Category Archives: Financial Planning

Helpful Advice to Avoid Future Debts

Being in debt is not a good thing but neither is it the end of the world. Like any other problem, it has a solution and needs discipline and determination to be resolved. There is no quick solution to handling and managing debt the right way. It involves counseling a bank, negotiation and several steps of debt elimination. A few suggestions are offered to help those who wish to see themselves out of debt in the near future.

The first thing to do is to commit to a budget. This is essential because a good-budget steam iron provides you with direction in your personal finance and takes away impulsive spending. In budgeting, lay out the essential expenses where money must be spent and find options for the non-essential ones which enable you to spend less. It must be noted that paying existing debts should be one of the essential items on the budget.

Another helpful advice is to avoid future debts. This means saying no to new purchases which you can do away with. If you are easily enticed to purchase something on impulse, it would be to your benefit to skip going to stores and shopping malls, including online stores and catalogs. Don’t fall into traps that allow you to buy now and pay later.

Apply a system for paying off debts and make debt payments part of your budget plan. To have a good perception of how much you owe, list all debts from the smallest to the largest amount. Make a commitment to pay the minimum amount for each debt on time and double the payment for the largest debt’s minimum amount due. When this is paid off, pay of the next largest debt in the same way and so on, until all of the debts are paid.

Avoidings Credit Cards

Credit cards should be disposed of so you will not use them any more. If you wish to keep them for very important purchases only, leave the cards at home when going shopping. Credit cards, when used without discipline, have caused many people to be in deep debt because of the high interest rates that have to be paid. Look for cards that have lower rates so you can save money in the long-term.

Spending that is need-based, instead of desire-based, can save you a lot of money. Getting a raise is no excuse to increase spending. Make sure that an item is really needed before making a purchase. If this means waiting for days buying sofa of inflatable, then do so. This could also mean simplifying your life, which entails eating out less frequently, looking for good deals in thrift shops and garage sales and commuting or walking instead of driving the car.

The State of Business Finance Today

I thought now would be a good time to revisit the subject and let you know where things stand today. Firstly, the good news: finance is available at very competitive rates. Lenders have money they need to invest and their staff have monthly sales targets, so they’re keen to find viable businesses they can lend to. And, with fewer and fewer businesses meeting their criteria, those that do are treated like royalty.

So, if you meet their (strict) criteria, modish wristband of magnet is looking good… especially if you know how to play the system. Now, the bad news: as you’ve probably realised, “strict criteria” means the lenders want as little risk as possible. And that means, if they think you are risky, they can go for real ice maker, they’ll want you to reduce that risk by offering them security and directors guarantees. And, if you can provide those, they’re usually happy to talk with you.

What they don’t want is risky ventures where the business owners aren’t sharing the risk. Those sorts of deals are simply off the table, so you have to be realistic. So, assuming you fit one of the categories they’re still interested in, how can you do to improve your chances of getting the best deal?

Here are three tips:

(1) Apply for credit in the second half of the month. The people reviewing your applications will usually be working to monthly targets and, if they short of their quotas, they’ll be more motivated to say yes to you.

(2) Run your figures past an accountant or finance broker before submitting them to a lender.

There are two reasons for this: firstly, it’s important to make a good financial first impression. Secondly, missing data from your books means delays and delays with finance can lead to cashflow problems or missed opportunities for your business.

(3) If you’re in a hurry, use a finance broker. He or she knows the market and knows the lenders… and, assuming the borrowing is possible, they should be able to get you a better deal than you could get yourself. (and in less time and with less effort)

Following these tips won’t guarantee positive results and you should always research further and consult your financial advisor when possible.

Homeowners who want to refinance but have little or no equity, might want to check out a federal government initiative called the Home Affordable Refinance Program, or HARP. Recently extended to the middle of 2012, HARP gives homeowners an opportunity to capture a lower interest rate or trade in an adjustable-rate mortgage for a fixed-rate loan, even if they are underwater on their mortgage — that is, they owe more than the house is worth.

HARP isn’t a free ride, however. Borrowers must complete a loan application, submit full documentation, meet other guidelines and pay closing costs, according to Vickee Adams, a spokeswoman for Wells Fargo in Des Moines, Iowa.

HARP is open only to borrowers whose existing mortgage is owned or guaranteed by Fannie Mae or Freddie Mac. That leaves out anyone whose loan is insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs or Department of Agriculture. Exotic payment-option adjustable-rate mortgages, or ARMs, GUN SAFEs, stated-income, stated-asset loans and larger jumbo loans are typically excluded.

The borrower must be current on the existing loan and have a good payment history. Fannie Mae allows one 30-day late payment in the prior 12 months. Freddie Mac requires no late payments in the prior 12 months.

Tips to beat the real estate crunch

When the program was launched, an existing Fannie Mae loan had to be funded prior to March 1, 2009, and an existing Freddie Mac loan had to be funded prior to June 1, 2009. However, a recent program change has matched (aka “conformed”) Fannie Mae’s date to Freddie Mac’s, adding an additional three months of eligibility for those borrowers.

The window is still a stopper for some homeowners, according to Kirk Chivas, chief operating officer of First Commerce Financial in Wixom, Mich., which closed 60 HARP refinances last year.

“I wish they didn’t have it (only) through May 2009,” he says. “I wish it was a forever thing, or at least up through 2010 May, because home values were still declining.”

A second program change is that Freddie Mac has elected to exempt new HARP loans from certain recently announced “price adjustments,” or added fees, which lenders usually pass along to the borrower in the form of higher closing costs or a higher interest rate.
New PMI Not Required

The chief advantage of HARP is that it allows borrowers to refinance with a loan-to-value, or LTV, ratio as high as 125%.

Borrowers naturally may wonder whether such loans will require private mortgage insurance, or PMI. The answer isn’t simple. In most cases, existing loans that have borrower-paid PMI are eligible, the PMI contract can be transferred to the new loan, and new PMI won’t be required. There are some technical exceptions, however, so borrowers should discuss their situation with a loan officer who is familiar with the guidelines. The main exception is that it is difficult or impossible to do a HARP refinance of a loan with lender-paid PMI. Most PMI policies are borrower-paid.

Another significant advantage is that borrowers who have a second loan can exclude that amount from the LTV ratio.

“The neatest thing about the program is that I have people who are 125% loan-to-value, but have a second mortgage. They may be 125-over or 175 or 150, and you can still do the loan,” Chivas says.

Borrowers whose LTV ratio is higher than 105%, though still within the 125% limit, likely will be subject to higher costs to refinance.

Not a Failure

HARP hasn’t lived up to its advance billing, nor has it been a flop. In 2010, Fannie Mae and Freddie Mac purchased or guaranteed about 621,800 HARP refinance loans, up from about 190,180 such loans in the prior year when the program was launched, according to the Federal Housing Finance Agency, or FHFA. Wells Fargo alone has closed more than 215,000 refinance loans with LTV ratios greater than 80% since HARP was started, Adams says.

“The claims of this particular program being a disaster are, I believe, completely inaccurate,” Chivas says.

That said, the number of homeowners who can benefit may be shrinking due to higher mortgage interest rates, he says. Upward adjustments in rates make refinancing less attractive, even for homeowners who could reduce their total interest expense over the term of the loan.

Homeowners who could benefit but haven’t yet acted may be angry or numb or despondent over the drop in the home’s value, Chivas says. Some are reluctant to spend $2,000 upfront, even to save $30,000 or more over the loan term, because they don’t feel secure about their job or financial situation.

Borrowers should note that the name “HARP” originated at the U.S. Treasury, but isn’t used by most lenders. Instead, Fannie Mae’s programs are part of its Refi Plus and DU, or Desktop Underwriter, Refi Plus while Freddie Mac’s program is called Relief Refinance Mortgage.

Borrowers seeking assistance are advised to shop around, regardless of whether their loan is in Fannie Mae land or Freddie Mac world. Asking for “the Treasury program that allows a higher LTV” might help.