate is the interest rate a Federal Reserve Bank charges eligible financial institutions to borrow funds on a short-term basis. This rate is set by the boards of directors of the Federal Reserve Banks. The discount rate has a direct effect on the “Prime Interest Rate”, which is the interest rate on short-term loans that banks charge their commercial customers with high credit ratings. You can get live information on the current Prime Rate at www.FedPrimeRate.info.

Of the three major factors that affect your interest rate, this is the one you have the least amount of control over.

2. Your FICO Score and Credit Report.

There are companies that gather and sell information about where you work and live, how you pay your bills, and whether you’ve been sued, arrested, or filed for bankruptcy. They are called Consumer Reporting Agencies (CRAs). The most common type of CRA is the credit bureau. Potential lenders will get your credit report from the credit bureau.

The FICO score is a method of determining the likelihood that credit users will pay their bills. It condenses a borrowers credit history into a single number.

You can protect your FICO score and credit report by paying your bills on time and not over-extending yourself. You also have the right to have false information removed from your credit report.

3. Lender Business Factors.

Banks and other lenders are in business to make a profit. They also exist in a competitive market. Like all businesses, they will balance their profit margin with competitive factors. If they charge too little, based on your credit history and the prime rate, they risk going out of business. If they charge too much, they risk losing you to a competitor. Therefore, in order to get the best deal you can, you should shop around.

Keep one thing in mind when you are shopping around. One of the things that affects your FICO score is the number of times your credit report has been accessed in a certain period of time. Therefore allowing too many potential lenders to run your credit report in a short period of time could be counterproductive. Three or four is typically a safe number. If you request an on line quote from several lenders, they won’t typically run your credit report until after they have made their initial quote.

(You must explicitly provide a potential lender with permission to run your credit report. For that, they usually need your Social Security Number.)

In summary, the three major factors you pay for a loan are the prime rate, your credit history (FICO score) and business conditions such as competition. In order to get the best rate you can, you can do two things, keep up a good credit history by paying your bills on time, and shopping around for the best rate.

If a person has stellar credit, the best home repair loans come from a bank offering a home equity line of credit. These lending agreements, nicknamed HELOCS by the financial world, are also offered by credit unions and are loans based on the equity a person has in his/her place of residence. These borrowing offers are among the most favored by financial experts because in the case of banks and credit unions, the interest rates are quite reasonable and while no borrowing is always a good way to avoid the trap of debt slavery, these HELOCS are the best in terms of loans. What percentage of the home equity a bank or cu will offer depends form institution to institution. Some may allow 70% of the equity and some may allow 50% to be used as the amount of the loan. These lending agreements are packaged as actual checking accounts on which the borrower can draw checks for the home repair needed, although the HELOC is not required to be used solely for home repair, so after the roof is finished a Bahamas vacation might be in order!

One of the things that need to be kept in mind about a HELOC from a bank: an above average credit report score needs to be presented by the borrower. In many cases, a score of 640 or above is required for consideration as well as a debt to income ratio of no more than 40%. In order to figure the ratio out, compare monthly income to monthly debt payments including the mortgage. If the debt payments are above 40%, the ratio is considered unacceptable by banks and perhaps by credit unions, although they are a bit less stringent in their requirements for lending money for home repair loans. A HELOC will require an appraisal of the house and have closing costs. The HELOC will be a revolving charge, just as a credit card is, and will be, in most cases, a variable rate of interest. One of the attractions for a HDELOC is that the interest paid each year on the loan is deductible, just a mortgage interest is.

Home repair loans are also available for those with credit scores that are under the bank’s threshold of comfort. Lending companies that are funded by high risk investors are also a good source of borrowed money, but the interest rates and points charges will be much higher. The loan companies typically found at strip malls are often national in scope, but also sometimes privately owned. These companies are regulated by the federal government and operate within the legal guidelines of the law and will often over look sullied credit scores and higher debt to income ratios. In this particular arena, a willingness to pay perhaps twice the bank interest rate may land a borrower the money needed for the home repair needed. “Know ye not that to whom ye yield yourselves servants to obey, his servants are ye to whom ye obey; whether of sin unto death or obedience unto righteousness?” (Romans 6:16)

For the one who is fiscally challenged and the roof does need repair but a high interest loan is just not feasible, the federal government does have some low interest home repair loans to offer those who can prove financial hardship. These particular home repair loans are offered by the Department of Housing and Urban Development, also known as HUD, and are administered locally by housing authorities and nonprofit organizations. These loans are often administered with four percent interest making them extremely amenable to those strapped with monthly bills. If a person is interested in these kinds of lending agreements, the local library can probably help guide a person to finding local HUD representatives.

When the phrase was coined “There is no place like home,” there was probably no way of conceiving how many times the words would be repeated by weary families arriving home in their van in the middle of the night after two weeks on the road. Having one’s own familiar space is beyond description and so when something goes wrong with the wiring or the furnace or the roof or the water pipes or the foundation, the whole thing can be a little unsettling and home repair loans become very important because certainly the routine of everyone is upset. NO wonder people often frantically look to find the best home repair loans that can be quickly accessed. For the child of God, Jesus promised that each of us has a room in the Father’s house. Imagine, one’s own space, taking God over two thousand years to get ready for those who have trusted Jesus Christ as their Savior and Lord. For the Christian, the day of death means the light is on and the Father is at the door waiting to show us to our own room near Him. How cool is that?

The second class of continuing education is intended for licensed professionals to maintain or upgrade licensure. Doctors, lawyers, technology specialists, and any other field in which professional certification is granted often have continuing education requirements. Courses are credit-granting, and a number of them are generally required to meet licensing requirements. These types of continuing education courses are often taught in degree and certificate-granting institutions, sometimes remotely via distance learning.

Another way being a student of either class can be a challenge is with regards to financial aid and making continuing education affordable. Federal financial aid programs such as the Pell Grant or subsidized loans, like the Stafford Loan, require at least half-time enrollment, while many continuing education programs are structured to be taught a course or a credit at a time, and thus are ineligible for federal financial aid.

For some, there are private student loans specifically geared towards continuing education. These continuing education loans are only offered if:

• Enrollment is less than half-time
• Attendance is at an approved school
• Certain credit requirements are met

If you don’t satisfy the credit requirements on your own, try and find a qualified co-signer, which can assist you with getting a better interest rate, as they are variable. Most private student loans for continuing education allow you to borrow a wide range of funds, from as low as $1,500 up to the entire cost of the program. Also, when looking at these loans, be sure to learn about loan repayment options as some require immediate repayment once the loan funds have been sent to you. Unless you have the ability to begin repayment, look for a loan that has options for deferment.

As part of the Higher Education Act of 1965, President Lyndon Johnson created a law which was intended “to strengthen the education resources of our college and universities and to provide financial assistance for students in postsecondary and higher education.” This increased all sources of federal funding provided to universities and added in grants and other forms of financial aid, including new student loan programs.

The first federal loan, federal Stafford Loan, is available to both undergraduate and graduate students enrolled at least half-time at a college or university accepting federal aid. This is a need-based program in which undergraduates may borrow up to $5,500 per year in subsidized funds based on academic level and graduate level students may borrow up to $18,500 per year (up to $8,500 in subsidized funds and the remainder in unsubsidized funds). The funds are sent directly to the school and are applied to the student’s account. To ease the financial burden, payments are not required until six months after the student graduates.

While a federal Stafford Loan is certainly a necessary start, it doesn’t always cover the entire cost of education. A Parent PLUS Loan is a common way that parents contribute to their child’s education. This credit-based loan allows parents to borrow the total cost of undergraduate education including tuition, room and board, supplies, college fees and more, minus any other aid received. Once the loan has been put into the student’s account at the school, repayment begins shortly thereafter, at which time the student loan consolidation process can be performed. At a fixed interest rate, the Parent PLUS loan is an easy and cost effective solution to help bridge the gap between Stafford Loan funding and the cost of education.

For many years, graduate students were only given Stafford Loans as a federal loan option for funding their often costly education. The difference was made up through home equity, savings, salaries and private loans. However, the Graduate PLUS Loan is a new product that became available to graduate students in 2006. Graduate students with good credit can apply on their own signature for a loan up to the cost of education, minus any other aid received. The Graduate PLUS loan can be applied to tuition, room and board, education supplies, lab and travel expenses. The interest rate is fixed and payments are not required while enrolled in school. Or a student may save even more by consolidating this loan using the federal loan consolidation program. The Graduate PLUS loan truly provides graduate students with a great option to making their graduate education dreams a reality.

The Perkins Loan is another federal loan available to both undergraduate and graduate students offered on the basis of financial need, other aid received and availability of funds at each school. The federal government lends schools funds for distribution to its neediest students. The school, therefore, is the lender, and undergraduates may be awarded up to $4,000/year and graduates may be awarded up to $6,000/year. These loans need to be repaid directly to the school and have a fixed 5% interest rate since the program was started. Students can take advantage of a nine-month grace period and a ten-year repayment term. However, if consolidated with any existing federal student loan, including Stafford or Graduate PLUS loans, this can extend the repayment term. Consolidation has been mentioned a few times and it’s really in the best interest of students to take advantage of this upon graduation. Each federal loan, on its own, has a 10 year repayment term, regardless of total loan debt. Consolidation fixed the interest rate and extends the repayment term, allowing more time to repay an often hefty federal loan debt.

Named for Senator Claiborne Pell, the Pell Grant was established to provide funds that don’t need to be repaid directly to the neediest students. This is because it is a grant and not a federal stafford loan. However, like the Stafford and Perkins Loan, eligibility is based on need, as determined by the cost of attendance and expected family contribution. Since 2003, the maximum Pell Grant award has been $4,050 per academic year. However, due to the rising cost of education, many question why the Pell Grant award has not also increased. The Pell Grant covers, on average, one-third of the yearly cost of education at a public four-year institution. However, twenty years ago, it covered close to 60%. On February 15, 2007, in an attempt to slowly combat this issue, President Bush signed legislation into law that would increase the Pell Grant to $4,310 for the 2007-08 academic year. The following year, the grant will increase to $4,600 and up to $5,400 by the year 2012. These advances are certainly helping students and families fund the cost of education, especially as tuition costs continue to rise

Private student loans have gained popularity over recent years as federal funding hasn’t quite met the entire cost of education. There are many other costs associated with education, besides just tuition. Commuting students need to cover transportation costs somehow. City campuses don’t always guarantee housing, which forces students to find an off-campus apartment, often with high rent costs. There are costly textbooks to purchase, lab supplies and flights home that aren’t always covered by traditional financial aid. Private loans originate to students by a bank or other financial institution, unlike federal loans. Private student loans also offer similar benefits to students as a federal loan, such as deferred payment until graduation, different repayment terms, and borrower benefits. The interest rates on private loans vary from company to company and are, usually, on a basis of credit. Co-signers are a great way for a student who may have limited or no credit at all to get this loan. Because of the varying private loans available, most parents and families “shop around” until they find their ideal solution.

1. Take your time and shop around. You should be able to compare prices and houses. If a lender or broker tells you they are your only chance to get a loan or owning a home, don’t do business with them.
2. Do not sign a sales contract or loan documents that are blank or that contain information which is not true.
3. Be certain that the costs and loan terms at closing are what you originally agreed to.
4. Do not be talked into lying about (or choose to lie) about your income, expenses, or cash available for downpayments in order to get a loan.
5. Watch out for higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
6. Be careful about disclosing things like your need of cash due to medical, unemployment or debt problems. You are very vulnerable in these cases.
7. Don’t strip your home’s equity by refinancing again and again when there is no benefit to you.
8. Beware of false appraisals.
9. Do not let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all of the money you put into your property.
10. Get several quotes from multiple brokers or lenders so you know you’re being charged a fair interest rate based on your credit history, not your race or national origin.

The income-based student loan repayments schedule is a godsend for graduates in fields without recession proof jobs or with significant college loan debt. In this plan, your monthly payment formula is limited to 15% of the amount that your adjusted gross income exceeds 150% of the poverty line, divided by 12 (months).

So, for instance, if you are single and your income is $16,245 (contiguous 48 states- the poverty line is higher in Alaska and Hawaii), you would pay $0.

If your income is more than that, than the 15% of your income above that figure (divided by 12) would be your monthly payment.

Your income is adjusted lower for increased family size.

Eligibility for this program will be determined by the amount of your loans relative to your income. If your payment under the standardstudent loan repayment program is more than 15% of your discretionary income, you will qualify. Your loan payment will never be more than it would have been under the standard repayment plan, unless you leave the program.

Your loan payment will be adjusted annually based on the documentation you supply.

After 25 years of payments, the remaining amount will be forgiven. (But it will be taxed as income.) For those employed in the public sector, loans will be forgiven after 10 years of payments. There is no federal student loan forgiveness under the extended or graduated repayment plans.

How to Figure Loan Payments Under the Income-based Repayment Program

These are the numbers used by the U.S. Department of Education to figure loan payments based on your income and family size:

Student Loan Repayment Program… More info

The amount of your loans is irrelevant after you enter this program. Your payments will be the same as any other borrower in the program with the same income, (and family size) even if the total amounts of your loans are different.

If the monthly payment formula is not enough to cover the interest on your student loans, the interest will be paid by the government for up to three years. After that, the unpaid interest will be added to the principal balance of your loan.

Borrowers payments are applied in this order:

1. interest
2. fees
3. principal

The monthly payment formula in the income based government student loan repayment program is designed to give you breathing room, rather than to pay down debt.

One thing to be aware of- your adjusted gross income does not take into account all the expenses that you will accumulate as the years go by. (mortgages, car loans, medical expenses, property taxes, personal loans, credit cards, etc.)

So, as your income (on paper, at least) grows, so will your loan payment even if it does not seem as though you have more money to spend on it.

Where rate = Annual Percentage Rate divided by 1200
For example, an 8 % annual rate becomes .0066666666666666…

Let’s suppose we want to borrow $150,000 for 30 years at 8 per cent annual percentage rate. What is the monthly payment?

1) The rate would be .0066666666…
2) The months would be 12 × 30 = 360.
3) So the monthly Payment would be:

……………………..………0066666666……
.0066666666   +   ((1.0066666666 ^360)-1)       ×   $150,000

4) The middle section of the equation is the most difficult to solve so we will calculate that first.
(.0066666666) ÷ ((1.0066666666 ^360)-1) =

(.0066666666) ÷ (10.935729397036 -1) =

(.0066666666) ÷ 9.935729397036 =

0.0006709790897

5) “Plugging” this into the rest of the equation we have:
(.0066666666   +   0.0006709790897) × $150,000 =

(0.007337645756) × $150,000 =

$ 1,100.65