5 things to consider before a balance transfer

5 things to consider before a balance transfer

By: James Belle

Balance Transfer is an opportunity to pay off your credit card debt on a reduced interest rate or without paying any interest, for a given period of time. It is the most common perk credit card companies use to entice new customers.

It is a good perk too and many people take advantage of it to reduce their credit card balance or pay it all off. You may have seen your fare share of 0% balance transfer offers but as with most things, there are complexities and traps usually buried with in the details of the contract.

To make sure you get the most out a balance transfer, here are a few things you should consider:

1. How long does the rate last?
A 0% rate might look more attractive than a 5% one but if you consider the length of the offer, in some instances the 5% offer works out better; for example, if the 0% offer last 6 months and the 5% offer lasts for the life of the balance, the 5% offer is better unless you plan to pay off the balance within 6 months.

2. After the balance transfer fee, is it worth it?
It is common for balance transfers to incur a fee, normally 2 or 3% of the amount you wish to transfer. To work out whether it’s worth transferring; First calculate how much interest you would have paid on your current credit card over the balance transfer offer period, then compare it to the balance transfer fee. If the balance transfer fee is higher, then it isn’t worth transferring.

3. What are the conditions of deal?
Most balance transfer deals have conditions that would cause the credit card company to withdraw the offer, the most common one being; missing a payment or making a late payment on your credit card. Make sure you study all of them, and evaluate whether you can meet all of them.

4. What’s the interest rate for new purchases?
On some credit cards, although your transferred balance might not incur any interest charges, they would charge you interest on any new purchases you make with the credit card. If you don’t intend to use the credit card on a regular basis this issue will not matter.

5. What will the rate be when it changes?
After the balance transfer period is over, you can expect to pay some interest, but how much? If it’s too big a jump, plan on making another balance transfer just before that one comes to its end, or stretch your finances and pay it off within the offer period.

James Belle writes about personal finance, he has written tips on getting a credit card bad credit amongst many others.

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Current Account Mortgage

Current Account Mortgage

By: Daniel Spivey

There are different types of mortgages are available in the market. Current Account mortgages come with different features such as over and underpayments. Current account mortgages require financial discipline for them to work to your advantage and ultimately pay your mortgage off early. Current account mortgages are a type of flexible mortgage and they have been in the financial market for more than a decade. Current account mortgages work by combining your mortgage and current account into a single account. For example, under current account mortgages the balance in the account will be loan amount minus the credit amount in the account. The balance is calculated daily and the homeowner only pays interest on the balance. Any saved income in the current account at the end of the month is automatically deducted from the mortgage debt. If cash is allowed to build up in the current account mortgage, the savings on interest payments can be significant. Every time money goes into the current account, the amount of the overdraft reduced and every time you take money out, the overdraft increases.

Current account mortgages allow the interest charges on all borrowings, including credit card debt, to be at the cheaper interest rate of the mortgage, instead of the average credit card or loan rate. So money can be saved in the long run. There are different features with Current Account Mortgages. There are a wide range of current account mortgages in the marketplace. Different current account mortgages come with different features such as overpayments, payment holidays, underpayments and credit card and loan facilities. Some current account mortgages include a restriction on withdrawals, overpayments and underpayments and some include fees and charges, such as early redemption penalties.

In general, it is found that the flexibility of a current account mortgage is paid through a higher rate of interest than more traditional mortgages and because the lenders are also taking a risk with current account mortgages. They will make less money on the mortgage if it is paid early, or they might not get the money back if repayments are not paid. A current account mortgage works both ways and if you get it right, in particular the management of it, then it will benefit both the lender and the borrower. The downside with current account mortgages is financial discipline. Financial discipline and planning is needed to properly maintain current account mortgages and to be able to resist the temptation to use the large sums of capital available. The amount of debt visible on the current account balance, in the tens or hundreds of thousands, can also be intimidating to borrowers when viewed on a daily basis. Independent mortgage brokers and financial experts may be consulted due to the range of current account mortgages, and they in turn provide information, and the suitability for having a current account mortgage.

In a nutshell, current account mortgages combine the current account and mortgage into one account. They offer flexibility with options such as overpayment which can allow to pay off your mortgage quicker. Although current account mortgages are fairly new in the marketplace, their popularity is increasing as more home owners recognize the benefits they offer.

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Dangers of Reverse Mortgages – Top 3 Things to be Aware of

Dangers of Reverse Mortgages – Top 3 Things to be Aware of

By: Aubrey Clark

As the baby-boomers prepare for retirement reverse mortgages are going to be the next mortgage boom according to most analyst. The baby boom began in 1946 and continued through 1964. During those 19 years, 76 million people were born. As this segment of America begins to retire a large portion of them will need to rely on their homes equity to make "ends meet." How they access that equity will be the mortgage industries primary focus in the years to come.

The traditional "forward" mortgage has the homeowner borrow the money by way of a traditional mortgage or home equity line and make payments on that amount. The homeowner takes the money, places it in a safe interest bearing account and uses the money to augment their income. The interest that is earned on the money is used to supplements the monthly payment that the homeowner has to make. The problem is that the interest shrinks as the money is used and the mortgage payments stay the same.

Reverse mortgages have actually been around since 1989, but their popularity is skyrocketing as a result of the wave of baby-boomers that are retiring. These mortgage products are safe and beneficial when applied to the right homeowner and circumstances. Lendfast.com recommends that borrowers use FHA-insured Home Equity Conversion Mortgage (HECM) when considering these mortgage products. Getting a reverse mortgage from the private sector may include more headaches and costs. However, as with financial product, there are some dangers that you need to be aware of; here are the top three reverse mortgage pitfalls to lookout for.

1) Repayment and Forfeiture – Most, if not all reverse mortgages will not require you to make payments or repay the loan for as long as you live. Once you pass on your heirs will have the opportunity to remortgage the debt or sell the house and repay the loan. If the home has equity above the amount owed to the bank your heirs will receive those proceeds. If the home is "upside down" your heirs have no obligation to repay the debt, but they will forfeit the home unless they pay the amount owed.

However FHA rules state: "When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender." The danger here is "no longer use it for your primary residence. This means if you have to go to a hospice, nursing home or intend to live in another home and use the house as a second home the bank will call the debt due. This is definitely something you want to consider before taking out a reverse mortgage.

2) Cost and Interest Rates – At the inception of reverse mortgages they were almost exclusively offered with adjustable interest rates. Adjustable rates are still standard practice and you are almost certain to be offered this option to begin with. Don’t! There are fixed rate programs available now and at today’s rates adjustable rates are only going to go up in the future. It’s easy to be lured into an adjustable rate because lower interest rates in a reverse mortgage have higher monthly payments. If the interest rate increases your payment decreases, as does the time frame you have to draw on the mortgage. Just remember, adjustable interest rates are a gamble and Las Vegas wasn’t built on winners.

A considerable downside to reverse mortgages is the high up front costs. This cost can be compensated by a lower interest rate over time, but some seniors choose other options to draw on their home equity. Reverse mortgage closing costs should be about the same as most loans except the 2% mortgage insurance premium that FHA charges to insure the loan. FHA insures the lender will be paid regardless of the home’s value when and if the lender has to take over the property.

At Lendfast.com we have noticed that many homeowners are paying higher closing costs for reverse mortgages than traditional forward mortgages. We believe this is because most homeowners are unfamiliar with reverse mortgages and tend to not shop around as with traditional mortgages. This is why we recommend the FHA insured type of reverse mortgages because they have closing cost limits that lenders must abide by. Always get two quotes or use the "lenders compete" method to apply for a reverse mortgage. You should also read How Does a Reverse Mortgage Work an article that explains reverse mortgages better.

3) Upkeep, Taxes and Insurance – On traditional mortgages your escrow payments are added to your payment but they are subtracted from your monthly check on a reverse mortgage. Most of the time you will be shown the monthly amount you will receive each month BEFORE the escrows are taken out. This means that you could sign up expecting to get $900 per month and only receive around $700. Make sure you are given the monthly payment LESS your escrow payment. Like most mortgages you will usually be given the option to escrow or not to escrow, however the bank has a vested interest in your home. Meaning if you do not maintain your insurance and taxes as they deem responsible they can call the loan or force an escrow account on you.

When you consider that the bank is basically buying your home you can understand why they would want you to keep their property in good shape. The problem is that this loan is being made to senior citizens. As they age they may become unable to do the necessary maintenance that the bank requires."Good shape" can mean thousands of dollars out of pocket for the homeowner when you consider what a new roof or a fresh coat of paint costs these days. Ask the loan officer what the lenders policy is on maintenance and repair. You may want to take enough money up front to have future repairs taken care of so that your monthly payment stays the same.

Aubrey Clark is a syndicated writer on financial matters and the editor for Lendfast.com. He writes extensively on lending topics like finding the best Atlanta mortgage rates and how investors obtain Georgia low mortgage rates.

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