Beautify Your Backyard with Your Home’s Equity

It’s almost the fourth of July.  The hot dogs will be sizzling and the watermelon will be juicy.  But will your backyard be in shape so that your family and friends can enjoy them?  If you’ve been thinking about starting a remodeling project - be it landscaping, installing a deck, or fixing up the pool - but have hesitated because of the financial aspect, you should consider tapping into your home’s equity.

There are two ways you can do this: with a home equity loan or a home equity line of credit.  With a home equity loan, you will receive a one-time payout with the stability of a fixed interest rate and monthly payment.  With a home equity line of credit, on the other hand, there is a variable interest rate (sometimes with an option of a fixed rate as well), and you will have the flexibility to use your line of credit at anytime, which is ideal if you have ongoing financing needs.  The interest accrued on both of these home loans areusually tax-deductible.  Your situation and the type of your project will determine which of these loans is better for you.

Getting Started
Here are the steps you need to take toward using your home’s equity to beautify your backyard:

• Decide which loan is sizzling for you. As mentioned above, there are several differences between home equity loans and home equity lines of credit.  If you are ready to pay for your project now, and you therefore want one lump sum and a fixed interest rate, then a home equity loan is right for you.  But if you need to make payments to a contractor, and would rather have ongoing access to your funds and a variable interest rate, then you should look into home equity lines of credit. Consider your situation before committing to one loan or the other.

• Bite off only what you can chew. There are also options having to do with repayment plans, such as principal and interest or interest-only.  Make sure you know all your repayment options so you know you are getting the best plan for your situation and lifestyle.

• Use all the fixins. You can visit your local branch and fill out an application, or you can do it over the Internet.  Most banks today have online applications which you can fill out from the convenience of your own home, and they promise to give you a quick response, sometimes in seconds!  This certainly relieves some of the hassle of visiting the bank, and it definitely saves time. After you apply, they will tell you if you qualify, and if so, how much credit is available to you and what kind of interest rates  you can get.

• Know what’s on the menu. Use the Internet or make phone calls, but be sure to shop around for the best interest rates.  Do not settle on a loan from one bank before you know what other banks can give you.

A home equity loan or home equity line of credit is a great way to finance a home renovation project because although you are borrowing against your home, you are putting the money right back into your home, thus increasing its value, which will serve you well in the future.  So after you fix-up your backyard using your home’s equity, and after you have been showered with compliments from family and friends, all you need to do is throw some hamburgers on the barbecue, pour yourself a nice cold glass of lemonade, sit back, and enjoy the fireworks. You’ll be glad you did!  Happy 4th of July!

Source: Informa Research Services

Home Equity Lines of Credit vs. Credit Cards

While both sources of financing - home equity lines of credit and credit cards - are revolving, or open-ended, and therefore can be used for the same types of expenses, it is important to know the differences between them so you can use them as wisely as possible.

Similarities
The similarities between home equity lines of credit and credit cards include:

• They are open-ended. With both, you have ongoing access to your funds.  Therefore, you can use both of them to finance ongoing expenses.  (There are limitations to this, which are explained below.)

• They have special rates. Both can offer low introductory rates.

• They have variable interest rates. On both, the interest that you pay is variable. That means that it is tied to a specific index; in most cases the prime index is used. When the index drops, your interest rate drops, and when it goes up, the rate goes up.

• They have card offers. Obviously, when you have a credit card, it is the medium through which you access your credit.  Similarly, with a home equity line of credit, you have the option of getting a card to access your line of credit.

Differences
Following are some of the differences between home equity lines of credit and credit cards:

• Limitations. Most home equity lines of credit have a specific period in which funds can be accessed, whereas credit cards do not.

• The level of interest rates. The interest rates on home equity lines of credit are typically a lot lower than those on credit cards.

• Tax benefits. The interest on a home equity line of credit is usually tax-deductible, whereas that on a credit card is not.

Do’s
• Many consumers are using their home’s equity to help fund their children’s college education.  This is a great use of it because it is a good investment in their future.

• Another very popular use of a home equity line of credit is to finance a home improvement or renovation project.  The benefit of having access to your funds can be combined with the benefit of putting money into your house and increasing its value and its equity for future use.  So, in a way, you are giving the money back to yourself.

Don’t’s
• Even though you can use your home equity line of credit like a credit card, that does not mean you should. Let your credit card cover everyday expenses, and use your home equity line of credit for large purchases, such as home renovations or college tuition.

• Because of the difference in interest rates, some people advise using a home equity line of credit.

Source: Informa Research Services

Making a Large Down Payment - Is it Right For You?

Getting ready to buy a home?  Applying for a mortgage? Trying to figure out how you will fund your down payment? You could use the money you so diligently saved with your Savings or Money Market Account to make a higher down payment.  But do you want to make a higher payment, or is it better to spend less money upfront?  Here we show you both sides of the question, whether a larger or smaller down payment is better.

Advantages
Not all mortgage loans require customers to make a 20% down payment.  Some loans require only 5%, while others require no down payment.  As appealing as these two options sound, you must keep in mind that if the lender saves you money in one place, you will most likely have to pay it somewhere else. In this case, in the form of higher interest rates and Private Mortgage Insurance (PMI).  Here are three advantages of making a large down payment:

• Better rates. Generally, the larger the down payment, the better the rates and terms you will receive from the lender.
• Less interest. Making a larger down payment reduces the amount you will have to borrow, so you will pay less interest over the total life of your mortgage loan.
• No extra cost for insurance. By making a down payment of at least 20%, you will not be required to have Private Mortgage Insurance (PMI), the cost of which would be included in your monthly mortgage payment.

Disadvantages
1. One disadvantage of taking money out of your Savings Account to make a higher down payment is that you will no longer receive the interest that your money was earning in the account.  This is only a problem, though, if the average rate of return on your savings is more than the interest rate on your mortgage. 
2. Another disadvantage is that you will have less interest to pay on your mortgage, which translates into less tax-deductible payments.
3. One more disadvantage is the immediate cash access that you lose when you deplete your savings account.  It is important to have an emergency fund, and if you use your savings to make a down payment, you might sacrifice your emergency fund as well.

Consider Your Situation
Now that we have presented the advantages and disadvantages of making a large down payment on your mortgage loan, you need to consider your situation and figure out which is the best option for you.  Can you afford a 20% down payment?  If not, then maybe you need to go with the smaller down payment and higher monthly payments.  What kind of payment schedule would work best for you?  These questions must be answered before you apply for a mortgage loan.  Make sure to compare different loan products and rates online, as well as to consult your financial advisor or tax accountant before making your final decision.

Informa Research Services

Will Consumer Spending Increase as Mortgage Rates Continue to Fall?

The Federal Reserve continued to hold interest rates steady for the seventh straight consecutive time since June of 2006, remaining unchanged at 5.25%. The Fed’s decision means that the prime interest rate that commercial banks charge consumers for credit cards, home equity lines of credit, and other loans will remain steady as well.

While the Fed acknowledged that economic growth has slowed due to an increase in gas prices, a weaker dollar overseas, and a slump in the housing market, it remained bullish on economic expansion for the upcoming quarter. Even though the overall housing sector continued to suffer - primarily due to the sub-prime mortgage fallout - mortgage loan applications were up from the same time a year earlier, according to the Mortgage Bankers Association.

The national average interest rate on a 30-year fixed mortgage was lower from 6.76% a year ago compared to this week’s rate of 6.38% (Source: Informa Research Services). However, new home buyers are still finding it hard to qualify for a loan at today’s market prices. This gradual cooling of the housing market has resulted in a surplus of inventory and a decline in the number of new home sales, according to a recent report issued by the Lusk Center for Real Estate at USC.

Existing homeowners, faced with increasingly higher Adjustable Rate Mortgages are looking to refinance to lower fixed-interest rate loans. Lured by low-introductory teaser rates, nearly 41% of all variable sub-prime loans are scheduled to reset to a higher amount this year (Source: Center for Responsible Lending.) Borrowers who default on their loans could be faced with the threat of foreclosure causing consumer spending to become stagnant.

While slowing economic growth and curbing inflation is one of the main jobs of the Fed, it remains to be seen if the forces driving the real estate market will help or hinder consumer spending. Many economists believe that by not lowering interest rates in the near term may steer the economy towards a recession causing consumer prices to rise even further.

Source: Informa Research Services

When is the Right Time to Refinance Your Home Mortgage?

While fixed mortgage interest rates have been holding relatively steady for the past year --averaging 6.38% APR, slightly down .38% from a year ago - some homeowners with higher adjustable rates are finding that now is a good time to refinance their mortgages. According to the Mortgage Bankers Association, nearly $1.1 to $1.5 trillion in Adjustable Rate Mortgages will face rate increases this year, with borrowers expected to refinance as much as $700 billion of these adjustable mortgages.

The costs savings to refinance a mortgage loan can be a considerable amount. For example, a monthly payment (excluding taxes and insurance) on a $250,000 mortgage loan at 7.50% would be about $1,748. Reduce this rate to 6.5% and the monthly payment becomes $1,580, or a savings of $168. However, as attractive as this savings might be, refinancing may not be the best option for everyone. Some homeowners with adjustable rate mortgages who would like to refinance into a new loan with lower interest rates are finding it harder to qualify.

With lenders tightening their lending standards, and the possibility of incurring  pre-payment penalty fees for getting out of a mortgage early, not all borrowers can afford the thousands of dollars it would costs them to refinance their existing real estate loans. These challenges are especially greatest for sub-prime borrowers, whose credit scores were below average to begin with and may have even declined further since taking out their initial loan, leaves them with little or no equity to negotiate with on a refinance.

As borrowers get caught up in an ever changing market, where home values are softening and inventory levels increasing, the Federal Reserve’s decision to hold interest rates steady has made fixed mortgage rates an attractive financing option for many borrowers.

Whether or not to refinance depends on each borrower’s unique set of circumstances and if the potential mortgage savings is enough to offset any existing refinancing penalties and fees. In which case, refinancing to a lower fixed rate may make the most sense.

Source: Informa Research Services

How to Pick the Right Real Estate Agent

Some of the most important decisions that you will make in your life are the ones associated with buying or selling a home.  If you are a buyer, then you have to find the right neighborhood, the right home, and the right mortgage.  If you are a seller, then you have to know the right time and decide on a price.  But the step that is often overlooked is finding the right real estate agent. 

A real estate agent can be extremely helpful to guide you through the home buying or selling experience.  They have the knowledge and experience that you might not have.  They take care of handling the paperwork so that you do not have to worry about it.  When you are buying, they can help by letting you know where schools, shopping centers, and hospitals are located, so you can find the home and the area that best fit your family’s needs.  When you are selling, they set up and oversee open houses, making your life a little easier.  Therefore, you should not underestimate the value of a good real estate agent.

Here are four ways that you can find a real estate agent:
• Referrals. Ask your friends, family, or co-workers to refer you to a real estate agent with whom they had a positive home buying or selling experience.
• Search Online. Do a search for the top real estate companies in your area, then go to those Web sites and look up profiles of individual agents at offices near you. 
• Attend Open Houses. This is a great way to meet real estate agents without the pressure of having to make a decision right then and there.
• Use Print Advertising. Look in your local newspaper for real estate in your area, and then look online for the agents who are advertising those homes.

One more very important factor to take into consideration is that there is a difference between a real estate agent and a REALTOR®.  All REALTORS® are real estate agents, but not all agents are REALTORS®.  Although both a REALTOR® and a real estate agent are licensed to sell real estate, the basic difference between the two is that a REALTOR® belongs to the National Association of REALTORS® (NAR®), while a real estate agent does not.  As a member of the NAR®, a Realtor must subscribe to the REALTOR® Code of Ethics, which contains 17 Articles and Standards of Practice.  Because of the pledge that licensed REALTORS® must make to “put the interests of buyers and sellers ahead of their own and to treat all parties honestly and fairly” (Source: The REALTOR® Code of Ethics), it is most likely that you will have a much better experience if you take the time to find a REALTOR®.

When considering a real estate agent, one important aspect is to know your goals and expectations, that is, what you want out of your real estate agent.  If you have certain expectations, such as daily color ads, ad placement, or frequency of open houses, it is crucial that you find an agent who is on the same page.  So, before you choose a real estate agent, sit down and make a list of the things you know you want to do in order to sell your house.  Then find a real estate agent who will meet those expectations.

If you are buying, do not think that your work is done after you find a good real estate agent.  Be sure to continue to shop around for the best mortgage, so you can afford the home that your real estate agent finds.  Always compare mortgage rates and monthly payments, and find a mortgage that fits into your budget.

Source: Informa Research Services

Should You Pre-Pay Your Mortgage?

As with most things in the financial world, the answer to this question is not a simple one. There is not one piece of advice that should be given to everyone. Instead, there are several factors that should be taken into consideration when deciding whether you should pre-pay your mortgage.

Why It’s a Good Idea
You can pay off your mortgage loan early by making extra payments throughout the year, or paying more than the minimum amount on each payment. The best reason for doing this is that it can greatly reduce the amount of interest you have to pay. Some economists estimate that by adding just $25 to each required payment on a $140,000 loan, you will save over $16,668 in interest costs (Source:www.goodadvicepress.com)! Another advantage is that you will have the loan paid off sooner, leaving you with one less source of debt and one less monthly payment to worry about. Also, the more of your mortgage that you pay off, the more equity you will have in your real estate, possibly opening up other opportunities that you might not have had otherwise - home improvement projects, for example.

When It Might Not Be the Best Option
There are certain situations where it might be prudent to use your extra money in places other than early mortgage payments. Mortgage loans, as compared to auto loans, home equity loans, and credit cards, usually have the lowest interest rates. Therefore, if you can only afford to make early payments on one of these at a time, it is best to pay off the loans with the highest interest rates first. So, before automatically using your extra money to make early payments on your mortgage, you should instead look first to get out of credit card debt, and then pay down your home equity loan, then your auto loan, and finally your mortgage.

Another consideration to make is to compare the interest rates on your mortgage loan with those of a high-yield savings account, such as a certificate of deposit. If you are able to find a savings account with a yield that is much higher than the interest you are paying on your mortgage, then it might be wiser to take the money that you would be using to make extra payments, and put it instead into the savings account.

Since there are so many factors and different situations to consider while trying to answer this question, remember that the most important thing is to do your research, comparing mortgage rates and calculating savings. After closely examining your financial situation and all the options available to you, you will be able to make the best decision for your unique situation, and you will know whether or not you should pre-pay your mortgage.

Source: Informa Research Services

Is a Down Payment Holding You Back?  It Shouldn’t.

Do you have your eye on that four bedroom house with a white picket fence and a bonus room?  You’ve compared mortgage rates and monthly payments, and the only thing holding you back from buying your dream home (real estate) is the large down payment required?  Well, here are a few strategies you should consider for saving up for that down payment.

Step 1 - Shop around for loans that require lower initial down payments. Not all loans require that customers have a 20% down payment.  Some loans require only 5%, while others don’t require a down payment at all. However, these loans usually charge a higher interest rate, or they require private mortgage insurance (PMI), which would increase the monthly payments. Make sure you do your homework by matching the best rates with the down payment requirement and monthly payments that work best for you.

Step 2 - Be disciplined in your savings. Saving a large amount of money can take time, but if you are consistent in your approach it can be done before you know it.  A great way to do this is by setting up an automatic savings plan that takes a set amount of money from your checking account and transfers it to your savings account. Make sure you shop around to get the best savings rate possible, and depending on when you will need the money, you may want to look into investing in a short term Certificate of Deposit or a High-Rate Money Market or Savings Account.

Step 3 - Know your options.  Another option would be looking into your 401K plan. Many companies allow you to borrow against your 401K, and if you have enough in your 401K plan, this can be the perfect option for getting your down payment. The best thing about this option is that since you are, in effect, borrowing from yourself, all the loan repayments and interest payments go back into your 401K account. Some plans also allow you to withdraw the money if you are purchasing your first primary home.

So, check all your options, save wisely, and go buy that home you have always wanted.

Source: Informa Research Services

Shopping for a Home Equity Loan

If you are planning a big project, and thinking about financing it by applying for a home equity loan, you need to take two preliminary steps.  You first need to decide which type of home equity loan is right for you.  After you have done this, you need to begin the actual application process by qualifying for that loan.  The following information and tips will help you make a well-informed decision and have a positive shopping and application experience.

Knowing what type of loan to apply for begins with picking the one that best suits your needs. With a variety of lenders competing for your business, choosing one because it has the lowest mortgage rate shouldn’t be your only consideration. The two types of home equity loans are a Home Equity Loan (HEL) and a Home Equity Line of Credit (HELOC).  Both are secured by the equity in your real estate, and the interest on both is usually tax-deductible. But they also have several differences. Deciding which one is better for you begins with answering some basic questions:

• What are you planning to use the loan for? Depending on the purpose for the loan, you might prefer one lump sum (which you would receive with a home equity loan), or the flexibility of ongoing access to your funds (which a home equity line of credit offers).

• For how long do you intend to use the money? If you need the money for a long period of time, then a home equity line of credit, which offers ongoing access to your funds, might be better for you.  But if you only need the money right now to make one payment, then you should probably look into getting a home equity loan, which gives you the money in one lump sum.  Also, a home equity loan is a fixed-term loan, whereas a home equity line of credit is a revolving credit account, meaning that there is no term.
• How much will it cost to repay my loan? If you would prefer having a steady, fixed payment over time, then a home equity loan is what you need.  But if you would rather have a variable payment, knowing that the interest rate can change at any time, then a home equity line of credit is probably better for you.

Available Credit
Typically, most financial institutions will let you borrow as much as 80% of the Loan-to-Value (LTV) - the amount of a mortgage loan divided by the appraised market value of your home - less any outstanding mortgage payments on your property.  However, some institutions may allow you to use up to 100% of the equity in your home.

When considering your available credit line, the lender may take into consideration other factors including your past credit history, your current income, and your ability to repay a loan.  After your credit history has been evaluated, a report will be generated which includes your credit score and lets lenders know whether or not you are a good borrower.

Your credit score is calculated by the Fair Isaacs Corporation (FICO), which accesses the three main credit reporting bureaus (Equifax, TransUnion, and Experian).  Credit scores can range from as low as 300 points to as high as 850.  People with average credit usually score around 620, good credit at 660, and excellent credit above 720.

Anything less than good credit, such as a car repossession or bankruptcy, may fall into the sub-prime category, which usually places borrowers in a higher interest rate category.  Once approved, borrowers can withdraw money up to the available amount, usually by check or credit card.

You can build and maintain a good credit score by always paying your bills on time, and by keeping a good utilization ratio.  This means using less credit than is actually available to you.  FICO scores are based on your rating in five general categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%).  Whether you are new to using credit, or have been a long-time borrower, keeping these categories in mind and maintaining responsible borrowing habits can help you strengthen your credit score.  And this strengthened credit score will help you to qualify for a better home equity loan or line of credit . When qualifying for a loan, always shop online for the best home equity credit terms that meet your specific needs

Source: Informa Research Services

Financing the Big Bill for the Big Day

June is again upon us, and with it comes the beginning of the wedding season.  The average amount of money spent on weddings has been increasing over the past several years, and CNNMoney.com reports that it has now reached $27,852. 

If you’re planning a wedding, then you know how easy it is to rack up a bill of this size.  But you can’t spend all your time worrying about the money; you also have other things to think about - the invitations, the menu, the flowers… and the list goes on and on.  So why don’t you go work out those details for your perfect wedding, and let us take some of the stress off by helping you with the money issues.

Here are some of the options you have for financing your dream wedding:

• Some banks offer unsecured loans for weddings and other special events, so that you have a certain amount of money to spend on virtually everything related to your event.  This can be helpful because there are certain companies that only accept cash and checks.  These loans make it easy to access your available funds whenever you need them.

• Another way to borrow in order to finance your wedding is through the use of credit cards.  Look for cards that offer rewards, such as cash back and points that can be redeemed for trips and merchandise.  Also, look for a credit card with an introductory annual percentage rate (APR) of 0%.  Keep in mind that even though credit cards are an easy way to finance some of the wedding cost, you should pay them off as soon as possible, since the mortgage rates on them are higher than on most other loans.

• Many factors, such as people wishing to further their education, women’s heightened focus on their professions, and a rise in the number of couples living together before getting married, have led to an increase in the average age of brides- and grooms-to-be.  Therefore, it is more likely that a couple, or at least one of the two, will own their own home by the time they get married.  Another option, then, for couples in this situation is to open a home equity loan or home equity line of credit. These usually have a lower interest rate than do other loans and credit cards, and that interest can be deducted from your income tax.

When it comes to your short-term goal of planning a beautiful wedding, these are the three best options to consider.  But when it comes to your long-term financial goals, do not forget about the importance of discussing your spending and saving habits with your partner.  Money is cited by relationship experts as the No. 1 problem newlywed couples face, and it is often the source of broken relationships (Source: Daily News, 2-2-07). Therefore, it is imperative to get these matters out into the open in order to develop a financial system that will work for both of you, so that your marriage will not suffer later.

But, in the meantime, you have a wedding to plan.  So go figure out whether you’re going to seat your grandfather next to crazy Aunt Millie, what the ratio is of chicken to steak, and what kind of blender you want on your wedding registry.

Source: Informa Research Services