December 9, 2010

Fixed Rate ISA

(No comments)

Is it time for a new roof and updated windows? Do the kids need more space? Is the garage overrun with stuff with no room for the cars?

Youre going to need some money to get these projects done, whether you decide to hire a contractor or do it yourself. Consumers should look closely at the financing options before jumping into a loan. Ask yourself some questions when approaching a home improvement loan.

Ask yourself these questions:

How long is the whole job going to take?

What is the total cost of everything?

Will I need more money for anything else beyond the home improvements?

For small jobs, less than say $500, using a credit card is probably the best options. The interest rate will most likely be higher than other financing options, but there wont be any extra paperwork and appraisals.

Using the equity you have in your home is a low cost way to finance your home improvements. The equity is just sitting there waiting for you to sell your home.

Many banks over home-improvement loans made for low-to-moderate income families, whereas your typical home-equity loan offers a better rate structure. Additionally, the interest payments on a home equity can be deducted on your federal income taxes.

A home equity loan basically is a homeowner borrowing against their house, pledging it as collateral. If you want to borrow a large amount of money or you have poor credit a home equity loan can be attractive.
The lender is often more liberal with a home equity loan since it is viewed as a relatively safe loan. If you default on a home equity loan, you cant disappear or hide with your house. Your payments are more likely to be a priority if your home is at stake.
Advantages of Home Equity Loans
Home equity loans are attractive for a few reasons:
The interest rate is typically lower.
The qualifications are easier for consumers with bad credit.
Payments on the interest could be tax deductible.
Loan amounts can be relatively large.
Home equity loans are a good investment for you as well. Lets say you have equity of $25,000 in your home. You take out a home equity loan for $25,000 for a garage addition, new siding and remodel the bath. You have increased the value of your home by improving you home by doing these projects.
Be cautious though, because home equity loans are often offered with variable interest rates. That means they can vary upwards. Fixed rate equity loans are available, but you must specifically ask for them. If interest rates were on the rise, a fixed rate would be a good choice to ask for.
Be sure the deal is best for your interest. Make sure the home equity loan fits your needs better than a credit card account would. Make a budget ahead of time to make sure the extra loan payment wont overburden you. Consider insurance to cover the payments in case the unforeseen happens.
When deciding on financing your home improvements, be sure to check the different options available to you. If you need a new roof, new windows installed and to replace your deck, the home equity loan is a good option.

The U.S. is the worlds largest economy and is moving into its fifth year of expansion. The biggest risk is the housing market which is expected to slow this year and potentially drag the economy down with it. Many people are betting that the housing market will avoid a major crash but instead will plateau leaving prices stagnant. The resulting rise in interest rates could put a lot of families under financial stress.

A housing market that is not growing quickly turns into a buyers market. People will have a number of houses to choose from which will block any increasing value for current home owners. To most home owners this will not be a problem because they have conventional fixed-rate mortgages and only need to wait until the market improves. People who have unconventional 5-year arms and interest only loans may be seriously hurt; especially if interest rates rise.

I think one of the principal risks is whether or not home prices decline and the impact that that will have in terms of influencing the savings rate and personal consumption growth as we have already seen in the U.K. and Australia said David Rosenberg a U.S. economist at Merrill Lynch (Wolk, 2005).

A bigger problem is peoples personal savings rates. Because debt is so easy today and most families are at a maximum borrowing limit many people who will see a jump in their interest payments may begin to default. This default raises the interest rate even further due to increased risks associated with lending money. In the end many people will not have money to spend or save which could have serious consequences for the economy as a whole.

The best measure to avoid such pit falls is to put a larger sum down on your house during purchase which gives you a cushion to work with incase you need to sell your house quickly. The second measure is to avoid all credit card balances, home equity loans and charge cards. Finally, only engage in fixed-rate mortgages.

As easy as it is to get into debt, there are a number of strategies for consolidating your bills and lowering your monthly payments while still paying more to principal and becoming debt-free faster than you thought possible.

If youre ready to eliminate your credit card debt, you need to assess your situation and then look at the best alternative for your financial needs. Do you own a home? If you own, do you have equity in your home to tap? Can you afford more than your monthly payments, or are you struggling to get by? Is your number one goal getting out of debt, or is it to meet your monthly payments?

If you own a home, and have equity available, you can look at a debt consolidation loan, or a related solution a home equity line of credit. In this scenario, you are shifting your credit card debt from unsecured to secured debt, which allows you to lower your monthly payment and also lets you deduct the interest payments from your taxes. You may determine that this debt consolidation loan, or second mortgage, can put you on a much faster track to eliminating your debt. Thats because the interest rate on a second mortgage can be much lower than what youre paying toward credit cards or other high interest debt. Trading higher interest debts such as these for a lower interest payment can save you hundreds each month which you can, in turn, put back toward paying off the debt. Last, but certainly not least, the interest you pay on a second mortgage is tax deductible and that savings too can be put toward your bills.

Or perhaps you already have a second mortgage youve been paying on for a while. Especially if you got your first and second mortgages at the same time, it might be time to consolidate them into one loan. Many second mortgages in the last decade carried adjustable interest rates which have increased causing payments to rise. Consolidating your first mortgage and your adjustable rate second mortgage into one low fixed rate loan can also save you a great deal each month which you can use to make payments to higher interest debts.

Two other advantages you may gain through refinancing are the elimination of personal mortgage insurance and the chance to get cash out at closing. When you took out your original mortgage, did your lender require you to carry personal mortgage insurance due to a high loan to value? If so, refinancing may eliminate that requirement. If you have since built up some equity and your new loan to value is low enough to drop the mortgage insurance, your payment amount will be much lower. You may also find that you can take some cash out of your home at closing without significantly increasing your monthly payments. That cash can go toward you guessed it your higher interest debts.

If you dont own a home, or if you own and have no available equity, you can look at debt relief options including debt settlement and credit counseling. If your monthly payment is your number one concern, its worth a try to call your credit card companies and see if a payment plan at a reduced interest rate can be agreed upon. This will allow you to pay more toward your balances each month and eliminate your credit card debt sooner. While your creditors are under no obligation to change the terms of your agreement, they may very well be willing to do so, especially as it is to their advantage to receive payment, and negotiating a payment plan shows that you are taking the initiative to do just that.

If calling your creditors doesnt work, or if you just want a quick fix, you can contact a debt settlement or credit counseling company. Debt settlement is a service for consumers who want out of debt at the lowest cost, in the shortest time frame, with the lowest payment while avoiding bankruptcy. Credit counseling, on the other hand, is a solution that lowers your interest rates slightly and can get you a lower monthly payment.

The path to becoming debt free is as different as the ways you can get into debt in the first place. The first step toward eliminating your debt is educating yourself with all the options available to you. Once youve identified your needs, you can get started taking the right steps for yourself.

  • Recent comments

  • Popular posts

    • None found