What you should know about your housing loan

When there is an increase in the Prime Lending Rate (PLR), the interest rate on your loan will also go up, and your repayment would be higher. However, in most cases, financial institutions would allow you to pay the fixed amount of monthly repayment (EMI) throughout the loan tenure and would make any adjustment caused by the variation in interest rate by increasing or shortening the loan tenure, as the case maybe. Also, do note that the PLR will soon be replaced by the Base Rate (BR) from July 2010 onwards.

Owning a piece of land, a house or a property is a lifetime dream for every individual. Maslow’s law of hierarchy indicates such a dream as well. Taking a home loan nowadays has become much simpler. Each year the budget regulations seem to lean towards the housing sector and construction sector in terms of generosity!

There are many home loan providers in the market to make your dream come true. However, before you opt to take a home loan, you need to consider certain factors related to the property that you are interested in buying and also understand the features offered by a home loan provider.

Choosing Your Financial Institution

When you shop for a home loan its good to research your financial institution well before opting to go with them. Remember that when you take up a housing loan, you will be dealing with the lending institution you choose on a regular basis for a long period of time.

Therefore, you should also consider factors other than just interest rates. Some of these are:

How professional is the financial institution in dealing with customers?

Does it offer quality service in terms of efficiency and reliability?

What are the available loan packages and which package suits you best?

What are the various charges involved?

Assessing your loan repayment capacity

You should ensure that your monthly loan installment repayment (EMI) should not be more than around 40-50% of your gross monthly household income. If you have savings or fixed deposits, they can be used to support your loan application as financial institutions may take them into account in evaluating your eligibility. Different financial institutions have different criteria in calculating the repayment capacity. In the case of a floating rate loan, you should also note that your loan tenure or (if you so choose) your monthly repayment may increase substantially when interest rates go up.

When there is an increase in the Prime Lending Rate (PLR), the interest rate on your loan will also go up, and your repayment would be higher. However, in most cases, financial institutions would allow you to pay the fixed amount of monthly repayment (EMI) throughout the loan tenure and would make any adjustment caused by the variation in interest rate by increasing or shortening the loan tenure, as the case maybe. Also, do note that the PLR will soon be replaced by the Base Rate (BR) from July 2010 onwards.

Margin of finance

It is assessed on factors such as:

• Type of property
• Location of property
• Age of the borrower
• Income of the borrower

Generally the margin for the borrower (down payment) will be about 15% of the property as assessed by the bank/ lending institution. For mortgage loans the lending institutions will assess the value for the property based on the ‘Distress Sale Vale’ - this is the value of the property in case it is sold on an urgent need basis. This value can be much lower than the market value of the property.

Rights and duties of the borrower and the financial Institution

Both the borrower and the financial institution have certain rights and duties during the course of the loan repayment period. Some of these include:

RIGHTS

Borrower

• Right to have access to all information that would affect your borrowing decision
• Right to be treated professionally, courteously and without prejudice
• Right to be consulted on changes to the terms and conditions of your loan
• Right to have accurate information on a regular basis on your loan account
• Right to enforce legal action in the event of a breach of contract

Financial Institution

• Right to have full relevant disclosure of information on borrower’s credit standing
• Right to correct and truthful information on the borrower
• Right to timely repayment of interest/ installments of the loan
• Right to enforce legal action in the event of default/breach of contract

DUTIES

Borrower

• Duty to read and understand all terms and conditions of the loan
• Duty to observe the terms and conditions of the loan at all times
• Duty to enquire and get clarification on all aspects of the loan to their satisfaction
• Duty to make prompt payment on the fees, charges, interest and installment of the loan

Financial Institution

• Duty to discharge borrowers’ obligations as described in the loan agreement
• Duty to consult borrowers on any changes made to the terms and condition, fees charged and other relevant information
• Duty to attend to all queries made by borrower

Before getting a housing loan take stock of your finances and assess your loan repayment capacity. Then shop for the best offers available. You can also approach a financial counselor for optimum allocation and utilization of your money.

article source: bankbazaar

Gov’t to unveil plan to shrink some home loans

The Obama administration will announce Friday a plan to reduce the amount some troubled borrowers owe on their home loans, three people briefed on the matter said.

The people declined to be identified because the program had not yet been announced. Earlier in the day, Herbert Allison, an assistant Treasury secretary, told reporters officials are close to expanding the administration’s $75 billion foreclosure relief effort.

The plan to be unveiled Friday at the White House is expected to include at least three months of temporary assistance for borrowers who have lost their jobs. It also is expected to include an expanded effort to allow borrowers refinance into Federal Housing Administration loans.

The plan would expand the administration’s foreclosure-prevention program, which has been a disappointment to date. Critics have complained the program does little to encourage banks to cut borrowers’ principal balances on their primary loans. Nearly one in every three homeowners with a mortgage are “under water” — they owe more than their property is worth — according to Moody’s Economy.com.

Allison cautioned that any new plan is “not going to mean that all underwater mortgages are suddenly in the program.”

Obama administration officials have been studying such issues for months. An expansion of its foreclosure-prevention program has long been expected because only 170,000 homeowners have completed the process out of 1.1 million who began it over the past year.

And lawmakers have been frustrated by the lack of results.

“It has failed,” said Rep. Jackie Speier, D-Calif., at hearing of the House oversight committee on Thursday. “It has failed miserably and unfortunately we are incapable of saying: OK, this was an experiment, it didn’t work, let’s try something else.”

The program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. To complete the program, homeowners need to go through a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.

Though $75 billion in funding is available to the more than 100 lenders who have signed up, only a tiny fraction has been spent. Lenders had received $58 million in incentive payments as of last month, according to the Government Accountability Office.

AP Business Writer Daniel Wagner in Washington contributed to this report.

article source: taragana

Half of U.S. Home Loan Modifications Default Again

More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.

Modifications are “clearly not working well and it’s not a surprise,” said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. “It’s pointless to rewrite these loans because they’re underwater.”

The number of homes with mortgage payments at least 60 days late climbed 2.39 million in the fourth quarter, up 13.1 percent from the prior three months and 49.6 percent from the year earlier period, the quarterly Mortgage Metrics report said.

article source: democraticunderground

BofA Forgives Home-Loan Principals

According to the agreement with state attorneys general to help homeowners who got high-risk home loans from Countrywide Financial, Bank of America Corp. (BAC - Analyst Report) said on Wednesday that it would forgive about $3 billion in principal loan amount to about 45,000 troubled borrowers.

The borrowers had taken those loans before BofA acquired Countrywide Financial in mid-2008. However, following the acquisition, BofA has stopped such loans.

BofA will offer up to 30% of total loan balances for homeowners who owe more than 20% of the value of their home and missed at least two months of mortgage payments.

BofA is expected to start the process in May 2010. Following the execution, BofA will be the first U.S. mortgage lender to take such a systematic approach to reducing mortgage principal to help distressed borrowers by preventing foreclosures.

Wells Fargo & Co. (WFC - Analyst Report) said that it has modified more than 52,000 mortgage loans it absorbed when it acquired Wachovia Corp. In addition, Wells Fargo had reduced the principal on those loans by more than $2.6 billion.

BofA had already completed modifications for about 22,000 homeowners as of Feb 2010. This equals about 8% of its total list, compared to about 11% for JPMorgan Chase & Co. (JPM - Analyst Report).

Earlier this month, the Treasury received net proceeds of $1.5 billion from the sale of warrants entitling it to purchase BofA common stock.

The amount received from the auction of BofA warrants exceeds $1.1 billion raised from the sale of Goldman Sachs (GS - Analyst Report) warrants earlier.

The market turmoil was more harmful to BofA than its peers. However, the company has concluded acquisitions of Merrill Lynch and Countrywide Financial almost during the height of the financial crisis last year.

The CEO views these deals as beneficial for stakeholders of the company. Furthermore, this will allow the bank to focus on rebuilding customer relationships.

article source: zacks

Wells Fargo Home Mortgage Loan—Financial Help Can Come From Refinancing

Wells Fargo homeowners that may be in need of financial help in their mortgage may be able to get a lower monthly mortgage payment by refinancing their home loan. Wells Fargo, along with other big mortgage lenders, is offering low mortgage rates on homes and refinancing, and dropping your interest rate on a mortgage can go a long way in helping you afford your monthly mortgage payment.

Many homeowners are getting mortgage rates for around or under 5%. Some homeowners have seen refinancing rates on a 30-year fixed rate mortgage for 4.75%. Even if you are not able to get a rate below 5% you still may get a cheaper interest rate, which is going to help you when it comes to making your mortgage payment.

By refinancing to a 30-year fixed rate mortgage, for instance, you can possibly lower your monthly mortgage payment, in most cases, and for those with equity built up in their home, you can get money back.

Many people that have refinanced and got money back have either kept or spent the money in some other way, but homeowners that do get money back from refinancing a mortgage would do well to apply that money to the principal amount on the mortgage. While refinancing can be beneficial there are costs associated with the refinancing process, so do your research, look at lenders outside of Wells Fargo too, and make sure that refinancing is the best option for you before proceeding.

This entry was posted on 03/25/2010 at 7:00 am and is filed under Banking/Finance, Loan Modification. You can follow any responses to this entry through the RSS 2.0 feed.

article source: rwbpress

House Price Recovery Just A Head Fake, Says Alpert, Especially In New York

In the second half of 2009, house prices staged a surprising recovery, leading many to conclude that the housing bust was done.
Keep dreaming, says Dan Alpert of Westwood Capital.
The rise in the second half of 2009 was mainly the result of pent-up demand combined with a tax-break, subsidized mortgage rates, and other incentives.  The housing market is still awash in excess inventory, and Alpert says this will eventually drive prices down to 8%-10% below the lows of early last year.
The good news?
House prices should bottom this year and then begin to recover.  Also, for the hardest hit areas, such as those in California or the sand states, the bust is probably over.  Prices have fallen so far in those areas that Alpert thinks they're bottoming now.
So where is the sky still falling?
Places where price-to-rent ratios are still well above historical norms, such as New York City.
A staggering amount of excess inventory means the housing crash in NYC is alive and well, Alpert says.

What bankers do not discuss about Home loan

Taking a home loan has become easier. Enticing advertisements and easy installment plans may be tempting you to avail a loan every now and then.

Well of course, you deserve to possess a house of your own. And the Indian banking and finance industry too supports your aspirations. The cumbersome process of taking a home loan in India has been simplified a lot and you no longer have to run from pillar to post to get it approved for yourself.

Nevertheless, the eligibility criteria are also rationalized and anyone can plan to avail a home loan by fulfilling the bottom lines.

But then the key question arises as to whether you should take a home loan or not. It certainly is a long term assessment. After all you should not fall in a debt trap in any case.

Hereon we discuss on the softer side of the matter that is usually ignored amidst the fancies of buying home loan, but turn critical in nature.

How much?
As a thumb rule, your Equated Monthly Installment (EMI) on home loan should not exceed by 40 per cent of your net monthly income. Net income is meant by the disposable income left after all statutory deductions like insurance premium, income tax, PF contributions, and other obligations towards mutual fund SIP (Systematic Investment Plans) etc.

Thus if your monthly income is Rs 20,000 and net income comes to Rs 15,000, your monthly home loan installment should not exceed Rs 6,000 (40% of Rs 15,000). The rest is assumed towards your routine expenditure.

Our suggestion

Though 40% is a standard, we advise you to keep it below 25% of your present net income. Reason- you should have reserves to meet some unforeseen situations. It may be healthcare or financial affairs or any unexpected expenses under the sun.

Future Planning
A large number of people project hike in their incomes for future and make decisions based upon estimations. It’s good to be positive.

But you may enter into troubled waters in case things move in opposite direction.

Also, the home loan is a long term liability, usually between 10-20 years. In this period, your income may keep on rising but so do your liabilities and expenses. What should you do then?

Our suggestion

Suppose you expect your present monthly income of Rs 20,000 to Rs 30,000 a year after, you plan your EMI as per present income only.

Later when your projections turn into reality, you can either re-work your EMI with your bank or invest the additions into other prolific investment options.

This way you can balance your liabilities and at the same time remain stress-free on spiraling burden of EMI, which could form in case of failing estimations.
Final words
We hope that the above discussions will prove beneficial to you and help you work out a well planned home loan transaction, safe and happy.

We’ll continue bringing such information and insights on home loans for you, on regular basis. So be in touch.

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