Mortgage insurance is insurance coverage that protects the mortgage lender against losses in case the borrower defaults on payments. Years ago, home buyers had to make at least a 50% down payment when buying a home. The use of mortgage insurance has revolutionized home buying by allowing a borrower to put as little as 3.5% down (for an FHA loan), and sometimes even less. In conventional lending (Fannie Mae/Freddie Mac) no mortgage insurance is required with a 20% down payment, but lower down payments will require private mortgage insurance.
Instructions
Calculations for FHA, Freddie/Fannie and ARM Loans
1. Calculate your new loan amount for an FHA purchase loan. There are two calculations of mortgage insurance for most FHA loans. First, the UFMIP (upfront mortgage insurance premium) is insurance for the life of the loan. FHA's low down payment requirement is only 3.5%, so the UFMIP amount is normally financed into the loan (but it can be paid in cash at closing either by you or the seller). If financed, it is added back to your loan amount. To calculate the UFMIP cost, multiply your loan amount by 1.75%. (Example: loan amount of $100,000 + [$100,000 X 1.75%] = $101,750 new loan amount.) This is the first calculation. The second calculation (monthly MIP) is for a monthly amount. This calculation is shown in the next step.
2. Calculate the monthly MIP add-on for the FHA loan. If your loan is more than 15 years in length, multiply the new loan amount by .55% and divide by 12 to figure the monthly amount. (Example: If using the loan amount in step 1, then $101,750 X .55% = 559.63, divided by 12 = $46.64 monthly MIP.) This monthly amount will be added to your monthly payment. To figure your entire monthly payment, add your principal and interest payment, plus 1/12th of your year's taxes (year's cost of your property taxes, divided by 12) and 1/12th of your year's homeowners insurance costs (year's cost of your homeowner's insurance, divided by 12), and finally add the monthly MIP cost ($46.64, in the example).
There is no monthly MIP on FHA loans with a term of 15 years or less.
3. Calculate monthly PMI with conventional (Fannie Mae or Freddie Mac) purchase loans. Because these insurers are private companies, the coverage is called private mortgage insurance (PMI). Most conventional lenders are requiring 10% down payment, so the loan is 90% loan-to-value percentage.
For fixed-rate loans that are 85.01% to 90% loan to value, PMI = loan amount X .75%/12. This figure is then added to your monthly payment. (Example: $100,000 X .75% = $750, divided by 12 = $62.50 monthly cost.) Your total monthly payment will consist of monthly principal and interest + 1/12 of the year's taxes + 1/12 of the year's homeowners insurance + monthly PMI.
If your loan amount is 85% of the purchase price (meaning a 15% down payment), the calculation for fixed-rate loans is the loan amount X .65%/12. This figure represents the monthly amount added to your monthly payment.
There is no mortgage insurance required with a 20% down payment.
4. Calculate higher monthly PMI for ARM (adjustable rate mortgage) loans. Because mortgage insurance companies believe ARM loans (which can adjust upward) are higher risk, they charge higher rates for PMI. For an ARM loan with yearly caps (maximum yearly rate adjustments) of higher than 1% (usually 2%) and that are 85.01% to 90% loan to value, multiply the loan amount X .96% /12, to get the monthly amount. (Example: $100,000 X .96% = $960, divided by 12 = $80.00 added to your monthly payment.)
If your ARM loan has a yearly adjustment cap of 1%, then multiply the loan amount X .92% /12, to get the monthly add-on of PMI for your ARM loan.
There are some minor add-ons for these rates depending on if you are purchasing or refinancing, if your company is relocating you to another city, or if the loan amount is higher than the Fannie Mae/Freddie Mac limit of $417,000.
5. Calculate different percentages on conventional loans under certain circumstances. If you are purchasing a home and are fairly sure that you will be selling and moving within the first 5 years, you might choose a conventional One-Time Mortgage Insurance pay product. Although it is more expensive, it can be financed with the loan. For 85.01% to 90% loan-to-value loans that are 30 years in length, multiply the loan amount X 2.40%. This amount is added to the loan amount and financed. (Example: $100,000 X 2.40% = $102,400 new loan amount.) If you sell the home within the first 5 years, you will receive a prorated refund of the mortgage insurance amount. If the loan is 80.01% to 85% loan to value, multiply the loan amount X 1.60%, and add that figure to the loan amount. You will be refunded a prorated portion if you sell or pay off the loan within the first 5 years.
PMI "refund" rates are even higher.For loan to values of 85.01% to 90%, where the ARM adjustment cap (max adjustment) is 2% per year, multiple the loan amount X 2.85% and add to the loan amount. Again, there are pricing adjustments for relocation employees, refinances, and loan amounts higher than $417,000 (the maximum conforming loan amount).
6. Monitor your balance over time. You can pay extra payments with an FHA loan, and when 5 years of on-time payments have been paid and the balance is down to 78% of the initial purchase price, you can request that the monthly MIP be dropped from the monthly payment. (If no extra payments are made, it will drop off automatically when it reaches 78% of the initial purchase price.)
With a conventional loan, you can make extra payments to pay down the balance; then, when your loan is at 80% of the initial purchase amount, request that the monthly PMI be dropped. You can also provide your lender with an appraisal to prove that your value has increased and that your loan is at 80% of the new increased value, and then request that monthly PMI be dropped. In any event, do nothing (except make all payments on time) and the PMI will drop off automatically when the loan reaches 78% of the initial purchase price.
Tips & Warnings
- Your mortgage insurance may be tax-deductible, depending on when you began your loan. Check with your CPA or tax professional..
- To drop monthly MIP from an FHA loan early, the payment history must be 5 years in length. The lender will review the 5 -year history to be sure payments were made in a timely manner. To drop monthly PMI from a conventional loan early, most lenders want at least a 2-year payment history. The lender will review the 2-year history to be sure payments were made in a timely manner. If you have chosen the One-Time Mortgage Insurance on a conventional loan, where it is financed, the only way to not pay PMI is to pay off the loan. The purpose of this type of mortgage insurance coverage is to get a rebate back by selling the home within the first 5 years of ownership. Since the mortgage meltdown, most conventional loans require a 10% down payment on all loans..
Monday, October 14, 2013
Calculate Interest on Personal Loan
A personal loan is one extended to a borrower without the need for security or collateral such as an automobile or a home. These types of loans are also called signature loans. A borrower needs only to sign the loan documents to receive the loan once approved. You can calculate the interest on a personal loan if you have all the terms and details. A high interest rate means more interest will accrue over the life of the loan.
Instructions
1. Write down all of the terms and conditions of your personal loan. You will need the balance, interest rate and monthly payment. If you have a personal loan in the amount of $1,500 with an interest rate of 8 percent, monthly payments of $67.84, for a term of 24 months, the interest can be calculated using a certain formula.
2. Take the interest rate of 8 percent and divide it by 360, (the number of days in a year for simplicity purposes). The result (.0002222) should be multiplied by the number of days in the billing cycle, which is 30. Your new results (.006666) should be multiplied by the balance of $1,500. This provides you with the interest for the first month which is $9.99, (rounded $10.00).
3. Calculate the new balance. Subtract the interest from the monthly payment of $67.84, ($67.84 - $10.00), to get the amount that the balance will be reduced by. The new balance will be $1,442.16 ($1,500 - $57.84).
4. Get next month's balance. Repeat the first half of Step 2: Take the interest of 8 percent and divide it by 360 to get .0002222; multiply .0002222 by 30 days which gives you .006666. Your new result is now multiplied by the new balance of $1,442.16. The new interest figure is $9.61. Complete this process for 24 months to get the total amount of interest paid.
5. Multiply your monthly payment times the term to calculate the total amount of the loan. Once you have the total amount of the loan you can calculate the total interest that will be paid. Take $67.84 and multiply it times 24 months. The total amount of the loan is $1,628.16.
6. Subtract the principal loan amount from the total amount to get the total interest paid, ($1,628.16 - $1,500 = $128.16). The total interest that will be paid on this personal loan for 24 months is $128.16.
Tips & Warnings
Get an online loan calculator (see Yahoo Finance reference). Enter the amount of the loan, interest rate and the term in months and hit the submit button. The monthly payment will be calculated as well as a breakdown of the interest paid for each month. Because of rounding the total amount of interest paid can vary.
The above calculations assume payments are made each 30 days. If you want to pay at different times of the month you can calculate monthly interest using the number of days between payments instead of 30 days. This will change the total amount of interest you pay on the loan.
Instructions
1. Write down all of the terms and conditions of your personal loan. You will need the balance, interest rate and monthly payment. If you have a personal loan in the amount of $1,500 with an interest rate of 8 percent, monthly payments of $67.84, for a term of 24 months, the interest can be calculated using a certain formula.
2. Take the interest rate of 8 percent and divide it by 360, (the number of days in a year for simplicity purposes). The result (.0002222) should be multiplied by the number of days in the billing cycle, which is 30. Your new results (.006666) should be multiplied by the balance of $1,500. This provides you with the interest for the first month which is $9.99, (rounded $10.00).
3. Calculate the new balance. Subtract the interest from the monthly payment of $67.84, ($67.84 - $10.00), to get the amount that the balance will be reduced by. The new balance will be $1,442.16 ($1,500 - $57.84).
4. Get next month's balance. Repeat the first half of Step 2: Take the interest of 8 percent and divide it by 360 to get .0002222; multiply .0002222 by 30 days which gives you .006666. Your new result is now multiplied by the new balance of $1,442.16. The new interest figure is $9.61. Complete this process for 24 months to get the total amount of interest paid.
5. Multiply your monthly payment times the term to calculate the total amount of the loan. Once you have the total amount of the loan you can calculate the total interest that will be paid. Take $67.84 and multiply it times 24 months. The total amount of the loan is $1,628.16.
6. Subtract the principal loan amount from the total amount to get the total interest paid, ($1,628.16 - $1,500 = $128.16). The total interest that will be paid on this personal loan for 24 months is $128.16.
Tips & Warnings
Get an online loan calculator (see Yahoo Finance reference). Enter the amount of the loan, interest rate and the term in months and hit the submit button. The monthly payment will be calculated as well as a breakdown of the interest paid for each month. Because of rounding the total amount of interest paid can vary.
The above calculations assume payments are made each 30 days. If you want to pay at different times of the month you can calculate monthly interest using the number of days between payments instead of 30 days. This will change the total amount of interest you pay on the loan.
Finance Land Loan
Securing the loan for a land purchase is sometimes more complex than securing a mortgage. Financing land can be risky business for some lenders, but understanding what you may be up against before you apply for a loan will help you cut through the red tape quickly. Below you will find practical advice for securing a land loan and also learn of some interesting alternatives that may help you achieve your goals of land ownership.
Instructions
Finance a Land Loan
1. Order copies of your credit report. Your lender will use your credit history to determine whether you are a good or bad credit risk. A credit report with derogatory information such as collection accounts or credit charge-offs, will negatively affect how you’re viewed by lenders. Reconcile any collection accounts you may have, regardless of how old they are. Negative information remains on a credit report for at least seven years and even though paying these accounts will not remove them from your report, lenders may be more willing to assist you if you can show proof that you’ve paid your debts.Credit reports that reveal problems with credit card accounts, such as late payments or exceeded credit limits, will seriously affect your ability to finance a land loan. Pay your credit card payments before they’re due and try to keep the balances down to less than 50 percent of your credit limit. Lenders will often determine how responsible you may be with credit by taking a look at your credit card balances versus your credit limits. A high ratio of used to available credit may send up a red flag to lenders that you may not be responsible enough with money to be considered a good risk.
2. Save a sizeable payment. Depending on the land you intend to purchase and what you plan to do with it, your down payment may be as little as 20 percent or as high as 50 percent. Raw land without any improvements and for which you have no immediate plans, will require a larger down payment and a higher interest rate to secure a loan. Many lenders feel that land that is unimproved may be easy to walk away from when you’re in a financial bind. The more money you have to put down on your loan, the more likely you are to obtain financing because lenders want it to be difficult for you to walk away from the property. If you have a lot of money already invested in your land, you’ll be less likely to default on your loan payment. If you have immediate plans to develop your land, you may be able to place a much smaller down payment on the property. For example, if you plan to build a house on the property, lenders may be able to help you based on the fact that the land will be paid for after you’ve secured a mortgage for your new home.
3. Speak with a lender to discuss your options. A lender will require quite a bit of your financial information to be able to make a decision about your loan and suggest programs that are right for you. Have the required documents ready before you meet with the loan officer to make the process easier. The more prepared you are when meeting with an officer; the more likely you are to receive a timely answer.
4. Don’t worry if your loan request is denied. There are a lot of options available to you if you are unable to secure traditional financing.
5. Obtain a home equity or a cash-out refinance loan on your current mortgage. If you have enough equity built up in your home, you may be able to cash it out and use the funds to purchase land. Talk to your lender about the options available to you to help you tap in to the equity in your home.
6. Contact the seller and inquire about his or her willingness to provide you with owner financing. If the seller agrees to finance the land for you, you’ll be able to secure the property and instead of paying a lender, you’ll pay the seller a monthly payment with interest until you can obtain other financing arrangements. A seller may be willing to help you if he or she is not in an immediate need to sell the property outright or if the extra money from the added interest is appealing enough.
7. Discuss the possibility of a lease option with the seller if he or she is unwilling to provide owner financing for you. A lease with an option to purchase means that you agree to lease the property for a predetermined amount of time and when that time is up, you will be given the option to purchase it. This will give you time to save your down payment and improve your credit rating before you apply for a land loan the next time.
Tips & Warnings
- If you’re turned down by one lender, try a few others. You may find that some lending institution policies may not be as strict and you can obtain financing easily from another company.
- To estmiate your land loan monthly payment, visit the resource below.
Instructions
Finance a Land Loan
1. Order copies of your credit report. Your lender will use your credit history to determine whether you are a good or bad credit risk. A credit report with derogatory information such as collection accounts or credit charge-offs, will negatively affect how you’re viewed by lenders. Reconcile any collection accounts you may have, regardless of how old they are. Negative information remains on a credit report for at least seven years and even though paying these accounts will not remove them from your report, lenders may be more willing to assist you if you can show proof that you’ve paid your debts.Credit reports that reveal problems with credit card accounts, such as late payments or exceeded credit limits, will seriously affect your ability to finance a land loan. Pay your credit card payments before they’re due and try to keep the balances down to less than 50 percent of your credit limit. Lenders will often determine how responsible you may be with credit by taking a look at your credit card balances versus your credit limits. A high ratio of used to available credit may send up a red flag to lenders that you may not be responsible enough with money to be considered a good risk.
2. Save a sizeable payment. Depending on the land you intend to purchase and what you plan to do with it, your down payment may be as little as 20 percent or as high as 50 percent. Raw land without any improvements and for which you have no immediate plans, will require a larger down payment and a higher interest rate to secure a loan. Many lenders feel that land that is unimproved may be easy to walk away from when you’re in a financial bind. The more money you have to put down on your loan, the more likely you are to obtain financing because lenders want it to be difficult for you to walk away from the property. If you have a lot of money already invested in your land, you’ll be less likely to default on your loan payment. If you have immediate plans to develop your land, you may be able to place a much smaller down payment on the property. For example, if you plan to build a house on the property, lenders may be able to help you based on the fact that the land will be paid for after you’ve secured a mortgage for your new home.
3. Speak with a lender to discuss your options. A lender will require quite a bit of your financial information to be able to make a decision about your loan and suggest programs that are right for you. Have the required documents ready before you meet with the loan officer to make the process easier. The more prepared you are when meeting with an officer; the more likely you are to receive a timely answer.
4. Don’t worry if your loan request is denied. There are a lot of options available to you if you are unable to secure traditional financing.
5. Obtain a home equity or a cash-out refinance loan on your current mortgage. If you have enough equity built up in your home, you may be able to cash it out and use the funds to purchase land. Talk to your lender about the options available to you to help you tap in to the equity in your home.
6. Contact the seller and inquire about his or her willingness to provide you with owner financing. If the seller agrees to finance the land for you, you’ll be able to secure the property and instead of paying a lender, you’ll pay the seller a monthly payment with interest until you can obtain other financing arrangements. A seller may be willing to help you if he or she is not in an immediate need to sell the property outright or if the extra money from the added interest is appealing enough.
7. Discuss the possibility of a lease option with the seller if he or she is unwilling to provide owner financing for you. A lease with an option to purchase means that you agree to lease the property for a predetermined amount of time and when that time is up, you will be given the option to purchase it. This will give you time to save your down payment and improve your credit rating before you apply for a land loan the next time.
Tips & Warnings
- If you’re turned down by one lender, try a few others. You may find that some lending institution policies may not be as strict and you can obtain financing easily from another company.
- To estmiate your land loan monthly payment, visit the resource below.
Apply for the Best Secured Loan Rate
A secured loan is a loan backed by collateral, such as a mortgage, automobile loan or secured credit card. The collateral can be taken by the bank or lender if you default on the loan. In the case of a secured credit card, money you have on deposit serves as collateral. The secured nature of loans often makes them easier to qualify for than unsecured loans. However, you must meet certain standards to qualify for the best rates on secured loans.
Instructions
1. Obtain a free copy of your credit report. This website was established by nationwide credit-reporting bureaus to offer free reports as required under the terms of the Fair Credit Reporting Act. Go to the website to view and print your report (see Resources). Then order your credit score separately, for a fee, by following instructions on the credit report. You're entitled to three free credit reports a year, but you must order your credit score for a fee, separately, each time.
2. Compare your credit score with generally accepted standards for outstanding credit. Privacy Rights Clearinghouse, a national nonprofit consumer-information company, says that scores of 720 or higher are generally considered excellent. That means you will likely need a score of at least 720 to get the best rates on a secured loan.
3. Apply for the secured loan if your credit score is at least 720. If it is not, create a plan for improving your credit. For help with credit repair, meet with a credit counselor. Consider counselors affiliated with a nonprofit such as Consumer Credit Counseling Services. Find a government-approved counselor by visiting the U.S. Department of Housing and Urban Development's website (see Resources). Apply for a secured loan after your credit has improved.
Instructions
1. Obtain a free copy of your credit report. This website was established by nationwide credit-reporting bureaus to offer free reports as required under the terms of the Fair Credit Reporting Act. Go to the website to view and print your report (see Resources). Then order your credit score separately, for a fee, by following instructions on the credit report. You're entitled to three free credit reports a year, but you must order your credit score for a fee, separately, each time.
2. Compare your credit score with generally accepted standards for outstanding credit. Privacy Rights Clearinghouse, a national nonprofit consumer-information company, says that scores of 720 or higher are generally considered excellent. That means you will likely need a score of at least 720 to get the best rates on a secured loan.
3. Apply for the secured loan if your credit score is at least 720. If it is not, create a plan for improving your credit. For help with credit repair, meet with a credit counselor. Consider counselors affiliated with a nonprofit such as Consumer Credit Counseling Services. Find a government-approved counselor by visiting the U.S. Department of Housing and Urban Development's website (see Resources). Apply for a secured loan after your credit has improved.
Use Secured Loan Calculator
A secured loan is a loan that is "secured" or "backed" by a borrower's collateral. The collateral can be anything from a car to a home. It will be forfeited to the lender if the borrower does not repay the loan. A secured loan calculator can help you estimate your interest and the monthly cost of the secured loan.
Instructions
1. Find a secured loan calculator online. Use your favorite search engine and search for "secured loan calculator." Pick the one you are most comfortable with.
2. Enter the loan amount that you want to borrow. Do not add a dollar sign.
3. Input the terms of the desired loan. Usually, you will have to pay off a secured loan in monthly installments.
4. Add the interest rate. The interest rate for a secured loan is usually much lower than the rate for a non-secured loan, but your credit score and history will determine the interest rate.
5. Click on the "Calculate" button. This will give you your estimated monthly payment and may be divided into amounts such as interest paid, cumulative payments and principal remaining.
Tips & Warnings
- Enter different amounts, terms and/or rates to find the best loan for your situation.
- Use the different quotes to find the cheapest loans available.
- Remember that if you do not repay a secured loan, you will lose the collateral that is "put up" to secure the loan.
Instructions
1. Find a secured loan calculator online. Use your favorite search engine and search for "secured loan calculator." Pick the one you are most comfortable with.
2. Enter the loan amount that you want to borrow. Do not add a dollar sign.
3. Input the terms of the desired loan. Usually, you will have to pay off a secured loan in monthly installments.
4. Add the interest rate. The interest rate for a secured loan is usually much lower than the rate for a non-secured loan, but your credit score and history will determine the interest rate.
5. Click on the "Calculate" button. This will give you your estimated monthly payment and may be divided into amounts such as interest paid, cumulative payments and principal remaining.
Tips & Warnings
- Enter different amounts, terms and/or rates to find the best loan for your situation.
- Use the different quotes to find the cheapest loans available.
- Remember that if you do not repay a secured loan, you will lose the collateral that is "put up" to secure the loan.
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