Category Archives for "Mortgage"

Things You Look For When Applying For A Housing Loan

Things to Look For When Applying A Housing Loan – A good banker!

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Which banks offer the best rates?

 

“Which banks offer the best housing loan rates?” is often the first question that comes to mind.  However, there is no absolute answer for this question because interest rates vary with numerous factors such as the  loan amount, loan tenure, credit history (LoanStreet) and so on. Is it true to say that the lower the interest rate, the lower your payment?. Generally, yes. Nevertheless, solely looking at the interest rate alone may lead you to making a sub optimal decision. Be reminded that you should also pay attention to the terms & conditions (T&C) on paper because they affect your loan installment amount as much as the interest rate does. For example, imagine that the T&C states that the loan is bundled with 5 years lock in period (early termination) and 5% penalty fee. It means that without paying a 5% penalty based on your outstanding balance, you cannot pay off the outstanding balance or refinance the loan within the first 5 years. 

The statement above is not meant to undermine the importance of interest rates in a loan agreement. Interest rates do play a crucial role in your monthly installment and the compounding effect scales up your total payment. In other words, even a slight interest rate difference in your monthly installment will eventually accumulate to a huge amount of money paid additionally when you look back at the end of the loan tenure. 

Which bank provides full flexi loan service?

Some people may not be aware of the effect of flexi, semi-flexi and non-flexi loan option when comparing housing loans. Essentially, a flexi option allows you to put withdrawable additional money in your loan account. A full flexi loan allows you to withdraw without incurring any charges whilst a semi flexi loan charges you when withdrawing money from the account.  Read Loanstreet’s article about full flexi vs. non flexi property loan (LoanStreet) to find out more about the different options.

In this respect, we recommend you to go for full flexi loan if you have additional money to make advance payment in order to reduce your outstanding balance. Furthermore, the cash balance in the account will be excluded from the outstanding balance during interest calculation. This gives you more flexibility and just imagine how much you can save by paying less interest! Nonetheless, you might have different needs and there is nothing wrong with applying for a non-flexi loan because the interest rate could be lower still.

For those who are interested in applying for full flexi loan, you can refer to the table below to kick start your selection process.

chart

Which loan package has the shortest lock in period?

Lock in period is another factor that you should consider. As the name implies, the lock in period is the time range when penalty fees are imposed if you intend to pay off the loan early. The penalty fees also applies to any changes in T&C of the contract as well as cancellation and conversion of the loan agreement. In general, penalty fees ranges from 2% to 5% of the outstanding loan balance. Should the loan packages in comparison consist of lock in period, it is always wiser to choose the shortest lock in period with low penalty. However, some banks do not charge a penalty if advance notice is given. Moreover, for loan packages with zero lock in period, it might have higher interest rate as compared with loan packages with lock in period. You can check our home loan comparison(LoanStreet) tool to see the different lock in periods offered by different banks.   

Which bank approves loan application in the shortest period of time? 

It is very difficult to determine which bank has the shortest approval time because banks have different procedures and different requirements for applications. On an average, it takes them about one to two weeks to approve the loan if complete documents are submitted. To prevent any delay of approval time, prepare yourself a checklist of the documents required by the banks.

Source: PropSocial

Other considerations – MRTA requirement, free lawyer fees loan agreement, ease of application, good customer service of the bank staff…

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How to Ensure Good Tenants for Your Property

A good tenant will save you a lot of time.

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wealth conference 2016

Choosing the right tenants

Choosing the right and the most appropriate tenants is very important. As part of your vetting process, you must also make sure that you always contact the previous landlord of your prospective tenant. You should ask them whether their tenants were good with the property and if they would be able to allow them again.

Cleaning instructions

In case you are in possession of any items that require some careful cleaning, you can supply this information to your prospective or future tenant. You can also write down all the instructions for cleaning on a laminated document so that you have to do this only once.

Remove all your valuables and personal items

This means that you must take out all the items that have sentimental and financial value. You can also replace them with some cheaper alternatives.

A large deposit

A large deposit can be very helpful in making sure that your tenant takes proper care of your property. You must at least take six weeks’ worth of rent as deposit and also make it clear to the client that if any damage is done on the property, the equivalent amount will be deducted from the deposit amount. This will easily ensure that the tenant takes good care of your property as if it is his property.

Befriend the neighbors

It is important to befriend the neighbors as they can be all eyes and ears when it comes to overseeing your tenants when you are not around. You can also give them all the instructions and ask them to be highly vigilant when it comes to spying on your tenants. This is a very naughty step but a very effective step as well. It is one of the important things to remember.

Regular inspections

Regular inspections must also be carried out for ensuring that your property is in good hands. For example you can visit your property once every three months and do an inspection. This will help you in the long run as it can increase your trustworthiness on the tenant which can have many long term implications.

Article Source: EzineArticles.com

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What Are The Crucial Factors Influencing The Mortgage Rates

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wealth conference 2016

Mortgage rates are totally dependent on how the economy is performing. The mortgage rate comes in different varieties and the most popular is fixed rate loan. In case of the fixed rate, there is no fear of the rate fluctuating. If you are planning to take the mortgage loan, you need to enquire about the mortgage rate. The loan is actually used by the purchasers of property to raise the funds and to buy the real estate property. Mortage rate is generally influenced by the target cash or the official interest rate which is set by the Reserve Bank. The moment Reserve Bank changes the official rate, it tends to influence the overall expenditure of the economy. In fact, when expenditure is more than the production, there is inflation. How the rate is determined and how the rate moves is an absolute mystery.

When to Look Up For Fixed Mortgage Rate?

If you intend to hold your home for a long time, it would be great to opt for the fixed mortgage rate. The one who goes in for 7/1 ARM, they can get the rate locked for 7 years and there is nothing to worry about the fluctuation. The rates are quoted in the 1/8% like 4.125%. It is usually the 4.4258% which is the APR or the Annual Percentage Rate.

The Fluctuation of the Mortgage Rates

There are too many factors influencing the fluctuation of the rates. The 10 year Treasury Bond Yield is the finest indicator. Here the 20-30 years fixed rate mortgage is paid within the tenure of 10 years or so. The payment is done by selling the home. The Treasuries are in fact backed by the credit and full faith of the US. Treasuries act as the bench mark for the other kinds of bonds. So, when the rate of the T-Bond or the Treasury bond goes up, the mortgage rates also go up. Besides this, there are several reports on the fluctuation of the mortgage rates.

Other Important Factors Influencing the Mortgage Rate

Mortgage rate is also affected by various other factors. They include the GDP or the Gross Domestic Product, the Consumer Price Index and Consumer Confidence, the Home Sales. If the economic news is good, the rates will go up and vice versa. If the stock market rises up, the rate of mortgage will skyrocket. The fluctuation in the rate is also dependent on the Federal Reserve which tends to adjust the Federal Funds Rate. The rates are sure to rise under inflationary economy.

How to Protect Oneself from the Rising Mortgage Rate?

A lot many people are worried about the fluctuating mortgage rates. When the mortgage loan is processed, the broker will tend to lock the rate to protect you from the rising mortgage rates. With most of the lenders, these locks may go between 15 and 45 days.

The interest rate on the loan gets adjusted and is influenced by various factors. Never be swayed away by the par value. If one is doing the LTV or high loan to value rate and the credit score is sound, there will be adjustments on the rate.

Source: www.artipot.com

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Government Housing Programs You Should Know About

Whether you are a first-time buyer, loan-reject, newlywed, or low to medium-income earner, there seems to be a fitting housing program with you in mind.

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Government Housing Loan Scheme

Working for the government brings you many benefits, and this is one of them. These loans come with attractive interest rates, special subsidies and are much easier to get approved. While it is not technically a housing scheme per se, the interest savings along with other assistance makes it more affordable to own your home as compared with traditional bank loans.

The loan amount is dependent on the workers’ pay scale and can be considered rather decent. It ranges between RM120,000 and RM600,000, with the latter still making it possible to purchase a ‘nice house’ in the Selangor city area. 

DO CONSIDER:
🏡 Repayments deducted from salaries – Make certain that in addition to servicing this loan, you still have enough left over to maintain household expenditure and as well make payments toward your other commitments.

🏡 Employment status – Plan out your employment tenure as government loan approvals require you to serve for a minimum of one year and be a permanent confirmed employee with at least a year remaining before retirement or end of service.

myhome

MyHome Scheme

If you can only afford homes within the selling price of RM80,000 and RM250,000 (depending on location), then you may benefit from the MyHome Scheme which is under the supervision of the Ministry of Urban Wellbeing, Housing and Local Government. The program is aimed at first-time aspiring homeowners who fall under the category of low to middle-income earners.

How it works is similar to PR1MA, whereby approved applications will still need to go through a balloting process. The program helps reduce the purchase price of low to medium-cost homes by offering a subsidy of up to RM30,000 to aid buyers and at the same time provide an incentive for developers to build.

DO CONSIDER:
🏡 First Come First Serve – Interested buyers should apply as soon as possible, but note that even though you are a qualified buyer, your application will still require review from the ministry before selection through balloting.

🏡 Resale moratorium and owner-occupancy – As with PR1MA, the property may not be sold for 10 years and is meant to be owner-occupied. 

The Downside to Government Programs

The truth is that although these schemes are much-needed and thoroughly appreciated to the cause of home ownership, not every deserving applicant will benefit from the opportunity.

In addition, most of these programs are accompanied by a special set of stipulations and could vary from state to state. It will no doubt be disheartening to those with rejected applications as these assistance programs truly do come with a lot of promise. 

But still, don’t be put-off by the possibility of rejection; instead arm yourself with as much information as possible to ensure your application is solid. Also, keep in mind that some of these initiatives are still having the kinks ironed out and are in pilot phase – so you will need to stay updated from time to time for any change in details that could affect your situation.  

Source: PropSocial

Good read!

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The most important aspects to consider while selling a property

Buying or selling a property requires a lot of planning and the thoughtful execution. You may find the requirement of hiring a broker to help you in this respect, but that may incur a lot of cost. So it is important for everyone to know few things before you go all out to sell your property to the potential buyers.

Herein below are some of the most important points to consider in this regard:

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Choose a Realtor for your property:

When you actually find it difficult to handle all the works related to getting your property ready for selling, you may take help from a reputed Realtor. These people are constantly pursuing educational opportunities, attending conferences, as well as taking part in local community groups and events just to become a more seasoned real estate professional.

So you can just turn to these people with full reliability when deciding to purchase or sell your next property.

project approved

Consider the Loans and liability factors:

In present days people around the world are going through huge financial uncertainties and are witnessing several issues related to property management. This is a common thought that selling a property with a liability or loan is quite complicated and problematic, but in actuality, if all the documentation and paperwork are ready in an exact way, it can be very easy. So it is important to consider all facets related to the loans and liabilities of your property, you may also hire an expert for advice on the same.

loan rejected

Keep all your documents in order and ready:

Preparing your property for the sale is not only the thing that needs attention, it is also vital to be prepared yourself for inquiries that might arise regarding the property and also be prepared to present the necessary documentation that your listing agent, attorney or potential buyers may request for.

Make sure you have all relevant documents like the copies of rental agreements, deeds, mortgage satisfaction letter, utility bills, tax bills and other such papers ready for showing up as and when required. Also, do not forget to speak to your accountant about the sale of your home with regard to any kind of tax issues.

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Look after the Taxation and related issues:

You may have planned to buy and sale property like a residential or commercial one, now this would require you to give attention to the taxation aspects. The taxation is based generally on the timing in which the property is sold. So you must be careful while considering this particular pointHealth Fitness Articles, you may also call for help from a good legal expert for advising you on it.

Source: Free Articles from ArticlesFactory.com

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What to do if you can no longer keep up with your home loan repayments?

Young homeowners and first-time buyers are especially feeling the pinch as living costs rise in Malaysia. Below are some golden tips that can help:

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1. RESTRUCTURE YOUR DEBT

If you are experiencing difficulty to cover mortgage payments for three or more months, then you might be over-extended on your financial commitments.

The first step to resolving affordability issues would be to inform the lending bank about your current financial predicament and request leeway as you sort your money issues.
More importantly, talk to your bank about restructuring your loan affordability to improve.
Be sure to discuss:

💼 Extending your loan tenure. Check with your bank if it is possible to add more years to your loan in order to reduce the size of monthly installments.

This will increase your total interest costs and repayments overall, but it might be worth the excess fees if it can increase affordability.

💼 Negotiating a lower interest rate. As time passes, market forces and central bank policies may change the course of interest rates from when you first took out your home loan.

Thus, do consult your bank for opportunities to adjust interest rates to reflect such changes and reduce your monthly installments.

💼 Refinancing your loan. Essentially, you will be borrowing more to cover your current loan, but refinancing can offer you better interest rates as well as help modify your loan type (fixed to flexible) and term.

Moreover, if you’ve built equity on your property, you may even be able to pull cash out of it to keep you afloat in the time being.



2. USE EPF SAVINGS TO REDUCE BORROWED AMOUNT

If you have been employed for some time, you may have built up a nice in sum in your EPF account. The good news is that EPF allows withdrawals to be made from your ‘Account 2’ to pay down your home loan.

With enough funds in the account, you can choose to completely clear the loan. Alternatively, you can opt to withdraw just enough to reduce the borrowed amount. This way you will bring down your monthly repayments for better affordability and still maintain retirement savings. In addition, you may also withdraw to help your spouse pay off the home mortgage.


3. RENT A ROOM OUT

You could collect up to 30% of your loan installment if you have a well-maintained home and let out the most attractive room in your home, usually the master bedroom with attached bathroom.

Furthermore, you would be justified to charge a higher rent if you live in a major city or town, are located near a college or office building and if you can provide extra in-house amenities like a water-heater, air-conditioning and washing machine.

It’s a good solution if have a spare room but remember to stay safe by performing your due diligence especially if renting to a complete stranger.

To reduce the risk, try reaching out to friends or family when looking for tenants. Alternatively, if your tenant is a stranger, do conduct a background check by asking for references, employment details, and perform a basic research of them online.


4. MANAGE SHORT-TERM CASH FLOW PROBLEMS

When dealing with a shortage of funds, it’s quite possible that you are simply living above your means. You can improve money matters by striping down to the bare minimum. Here are some examples to help you trim redundancies and get a hold of cash flow issues:

💼 Cut unnecessary utilities such as cable and satellite TV subscriptions.

💼 Downgrade your internet and telephone services.

💼 Consider switching to prepaid plans and reduce monthly allocations altogether.

In addition to minimising overall expenses, look for more ways to bring in cash by:

💼 Selling off belongings that are still in good condition but barely see any use. Clothes, books and appliances can fetch a handsome sum to help sustain your financial needs in the short-term.

💼 Finding a part-time job or utilizing your special skills to earn more.


5. CONSIDER SELLING THE PROPERTY

If all else fails, you may need to consider selling your home to limit the effects of defaulting on your loan. If you’ve been making payments for more than five years, hopefully some equity has been built on the home to enable a reduction in the owed amount as well as to avoid Real Property Gains Tax costs (if you are making profits of over 10% or RM10,000, whichever the lesser).

It’s not necessarily a bad thing to sell the property – perhaps you just aimed for too much too soon, so don’t fret! By selling your home and possibly gaining from it, you are placing yourself in a strong position to buy again at a later time when you are more ready and able.

Source: PropSocial

Thus, it is important to take stock of ALL your expenses before circumstances are dire and work out a realistic budget.

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Malaysia New Tax to Slow Mortgages From ’07 Low: Islamic Finance

As predicted since 2007, the growth in Malaysia’s Islamic home loan are come to the slowest pace due to new tax damps housing demand.

AmInvestment Bank Bhd. and CIMB Islamic Bank Bhd. forecast the mortgage market will cool, just as tighter capital rules make lenders more cautious on expansion. The government will introduce a 6 percent goods and services tax in April, adding to disincentives after regulators cut the maximum tenor on residential property loans to 35 years from 45 in July 2013.

 

📎 Mortgage Members

Mortgages that comply with Islam’s ban on interest climbed 24 percent in 2014 to an unprecedented 76.8 billion ringgit ($21.6 billion), central bank data show. That’s down from 29.7 percent growth in 2013 and the slowest since 2007’s 9.8 percent pace. Conventional home financing grew 10 percent to 298.5 billion ringgit last year, less than the 10.7 percent increase in 2013.

Home loans offered to Muslims differ from their traditional counterparts in that a bank typically buys the property on behalf of the customer and rents it back at a markup to avoid interest payments. Some of the more popular options include contracts such as Ijarah, Murabaha and Tawarruq.

Prime Minister Najib increased property gains taxes and imposed curbs on foreign ownership in October 2013 to cool the market. While household debt rose 9.9 percent in the first six months of 2014, the slowest since 2010, as a proportion of gross domestic product it held at 86.7 percent, according to an October Treasury report.

 

The government cut 2015’s GDP growth estimate to a maximum 5.5 percent in January from as much as 6 percent. A 49 percent slump in Brent crude prices since June is crimping revenue for Asia’s only major oil exporter.

 

📎 Adjust Strategy

Malaysia’s House Price Index fell 0.4 percent in the three months ended September, the first quarterly decline since 2008, according to the most recent data from the finance ministry.

“Consumers are likely to become more cautious in light of the weak sentiment, softening the property market,” Dzulkifly Aminuddin, head of consumer financial services at OCBC Al-Amin Bank Bhd. in Kuala Lumpur, said in a Feb. 6 e-mail. “With uncertainties on the economy and access to financing more difficult now, it’s not surprising that mortgage businesses are affected.”

Maybank Islamic Bank Bhd., a unit of Malaysia’s biggest lender by assets, doesn’t expect the GST to have a major impact on home loans, Chief Executive Officer Muzaffar Hisham said in an e-mail Monday. The lender will review feedback and adjust its strategy accordingly to ensure sustainable growth, he said.

While mortgage demand is slowing, the nation’s Islamic banking assets more than doubled to a record 543 billion ringgit in the past five years, according to Treasury Department data from October, the most recent available.

 

📎 Market Blip

It’s also proving to be the slowest start to a year for sukuk sales since 2010 in the world’s biggest Shariah-compliant debt market. Offerings total 1.8 billion ringgit so far in 2015, the least since 90 million ringgit in the same period of 2010, data compiled by Bloomberg show. Issuance was 62 billion ringgit last year and a record 95.8 billion ringgit in 2012.

The implementation of new capital-adequacy requirements for banks worldwide known as Basel III will also make lenders cautious in expanding credit, according to CIMB Islamic Bank. Lenders have until 2019 to comply with the ruling that will provide a buffer against losses following the financial crisis.

Buyers will adopt a wait-and-see attitude before the implementation of GST, said Badlisyah Abdul Ghani, chief executive officer at Kuala Lumpur-based CIMB Islamic Bank.

Source: Bloomberg

 

“This year could be a blip in the local Islamic mortgage market,” .

“Once economic conditions stabilize and concerns about the GST are allayed, demand for home loans is expected to pick up again next year.”

 

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Malaysia’s Islamic Mortgages Cool as Controls Cap Household Debt

Due to the slow growth of economy in Malaysia and some new policy, these have affected property industry as well especially Islamic Mortgages. However, expert predict that it will recover soon.

Malaysia’s slowing economy and stricter lending rules are cooling demand for Islamic mortgages, helping cap Southeast Asia’s highest level of household debt.

Shariah-compliant home loans increased 17 percent in the first nine months of 2015, after rising an average 29 percent annually in the past five years, according to central bank data issued in October. Malaysia has raised property gains taxes, cut the maximum tenor on lending and placed limits on foreign ownership to check speculation in the market.

Bank of America Merrill Lynch economist Chua Hak Bin forecasts growth in Islamic mortgages will ease to below 10 percent in 2016, which is bad news for Malaysians seeking to get on the property ladder but a healthy development as the government seeks to reduce leverage. Fitch Ratings warned in June that consumer liabilities need to be managed to avoid derailing economic activity and building up disproportionate financial risk.

 

“Property projects have started to slow and stricter macro-prudential requirements have tightened bank lending as the risk of property prices sliding increases,” said Singapore-based Chua. “My sense is that mortgages, including Islamic mortgages, will slow to single digits in 2016.”

 

While growth in home loans complying with Islam’s ban on interest eased, lending still climbed to a record 90.6 billion ringgit ($20.9 billion) in the first nine months, after rising 25 percent in all of 2014 and 30 percent in 2013. They are dwarfed by conventional counterparts, which rose 6.7 percent to 318.6 billion ringgit, following increases of 10 percent and 11 percent in the past two years.

Malaysia’s household debt amounted to 87.9 percent of gross domestic product as of December, according to central bank figures. Bank of America’s Chua said it stood at 988 billion ringgit in September, equivalent to about 87 percent of GDP using his own calculations, up from 66 percent in 2007. He said that’s the highest in Southeast Asia, an observation mirrored by Standard & Poor’s at the end of last year.

Fitch’s June report, written by analysts including Elaine Koh in Singapore, said the 10 percent increase in household debt in 2014 was a “healthy adjustment,” after falling below 2010’s 15 percent in the previous three years.

 

Mortgage growth could slow further as Malaysians face higher living costs. The government introduced a new 6 percent goods and services tax in April, and has increased highway tolls, bus fares and cigarette prices. Rail fees are due to go up in December. Consumer sentiment fell to its lowest since 1998 in the third quarter amid a slump in the ringgit and oil.

“It’s getting more difficult to obtain house loans since lenders are becoming stricter,” said Abas A. Jalil, chief executive officer of Kuala Lumpur-based consultancy Amanah Capital Group Ltd. “In 2016, the growth rate in Islamic mortgages is expected to be lower than previous years based on the overall economic growth projection, but we could still expect to be in double-digit growth.”

regulatory crubsSource: Bank Negara

Moderate Growth

Islamic housing loans differ from their traditional counterparts in that a bank typically buys the property on behalf of the customer and rents it back at a markup to avoid interest payments. In Malaysia, where Muslims account for 61 percent of the 31 million population, Shariah-compliant mortgages are available to people of all faiths.

In 2013, the government increased property gains taxes and cut the maximum tenor on home loans to 35 years from 45. A central bank regulation in 2010 also limited the amount that can be borrowed for a third property to 70 percent of its market value.

Malaysia’s $327 billion economy expanded 4.7 percent last quarter, the weakest pace in more than two years. The finance ministry forecasts growth of as much as 5.5 percent in 2015, down from 6 percent last year, and envisages a maximum 5 percent in 2016.

“We are expecting moderate growth for Islamic property financing,” said Dzulkifly Aminuddin, head of consumer financial services at OCBC Al-Amin Bank Bhd. in Kuala Lumpur. “The continued sluggish economy, seen in the weaker ringgit and the general higher cost of living, together with other uncertainties, have to an extent contributed to the lackluster sentiment.”

Source: Bloomberg

Hopefully the economy of Malaysia will recover soon. 👍

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How to Keep Your Home with Mortgage Loan Workout Plans

A loan needs meticulous attention to budgeting and coming up with for commercial enterprise disasters and changes. whereas a shopper might not be wanting sort of a potential default risk once the loan is at first granted, the actual fact that life will modification, jobs is lost, and appliances will break all issue into the explanations why a mortgage could enter default. A mortgage in default could be a loan that will be resulting in a home proceedings.

 

Mortgage Lender

A mortgage loan workout plan is a legal agreement between the mortgage lender and the borrower. It is usually entered into when the mortgage default jeopardizes continued home ownership, but the borrower is responsible and makes contact with the lender and keeps the bank appraised of the financial situation s/he is facing and what the plans are for coming up with a way to undo the default. The center piece of a mortgage workout plan is the intent to keep the homeowner in the home. To this end, the lender and the borrower covenant and enter into a side agreement that gets tied onto the initial promissory note of the mortgage loan.

 

The Agreement

This agreement details the steps the borrower will take to repay the defaulted amount. It also outlines under which conditions the lenders will accept these payments, what deadlines have to be met, and how such a situation will be avoided in the future. In addition, the lender agrees not to foreclose on the customer who is trying to make things right and actually pay off the debts owed. Each workout plan differs from the next; these plans are uniquely crafted for the benefit of the borrowers. To some, as little as three months forbearance is all that is needed for getting back on their feet. In such cases a lender may agree to move three months worth of payments to the end of the loan, thus actually extending the loan.

 

Lenders have precious very little interest in taking back the house that they helped their customers get, however — within the cases of customers who area unit over their heads in debt — this can be oftentimes the only choice that seems to be open. There is, however, otherwise to go: the loan sweat set up.

 

Mortgage Payment

In other cases the default may be more serious and the lender and borrower could work out a plan that would give the borrower up to 24 months to pay off any default plus costs, penalties and other amounts indicated. This agreement is just as legally binding as the initial mortgage, and it has the advantage of allowing the borrower to once again make normal mortgage payments without the staggering weight of late fees added to them. Budgeting of the secondary payment is also made easier, since the repayment is spread over a sufficient amount of time to not actually adversely affect the borrowers overall budget. Whatever option works for the homeowner, it is crucial to remember that only a borrower, who is in contact with the lender when things go wrong, can hope for such deals.

 

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Private Real Estate Money: The 5 Advantages of Private Money over Hard Money Loans or Mortgage Loans

For assets investors there are varied edges and benefits to personal assets cash versus laborious cash loans or mortgage loans to fund your assets finance business.  Knowing the benefits will mean the distinction between creating a true estate deal work or losing an honest deal to your competitors.

 

As the credit-bubble continues to unwind, traditional sources of real estate financing are drying up and real estate investors need to find alternative sources of capital such as private real estate money.

 

Advantage 1: Speed and Cash Flow 

The ability to close a real estate deal in less than two weeks is a huge advantage over having to wait weeks or even months for a typical bank loan approval. The importance of speed cannot be overstated in a competitive market and quick cash gives you a big edge over other investors. 

Imagine if you are the seller and someone comes to you to buy your house and has a two or three month escrow period before closing plus several financing contingencies versus another investors who will close in two weeks with no contingences.  Not hard to tell which offer the seller will accept.  And the real power of this offer is the seller may accept a lower price to close quickly with no contingencies. 

So not only do you get the deal from the other investor, but you get it at a lower price.  The power of private real estate money is the ability to close quickly and drive better deals terms to your advantage. 


Advantage 2: Simple Paperwork

Have you ever gone to a closing on a traditional mortgage loan and had to sign 2 inches of paper work.  Now image going to closing and only signing two or three documents (yes that is not misprint). 

Private real estate money deals are incredible simple and the total paperwork is normally less than 10 pages and includes two or three simple documents.  The documents included in a private real estate money transaction are a mortgage (Deed of Trust), an installment note and possible a disclosure statement.  The only other required paper work is to name your lender on your property insurance as you would in any normal loan situation.


Advantage 3: You Control Terms and Conditions

One of the incredible advantages of a private real estate money transaction is you control the terms and conditions of the loan.  For example, you can offer a very short term loan of only 6 months if you know you are going to flip the property for quick profit.  Or you can offer a 5 or 10 year term if you plan on holding the property for a long term rental. 
You can also control the conditions of the loan such as not allowing a prepayment penalty for early prepayment.  Most normal mortgages and hard money loans require a 1% to 10% prepayment penalty to pay a loan off early.  With private lending transaction you control the conditions and can simply add a clause that allows an early prepayment without a penalty.  That can mean a huge savings down the road.


Advantage 4: Reduced Fees and Costs

Private real estate money is less costly than mortgage loans or hard money loans.  For example, most hard money loans can ultimately have total interest cost of 20% or greater by the time you factor in all the fees, points, interest and other costs.  Even mortgage loans can be very costly with fees and upfront points factored in and the high interest rates most investors must pay versus home owners.  Loans from private real estate money sources usually have no points and very few costs.  The total cost of most private loans is somewhere in the 9% to 15% range with little upfront or back-end fees.


Advantage 5: Flexibility 

Private real estate money provides tremendous flexibility for both you the borrower, but also for the private lender.  The private lender can invest small amounts of $5Free Reprint Articles,000 or less in deals or large amounts to fund larger apartments or commercial property purchases. You can also work with lenders to structure a term that fits the lenders needs. 

 

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