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

White House to announce housing aid: sources

The White House plans to announce on Friday that it will require lenders to lower the mortgage payments of some unemployed workers and encourage lenders to eliminate some principal debt of homeowners who owe more than their home is worth, sources familiar with the plan said on Thursday.

The plan comes as President Barack Obama is under increasing political pressure to change his strategy for helping struggling homeowners and stem the tide of rising foreclosures and is the second major housing initiative announced in as many months.

Delinquencies on U.S. mortgages rose to nearly 14 percent in late 2009, led by a sharp increase in seriously overdue home loans held by the most credit-worthy borrowers, U.S. banking regulators said earlier on Thursday.

Obama's $75 billion homeowner assistance program announced last year has been widely criticized as ineffective by both Democrats and Republicans on Capitol Hill.

Representative Jackie Speier, a California Democrat who backs Obama on most issues, told a top administration official responsible for housing policy on Thursday that White House efforts so far have "failed miserably."

The new efforts include at least three and at most six months of temporary assistance for jobless workers and incentives for mortgage servicers to write down part of the principal balance, sources said.

The plan also aims to increase the Federal Housing Administration efforts to keep people in their homes as the cause for delinquencies has shifted from sub-prime borrowers to the unemployed and "underwater" borrowers: people who owe more than their house is worth.

Recognizing the difficulties for so-called loan servicers to modify loans for unemployed workers, the administration's plan aims for lenders to cut payments on existing loans to 31 percent of a borrowers income.

Howard Glaser, a mortgage industry analyst in Washington called the decision to focus on jobless and underwater borrowers a significant and welcome shift in the administration's strategy to stabilize housing market.

"They have recognized that the complexion of the mortgage crisis has changed. This is no longer about risky subprime loans -- its about home value declines that have made default a rational economic choice for homeowners," Glaser said in a note to clients.

It would use up to $14 billion of what remains of the $700 billion bailout to let borrowers refinance up to 115 percent of the value of the homes they live in.

The FHA plan is aimed at getting servicers to write down some or all of the so-called piggyback loans that have been a major sticking point for modifications thus far.

John Courson, chief executive officer of the Mortgage Bankers Association, welcomed the administration's efforts to expand its homeowner assistance.

"As the causes of the ongoing foreclosure crisis have shifted, we need to keep looking for new ways to help delinquent and underwater borrowers," Courson said in a prepared statement.

The principal reduction plan would be administered under the existing Home Affordable Modification Plan and is modeled after a principal reduction plan announced this week by Bank of America.

Under pressure from Massachusetts Attorney General Martha Coakley, Bank of America Corp said on Wednesday it would offer what could be up to $3 billion in loan forgiveness to about 45,000 troubled homeowners.

Bank of America pledged to offer an "earned principal forgiveness" of up to 30 percent for homeowners nationwide who owe more than 120 percent of the value of their home.

Bryan Whalen, a managing director at money manager TCW, which manages more than $115 billion, including mortgage-backed securities, cautioned that this could be aimed more at public opinion than the mortgage market.

"If this program is anything like Bank of America's -- in terms of scale -- I expect the market to not react to it," Whalen said.

"The BofA program involves 45,000 loans -- it doesn't move the needle one bit. The market will take a 'show me' approach to the White House announcement," Whalen said.

The plan comes just a few days after Treasury Secretary Timothy Geithner launched what could be a years-long process of overhauling the government's role in helping Americans buy homes.

Geithner told lawmakers the government should continue to play some role in any new system of housing finance Congress develops, although he said mortgage finance giants Fannie Mae and Freddie Mac should not be nationalized.

"As long as the administration continues to sidestep the larger issues such as job creation and how they intend to deal with Fannie and Freddie, subsequent misadventures (by the government) into the mortgage market will continue to be an exercise in futility," said Representative Darrell Issa of California, one of the hardest hit states.

article source: .reuters

Student loan reform will provide relief to college students

The health care reform passed in the House of Representatives last Sunday won't only provide health care for the citizens of the United States, but will also provide some help for college students.

The reform was piggybacked on the back of health care reform.

The new student loan reform is aiming to eliminate the private sector from the process and have all loans come straight from the government.

According to the Congressional Budget Office, this would create a $62 billion net savings through 2020.

The $62 billion that's being saved would go back into financial aid.

SRU increased tuition by 3.5 percent before this school year, but the raise was below the rate of inflation for four straight years.

State schools are struggling to keep up in the current economy.

Students also bear the brunt of the burden because they're forced to pay higher tuition rates whenever the economy goes south.

SRU is still one of the cheapest schools in the state.

But with a $9 million deficit, how long will it be able to keep tuition costs so low?

Democrats trimmed their original spending plan by dropping the amount from $87 billion to $61 billion.

They increased the maximum number of dollars that could be spent on a Pell Grant from $5,300 to $5,900.

Besides increasing Pell Grants, the bill provides $1.5 billion to help students repay their loans. And beginning in 2014, borrowers won't be allowed to devote more than 10 percent of their monthly income to repay student loans.

The idea of there being more money toward financial aid is exciting for many students, and a majority of our staff is in favor of the program.

Any additional financial aid that could be provided for students would be beneficial.

Can you imagine, if we have children one day, what the cost of colleges will be?

Increasing tuition every year is going to hurt every aspect of academia.

The first victim of these increases would be lower-income students.

It's hard enough for students to pay as it as, let alone without any help for financial aid. These kids are trying to better their lives and may need an extra push to get there.

Students will also enjoy this new system because they'll have to spend less time worrying about making money to go to school.

Working will still be important, but with extra grant money coming in, they could put more focus on education.

Some of our staff members do have problems with the nature of how the bill was passed.

This is a practice that's gone on in the United States forever, but it's a reprehensible way to push a bill through.

Healthcare was on the front page of most major newspapers, while student loan reform was on page seven.

Also, cutting out the private sector will eliminate nearly 32,000 jobs.

The banks in the private sector used to be responsible for processing the loans once they were approved.

That isn't helping an economy rife with unemployment.

Also, increasing the Pell Grant by $600 is kind of insignificant, considering tuition at the Rock went up by $181 last year.

So in five years, the $600 extra wouldn't matter in four years.

We're all in favor of more money and hope this new program will benefit students sooner rather than later.

article source: theonlinerocket

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