Preparing to Shop for a Mortgage Loan

Are you looking to purchase a home or do you want to refinance your current mortgage to a lower interest rate? If so, ask yourself a few questions before signing on the dotted line.

What Is My Credit Score?

One of the first things a borrower should understand before moving forward with any credit application is what your current credit looks like. Are there any erroneously reported items? Are there credit items that are correct but need to be addressed? To put yourself in position to get the lowest rate available, it is in your best interest to do your credit homework.

What Is the Current Mortgage Rate Environment?

It is important to understand where rates are when you are considering a new mortgage or a refinance. You should find out what the interest rate range is, as well as the volatility of the market. Mortgage interest rates move with Treasury notes and bonds as market conditions change. Find out where the rates are hovering and be aware of the overall market volatility. You can use this information to help you calculate an affordable payment.

Mortgage Loan

What Can I Afford?

Whether you are purchasing a new home or refinancing your current residence, you must take an honest, objective look at your goals and what you can comfortably afford. Understanding the following items will help you find the best type of loan for your situation.

Affordability Checklist

• What is the stability of your income? Is it going to rise over time?
• How much money do you have available for a down payment? (Make sure you also maintain some reserves)
• How does your estimated mortgage payment (don’t forget to include taxes and insurance in your calculation) affect what you can afford, when combined along with your other debts such as car payments, student loans, and utilities?
• How long do you intend to live in this home?
• If you are purchasing a home, evaluate where you would like to live. Is the price range in your chosen neighborhood affordable, based upon what you know so far?

Begin Shopping For a Mortgage

Begin by comparing products and interest rates from different lenders. A fast and easy way to do this is via the Internet. The Internet allows you to compare lenders side by side using the same loan scenarios. As you are comparing similar products, look at the interest rate, fees charged by the lender, and the annual percentage rate (APR). If you have used the Affordability Checklist in this article, you can start to understand what product is best for you. Mortgage products range as follows:

• Loan Term – 15 or 30 year amortization
• Product Type – Conventional or government loan
• Rate – Fixed rate or an adjustable rate mortgage (ARM)

If you have questions along the way, lenders are eagerly waiting to assist you with your mortgage financing questions.  Doing your homework in advance will better prepare you to make your most informed mortgage loan decision.

Bank Loans

In the borrowing and lending process of loans the one lender has to be trustworthy as well along with the borrowers. Giving out loans was started by banks officially and that is why they are the most trusted and reliable source of loans to date. Although today several other lending institutions have also emerged bank financing remains as the most obvious choice of source when it comes to taking loans. The reason behind this trust could be their experience and also the transparency of policies and the way in which these policies are clearly communicated to the borrower.

Banks today deal in all sorts of loans such as bank loans to individual borrowers and banks loans to institutions and businesses etc. Banks also deal in the two broad categories of loans: secured loans and unsecured loans. Secured loans are guaranteed to be paid back and a property such as a house is used as collateral. The loan is typically decided according to the value of the collateral.

Typically the loan will not equal the entire value of the house but may be around 60 to 80% of the value of the house. In case of default in paying back the loan the bank can sell the property off to recover the money that they loaned to the owners of the property. The interest rates for secured loans are lower then the unsecured loans. The bank interest rates for unsecured loans are high because the bank has no security or guarantee that the loan will be paid back. Typical examples of secured loan is mortgage banking by the bank in which the house being financed is used as a collateral and car finance is also a similar secured loan example.

In the event of default in paying back the loan taken to buy the house or the car the house or the car is confiscated by the bank after a few warnings. An example of unsecured loan would be credit cards which are more fitted to the debt category but are still a short term loan. Bank rates may be higher for such unsecured loans. Another event in which the bank rates will be higher is if you have a bad credit rating.

The credit banking side of the financial banks deals in credit lines to businesses called the corporate credits and individual personal credits like credit cards etc. Credit banking rates vary from customer to customer. Several banks now offer affordable credit solutions to small businesses but at higher interest rates than they do to most established companies. Banks consider several factors when extending a bank loan to businesses.

Some common factors include whether or not the business has a checking account with that particular bank, the credit history of the owner (in case of private firm) and the company’s credit history, and the business performance and life span of the company. Similarly, the credit card limits vary from person to person based on their credit rating. Credit card payment records also have an effect on the credit rating although they are not considered important by most people. Loans to small businesses and credit cards are usually unsecured loans.

Unlike typical banks business does not come easy in mortgage banking. Mortgage banks are entities that are licensed to give out mortgage loans. They can also be called a home loan bank when dealing with house mortgage specifically. But it is not just houses that they deal in. Mortgage banks offer specialized mortgage loans to consumers and these are licensed institution constituted to cater to this need. As consumers do not deposit any money in mortgage banks they can not earn from this source and hence, require other secondary sources of income.

Operations of mortgage banking are governed by the state laws of the state that they are operating in. As these banks service only mortgage loans they have to stay very competitive to keep the business up and like general banking they can not rely on other departments to cover for the losses or the bad business in a particular month. It is becoming a trend for mortgage banks to only create a loan and earn from it and later sell it off to a mortgage servicing company which will pay the bank for the loan and then service the loan for the borrower and earn from its servicing till the borrower keeps the loan.

An investment bank would usually help companies, governments or individual investors in raising money and investing etc. These banks also advice these entities regarding their business decisions and investment options etc. Apart from financial banking and banks loan side of the banks investment banking usually deals with consultancy and advisory mainly. Investors dealing on behalf of the investment bank and dealing with the customer’s money try to get the best out of his trading decisions and tries to get the best bank rates. An investment bank is typically divided into three parts: front office, middle office, and back office.

The main interaction of the bank is with the capital market after the client where they buy and sell securities through traders. In investment banking the main services are helping clients raise funds and advisory services regarding mergers and similar business decisions. Bank financial aspect deals with corporate finance. Sales or trading constitute the basic revenue for the investment banks. These banks also have a research division which analyzes the buy and sell aspects of various companies.

This division does not contribute anything to the revenues but the information that the division collects can help in many strategic decisions like the mergers and acquisitions advice that the bank services its clients in. Several products have been floated in the market by investment banks to facilitate their clients and new products are being added to their portfolios as the needs of the people seeking services of these banks change. Pension, mutual and hedge funds are some of the products of an investment bank among other products. An investment bank also monitors and works around different level risks to get to a profit trade for their client.

Bank Accounts

You will likely want to open an account at a bank near the college. Whether a savings account or a checking account, you must be aware of the minor yet irritating problems that can occur.

First and foremost, you are an adult in the legal sense. This means that if you have a financial problem, you are treated as an adult and not as a child. If you sign something, it can become a binding contract.

Banks charge fees for many things… be aware of what fees you will have to pay.

•    If you open a savings account, there probably will be fees collected from the account each month…unless your account is large! Think about whether or not it is worth having the account. Ask questions of the bank before you sign on.

•    If you open a checking account, there will be even more fees, which might include charges for the checks you write. And if you overdraw your account by writing a check for an amount greater than what you have in the bank, then you’ll find yourself in trouble with everyone. The bank will refuse to pay the check and charge an overdraft fee, to boot. The person who gets the ‘bounced’ check will be upset because the money will not be sent. And, if you bounce checks often enough, the authorities might be called in. What you consider a minor slip will be taken seriously by everyone else.

If you deposit a check in your account, you probably won’t be able to use the funds for a few days. Your bank will make you wait until the deposited check “clears” — until then, the bank can invest this money, known as the “float”, and earn interest for itself. In effect, customers are lending money to their banks for a few days at no interest — this might seem like a trivial matter, but investing the float is a very profitable business for banks.

Your new bank will probably offer you an Automatic Teller Machine (ATM) card — this will allow you to get cash from your account at any time. You won’t be able to “overdraw” as with a check, because the ATM will never give you more than what you have in your account. Be sure to ask if there are any fees connected with your new ATM card. (Often, if you use it at another bank, there is a fee to be paid.)

Make sure you record each check you write, and balance your checkbook each month. Your bank might offer some instructions regarding the best way to do this.

Do We Trust the Banks Or Not

Watching big companies get bailed out while you struggle with your personal finances everyday is enough to make you tired — and want to protest right along with the Occupy Wall Street crowd. However, that’s not what we’re trying to talk about here.

If you’re feeling fed up and looking for changes, you might naturally look at all of the relationships that you have with the current corporate environment. That would be a smart place to start, because we never really know what we have or what we’re working with until we look at all of the finer details.  Banking is something that affects us all whether we have a bank account or not.

After all, there’s going to come a point where you’re going to need financing for something, and that means that you’re going to want to talk to a bank at least once. They might not have the most competitive rate for what you’re looking for, but you will never know what they have until you actually ask. It’s just up to you to figure out what you want to achieve, and how you actually want to achieve it. Never think for a moment that you can’t do the things you want just because you can’t do them right this moment. It would be wiser to really make sure that you focus on the bigger picture. A lot of people have turned their financial futures around simply by realizing that even though they can’t see a solution right away, the solution truly is right around the corner.

The question that’s probably on your mind right now is whether or not you can really trust the bank. We don’t think it’s a bad question to ask, and we definitely aren’t going to tell you that you should make a snap decision too quick. You just need to make sure that you think about the greater picture here.

In order to grow your money, you’re going to have to trust someone. Sure, you could store all of your money under your mattress, but having it in a bank is definitely safer. In the United States, all banks worth their salt are going to carry FDIC insurance, which means that your deposit is protected up to $250,000 through 2013. It is likely that this higher limit will be renewed after 2013. Since the inception of the FDIC, no one has ever lost a deposit. Yes, banks have failed but the FDIC has stepped in and made sure that these people have gotten their money back.

Of course, you have to make sure that you claim the rights that you deserve — it’s not going to be anyone’s job to chase you down to get you your money back. You have to know that you’re entitled to getting that money back and fighting for it that way. Sure, it’s going to be an issue of making sure that you can actually claim the rights you want, but a little research will lead you down the right path in the long run.

We always recommend building a long term relationship with a bank so that you’re going to be able to use their services to the fullest. There’s no reason why you can’t qualify for good financing, for example. It’s just a matter of realizing that it’s what you ultimately want to do. If you don’t get things on the right track, you’ll end up hurting your self in the long term. Becoming a cash customer is something that only works in the short term. What about when you’re ready for a car or a house? Those are going to be some big ticket items that usually require good credit. If you’ve been burned by credit in the past, we definitely understand why you might want to avoid pushing forward. However, if you take the time to build your credit back slowly and replace it with positive trade lines, there’s no reason why you cannot have a good credit score again.

Not giving up is the key to success in life. We don’t think at this time that there’s any reason why you should give up on the banking industry. You never know where the industry will take you next, after all!

How to make loan calculations?

There may come a time when you require money immediately, but you will not be in a position to mobilize the required money. Under the circumstances, you will have no other alternative but to go in for a loan. When you decide to take a loan, it will be good for you to know, before hand, as to the total cost of the loan you are going to avail. How do you get this figure? You collect offers of loans from different sources which will include rates of interest, payment terms, etc. Based on the amount of loan you need, you can work out the total cost of the loan. After analyzing the details gathered from various sources, you can take a decision in the matter.

Online calculators are helpful to make the calculations

When you decide to take a loan, it will be better for you to work out the loan calculation yourself. It is only then you will get to know every detail connected with the loan. Thus you become fully acquainted with the whole aspects of the loan. And you have full knowledge about the payments to be made every month and for how long. The over-all cost of the loan, including interest payments, fees, if any, will be clear to you. In case you feel it necessary, you will do well to make the required changes in some of the loan calculation components.

What is the need for a loan calculation, some people may be wondering. It is most important for you to have full and detailed information regarding the cost of the loan which you are going to avail. This will give you a clear idea in the matter of monthly outgo, duration of the loan period, penal fees, if any, for delayed payment and/or foreclosure. As said earlier, if there is any need, some of the loan calculation components could be changed. Some changes, effected thus, are likely to bring a total difference in the outcome.

loan calculations

How will you calculate the cost of a loan?

For any loan, there will be some interest payable on the principal amount plus some sort of fees. These things will be clearly mentioned in the loan offers. However, in case you find it difficult to get a clear idea of the details concerning the loan offer, you can do the calculation yourself, taking each item one by one. For this purpose, you may apply the usual formula. However, if necessary, you can make use of an online calculator. You need not consider those loan offers which indicate lower interest rates with ‘no fees’ or ‘very little fee’, as the best available in the market. The fact may be different. You better consider all other aspects and take a decision in the matter of choosing the ideal offer.

A loan taken is repaid in two ways. One way is, you pay only interest every month until you repay the loan amount in full – a one- time payment. If you choose to go along this way, you have a clear idea as to the amount required for the monthly payments, till the loan is repaid. The second way is this: you choose to pay a certain amount of money every month which will include a part of the principal amount too apart from the interest amount. This type of payment is known as ‘amortization.’  If you choose this method and, after a certain period of time, if you are eager to find out how much of the principal amount you have paid back, you will get the ‘shock’ of your life. Large portion of the amounts you have paid would have been adjusted against interest, leaving the principal balance almost at the same level!


A tracker is a mortgage rate which tracks the base rate. This means that the lender will charge customers a certain percentage plus the current base rate. This can be an incredibly good deal, but it all depends on how much the lenders charge is.

Variable mortgage rates are always above the base rate because the lender wants to make a profit. This means that the amount they charge over the base rate is what they are taking to cover their expenses and make a profit. So it is important to take a look at this figure. Some trackers cost a small amount of money but theirs are more expensive and so it is important to choose the right one.

The disadvantages of trackers are that the rate can change a lot. This means that if interest rates keep going up and therefore the rate goes up, you will have to keep paying more money. This could be difficult to manage and to know exactly what you need to spend each month on the mortgage can be unsettling. However, it can be really good when rates are falling as you are paying less which is good. The tracker rate has to fall immediately when rates fall as well, when many mortgage rates have a delay or do not change when there is a fall in rates, but they tend to always go up immediately if the rate increases.

A tracker is probably a bit of  a gamble then, but it can mean that you get a fairer deal in some cases. If you can find one that is cheap, then this will mean that you are likely to get a good deal for the term of the mortgage. Watch out for hidden costs though, as with all mortgages there might be administration costs or other fees and so you need to add these in when you are comparing. These will be paid out in the terms and conditions which you should be able to find easily on the lenders website. They may take a bit of reading, but it is worth it. You could always ask the lender directly what all of their costs are. These are normally fees for opening the account, paying back early or over paying and late payments. There will also be costs for doing searches and things like that.