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Financial Scams To Be Careful Of

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There are many ways companies can get us to part with our hard earned cash. Be wary of these following practices which can lose you money.

Loan Protection Payments.

Banks often sell very expensive loan insurance schemes. You can end up paying 50% of the cost in insurance premiums. Often banks give the impression these very profitable insurance schemes are essential to get the loan.

Bank Details

Though oft repeated, always be wary of any email that tries to get your login details to your bank account. Scammers can give the impression they are your bank when actually they aren't

Internet payment of Subscriptions by card.


Recurring payments like magazine subscriptions, annual trip insurance, gym memberships etc are not covered by the save guards on debit cards or credit cards. even if you tell your bank to stop payment they wont! The supplier will have your full long security number and can take payment at will. It is then up to you to dispute or fight for refunds or cancellations.
The direct debit scheme has safe guards and you should try insisting that is the way you wish to pay.
An alternative is to use a prepaid credit card which won't pay out if there are no funds (but beware this may mean you are in breach of contract)

Door Stop Energy Salesmen

Paying monthly is a common way of getting energy bills settled. A guesstimate of consumption is made and converted into a monthly cost. When someone calls at the door with the sales patter offering £10 per month or more saving  if doesn't mean they are cheaper.
Compare the unit costs - use a reputable web site for a guide to cost comparisons. If you do sign up you have 14 days to cancel so use the time to double check.
Once the deal is done unscrupulous suppliers are trying to increase the monthly payments immediately and by 30% in some instances! At best, this is to help their cash flow and at worst it is because they know you need to pay more.

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Tags: Mortgage, Financial Scams

Credit Rating and Ex Partners

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Is Your Credit Damaged by Your Ex?

Your former spouse or partner can have an impact on your current finance and here we will give you some tips to cut your financial ties. Applying jointly for credit to buy a car, negotiate a mortgage or having a joint bank account means you are linked in the eyes of credit reference agencies. If the other person then has financial difficulties you can suffer long term.

Credit references should be related to individuals not addresses but be wary.

Control Debts with your Ex

• Talk openly about finance matters when you are together. Keep records
• If you make any joint applications even if they are not taken up you will be linked to the other person. What is relevant is whose name is on the agreement, as this is the person who will be legally liable for the debt. If it is in joint names you both have 'joint and several liability' and both can be chased for the full amount.
• Check your credit report with the main agencies, Experian, Equifax or CreditExpert, it costs a couple of pounds. Make a note of any details that are in joint names.
• Settle any joint debts when you split. Then close the account and contact the lender to get them to update their records.
• Tell utility providers, credit agencies and any other relationships with joint accounts that you have split up and that all joint accounts are now closed.
• Notice of Disassociation can be placed on your credit file when for some reason a link ‘previously’ existed between you and another person but they do not cover previous debt issues, you need proof that the association has finished and thee ultimate decision is in the hands of the Credit Reference Agency.
• Confirm for yourself that you have not given any guarantees on behalf of your partner or their debts. If you have you will need to negotiate an exit from the guarantee with your Ex and any lenders.

Other Potential Problems

• Even well after the split keep monitoring your credit report to catch any lingering or resurfacing problems. Do this at least annually
• Divorcees are not necessarily clear of former partner's debts. Any assets awarded as part of the divorce can be reviewed for up to 5 years after the divorce if one of them is declared bankrupt. So seek legal advice in these circumstances.
• Whilst living together a partner may grow an equity value by contributing to the costs of a mortgage for example. In those circumstances a creditor could claim part of the asset you thought was yours.

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Tags: Mortgage, Credit Rating, Ex Partners, Credit Damaged

High-Interest Mortgages

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It sounds terrible. Subprime mortgages. But in reality it does not have many different benefits that other loans.
  
A subprime loan typically has a higher interest rate than other loans because the people who need it usually have a poor credit history or low credit score.
  
These high-interest loans that people want to pay much more for a house they want but actually have some advantages.
  
There are many financial institutions that deal specifically with subprime lenders. That is, they know how to help those with bad credit.
  
Some banks also offer prime and subprime mortgages, because they know their community well and in some areas simply do not have the kind of jobs, the mortgage must ensure their monthly payments.

It can be embarrassing to go to a local bank when you are in a relatively small city, so you want to be able to live to a select sub-prime lenders only.
  
A good advantage of subprime is that you can not take place over time to increase your credit score. This can take years of payments and loans building and many people simply do not have time for everything.
  
You know they made some late payments here and there but are past, and want to own a house. Not everyone with bad credit have not paid their bills on time.
  
Many times, wives and husbands, kill their significant other irresponsible lending and even after the divorce, it still is bad.
  
A sub for many people is a chance for a fresh start.

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Tags: Mortgage, Subprime mortgages

Cash Budget Worksheet Model

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Cash Management

The next two pages contain forms to assist the management team in efficiently managing cash flows.  Some obligations are realized on the first day of each period, such as: pay-back of any carried-over [beginning] emergency loans, equipment and storage sales and purchases, payables from the previous period, previous current liabilities due, pre-pay on the bank debt and any new investments made.  A close study of the cash budgeting form will make clear other sources and uses of cash.  Managing cash flow successfully will prevent emergency borrowing which is more expensive (20% per annum) than planned borrowing (10% per annum), recalling investments (7% per annum) or issuing new stock (10% per annum, when there are after tax profits.)

Table 31 Interest and Dividend Rates per Period

Planned borrowing from the bank	5.0%
Emergency borrowing from the bank	10.0%
Earnings on Investments	3.5%
Dividend policy	5.0%

BANK LOANS

On the balance sheet for each period, 5 percent of the total ordinary bank debt is listed as Mortgage Payable under CURRENT LIABILITIES.  This amount is due to the bank on the first day of the next period.  The bank will make emergency loans to your dealership if needed.  Any Emergency Debt balance at the end of a period must be repaid on the first day of the next period.

INVESTMENTS

 Your dealership may invest excess cash in liquid investment accounts bearing an annual return of 7 percent -- 3.5% per half-year.  Investments may be recalled in whole or in part if needed elsewhere in the dealership.  Investments made and called occur on the first day of each period.  If your dealership needs cash, all investments are automatically called before emergency loans are taken out.

COMMON STOCK

The small group of owners has 250,000 shares of common stock, valued at $250,000, representing their original investment in the dealership.  The dealership’s policy has been to pay a 5 percent dividend on that stock value each half-year in which positive NET INCOME is available to do so. 
The owners have told you that they may be willing to increase their investment in the dealership if you recommend doing so.  On the decision form, this is represented by decision #55: Issue Common Stock.  Newly issued common stock funds are available on the first day of the period in which the stock is issued.

CASH BUDGET WORKSHEET

The Cash Budget is used to help estimate cash needs for upcoming periods.  This will allow your management team to readjust purchases, pricing, borrowing, etc to prevent emergency borrowing.  There are two critical times to balance cash sources with cash uses -- the first day of the half-year period and the last day of the half-year period.  This worksheet should help do that.

FORECASTING CASH REQUIREMENTS

The Cash Budget Worksheet will help players assure that enough cash is available so that emergency loans do not have to be made.  Remember, emergency loans are made at an annual interest rate of 20% while planned loans cost only 10% per annum. 

The entries in the firts Cash Budget Worksheet, in the spreadsheet, represent the entries that would have been made by the previous management team when planning for and making decisions for the "LAST FALL" half-year period shown in this player's manual.  In other words, the Cash Budget Worksheet was used to estimate cash needs and plan for adequate cash for the "LAST FALL" half-year period.  Most of the data needed to do that was found on the Balance Sheet from the end of the previous period, "LAST SPRING" in this case, and from the player's decisions for the coming half-year period, "LAST FALL" in this case.  In the following table the letters in the left hand column indicate the source of the data for each entry on the Cash Budget Worksheet.  The letters stand for the following

Key to Cash Budget Worksheet

BS-CA	Balance Sheet -- Current Assets
BS-CL	Balance Sheet -- Current Liabilities
D	Decisions for next half-year period
WP times D	Wholesale Prices X Decision on Quantity Ordered
EST	Estimates for the next half-year period
CALC-BS-LL	Calculate Interest on Long-term Liability from Balance Sheet
EST-CALC-CL	Calculated Interest on Emergency Loan Carried over from First Day
P&L-EST	Estimate Income Tax for Next Period
P&L-EST	Estimate Dividends for the Next Period

Figure 3. CASH BUDGET WORKSHEET (example from end of “Last Spring”
forecasting cash needs for “Last Fall”)

Where to get the Data	ESTIMATE OF FIRST DAY CASH		SOURCE	USE
BS-CA	Beginning Cash		64,540
BS-CA	1/2 Beginning Accounts Rec		295,198
BS-CL	Carry-over Emergency Loan			0
D	Equip Purchases			0
D	Equip Sales		0
D	Storage Purchases			0
BS-CL	Beginning Payables			99,284
D	New Loan		0
D	Pre-Pay Loan			0
BS-CL	Beginning Loan Due			38,000
D	New Issue Stock		0
D	Call Investments		0
D	Make Investment			0
	Estimated First Day Cash Totals		359,738	137,284
	Ending First Day Cash Balance	222,454

Figure 3.(Continued) CASH BUDGET WORKSHEET (example from end of “Last Spring” forecasting cash needs for “Last Fall”)

NOTE:   “Late Orders” cost 10 percent more [wholesale price X 1.10] “Late Orders” in the LAST FALL Period add an additional$41,360 to Product Purchases. See the “Sales and Inventory Report in Table 21A.	$41,360
TOTAL including Late Order expenses.	$  1,136,765

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Tags: Loan, Cash Budget

Low Mortgage Rates: 7 Things You Need to Know to Refinance

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Mortgage rates have declined sharply in recent months. Here's how to take advantage

With mortgage rates dropping to record lows, it's no surprise that more and more homeowners are looking to refinance. Earlier this month, the Mortgage Bankers Association's refinance index--which tracks application volume--hit its highest level in more than five years. This wave of refinancing applications was sparked by record-low interest rates on 30-year fixed mortgages, which fell to an average of 4.89 percent for the week ending January 9. And although mortgage rates have increased modestly since then--hitting 5.24 percent last week-- interest in refinancing remains elevated. But while some borrowers will be able to turn these compelling rates into real savings, not everyone can get in on the action. To better understand the refinancing process, here are seven things you need to know to refinance in today's market.

1. Percentage point break: Despite the attractive rates, homeowners will have to thoroughly analyze their financial position before determining whether or not now is the time to refinance. A good rule of thumb, however, is if your mortgage rate is a full percentage point or more higher than current rates, you should consider refinancing, says Orawin Velz of the Mortgage Bankers Association. "If your rate is about 6 percent currently, then it is a good time to think about it," Velz says. (Keep in mind that anyone trying to refinance a so-called "jumbo loan"--one that's too large for Fannie Mae and Freddie Mac to purchase--will face sharply higher rates, says Keith Gumbinger of HSH Associates.) The transaction fees lenders charge are another major consideration. Higher fees, of course, eat into the potential savings of a reduced mortgage rate. So the lower the fees, the better. "The fees that you should be paying need to be low enough so that you can recoup your money through the break in the interest rate in a reasonable period of time--usually under four years," Gumbinger says. (More on fees below.)

2. Half rejected: Although more Americans are looking to refinance, a significant chunk of applications won't be approved. In the first half of 2008, roughly 60 percent of refinancing applications were turned into loans, Velz says. "But because of the intensified turmoil in the second half of the year and continued decline in home prices, we believe that the rate has probably declined to [about 50 percent.]" In order to qualify for refinancing, homeowners will need to meet certain specific criteria.

3. FICO 740: While 720 is still considered by some to be a solid FICO score, it's not good enough to obtain the best rates in today's refinancing market, says Chris Freemott, president of All American Mortgage in Naperville, Ill. Instead, borrowers will need a FICO score of at least 740. "FICOs are everything," Freemott says. "[A FICO score of] 740 is the benchmark for the lowest possible rates." Borrowers that don't have this score can still refinance, but they're likely to face higher rates.

4. Equity and documentation: Home equity can be another significant barrier to refinancing today. The real estate crash has sucked a great deal of equity out of homes. Zillow says roughly one in seven American homeowners actually have negative equity—meaning they owe more on their mortgage than their property is worth. In order to qualify for refinancing, homeowners will have to have a minimum of 3 percent equity in their homes, Velz says. In addition to solid credit and home equity, borrowers will also need to be able to document their income in order to qualify for refinancing.

5. Fee paying options: Fees associated with mortgage refinancing vary widely from market to market and borrower to borrower. But on average, a $200,000 refinancing loan may come with up to $6,000 in fees, Gumbinger says. Borrowers have three main options for paying such fees. Those with enough cash may want to just pay the fees up front. Borrowers with less cash on hand may be able to opt for a higher interest rate instead of paying the fees. A third possibility is to have the fees tacked on to the principal of the mortgage, Gumbinger says. The key is to chat with your mortgage lender about structuring the fee payment so that it makes the most economic sense for you. "I've been doing this for 11 years now and… I've never written the same loan twice," Freemott says. "Everyone has a little difference to their situation."

6. Shop around: Given tougher lending standards and falling home prices, homeowners--especially those without perfect credit profiles--may have to get used to hearing the word no. But just because one lender turns you down doesn't mean you can't find another who's willing to refinance your mortgage. "Two or three years ago, lenders were crawling through the doors and windows to serve you," Gumbinger says. "We're 180 degrees out from there right now. You have to go find the lenders." So shop around. Research rates online, call up different lenders, and find out who's willing to offer you the best deal.

7. Be patient: The wave of refinancing applications comes amid a period of significant downsizing in the lending industry. That means there are fewer employees on hand to handle the surge in business. As a result, expect slow service. "The time to even find out whether your loan has been approved or not could run 30 days," says Mark Hanson, a managing director who handles real estate and finance research at the Field Check Group.

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Tags: Mortgage, mortgage rates

Adjustable Rate Mortgages, Are They Right for You?

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Adjustable Rate mortgages or ARM’s as they are called, are an alternative to conventional Fixed Rate mortgages. Basically ARM’s are short-term fixed rate mortgages. You can get lower interest rates with an ARM vs. a long-term fixed rate mortgage but in the case of a 3 year ARM, the rate adjusts every three years.

It’s a fact that 30% of all home loans closed to day are ARM’s of some type. While many people see them as a better alternative in the short-term, if you plan to stay in your home for many years, they may not be the right solution for you.

With ARM’s the rate term is fixed for only a short period of time. After that time, the rate can go up as will your mortgage payments. There is a certain level of risk with these types of home loans versus a fixed rate loan where the rate is fixed for 15, 20, 30 or more years.

However, ARM’s are not all doom and gloom. If you know how they work you can use them to your advantage and the qualifying terms are not as stringent as other types of home loans. Keep in mind that the longer the fixed rate term, the higher the interest rate for this type of home loan will be. For example, the rate for a 6 month Arm will be lower that one for a 3-year ARM because of the shorter fixed period.

As an incentive to choose this type of home loan, lending institutions will sometimes offer an Introductory Rate as a “teaser” to entice people to choose an ARM mortgage. They base this introductory rate on the “index + margin” formula. Some lenders even offer teaser rates that are well below the value of the index, which governs the ARM.

The index is extremely important to ARM rates because when the fixed rate period has ended, the interest rate is changed relevant to the value of the index (specific economic indicator). There are many economic indicators that are used to value the index of ARM’s such as Treasury or “T” Bills, Treasury Securities, 11th District Cost of Funds, and London InterBank Offered Rate.

There are also a number of indexes used to determine ARM rates based on a “moving average” of various weekly or monthly values. A margin or markup is added to the index when the ARM rate is adjusted by the lender, so the total rate you can expect to pay for the fixed period equals the total value of the index plus the margin.

The good news with this type of home loan is not only the low interest rate offered, but the added feature of what is known as a “cap or rate cap.” A cap limits how high the rate can go after the fixed period ends. It protects you from having the rate rise too high. The basic cap offered limits the rate cap at 2 percentage points per fixed period and a total of 6 points over the term of the loan. These caps may also have restrictions on how low your rate can decrease.

Look at the following example to help you get a better picture of an ARM home loan in the works.

Example of ARM Home Loan

Let’s say you have an ARM with a 6% interest rate and a 2% per fixed period cap. The worst increase that you can expect to pay for the next fixed period would be 8% and the best, if the rates go down is 4%. Because you have a cap of 2%, it doesn’t matter what the value of the index plus margin is because your rate cannot rise or maybe lower more that the cap.

So are ARM mortgages right for you as a home loan choice? You will need to determine the feasibility of ARM’s based on your current financial situation, how long you plan to stay in your home and other factors. Overall it is a good alternative if you need a lower interest rate now along with a lower mortgage payment. You can always refinance before the fixed term is up for a good long-term fixed rate.

ARM’s can be advantageous in the short-term but there are many more mortgage options available to help you choose the home loan program that is right for you in the long run. Remember that no two home loans are alike. Each was created to cover a specific need that the borrower may have, and each comes with its own level of risks. Depending on that need and the amount of risk that involved, the borrower will choose the plan that best fits. Choosing the right mortgage can save you a ton of money, so consider all the options very carefully.

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Tags: Loan, ARM

Understanding Mortgages

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The length (term) of a mortgage varies, typically ranging from 10-30 years. The longer the term, the lower the monthly payment will tend to be. Thus, many borrowers opt for 30 year mortgages even when they have no intention of staying in their houses for that length of time.

The monthly payment on a mortgage includes repayment of the principal (amount borrowed) and interest charges. Lenders may also collect extra funds to pay the borrower’s property taxes and homeowner’s insurance. If the borrower puts less than 20% cash down on the property, the lender may also require the borrower to pay for PMI, private mortgage insurance.

Traditionally, lenders required borrowers to pay part of the purchase price of a house in cash, known as a cash down payment. The traditional down payment required to avoid paying PMI was 20%. However, in the past 5-6 six years, loans were often made for up to 100% of the purchase price of  house (in fact, sometimes even greater than that!). Thus, many people were able to purchase homes without having to come up with a substantial cash down payment. People who in the past would have been forced to remain renters because of the lack of sufficient cash for a down payment were able to obtain mortgages and buy houses.


To qualify for a mortgage, the conventional rule of thumb in lending used to be that your total debts should
not exceed approximately 1/3 of your gross monthly income. However, this rule was routinely ignored during the lending mania that occurred in the past 5-6 years.


Subprime borrowers were offered ARMs with artificially low initial interest rates (teaser rates). When these rates reset at higher levels, many borrowers found themselves unable to afford the higher monthly payments. Also, many borrowers now find themselves upside down (or under water) on their mortgages because they owe more on the mortgage than the house is currently worth (because of falling housing prices).

An “Alt A” mortgage falls somewhere between a prime and a subprime mortgage. The term is short for Alternative A-paper, with “A-paper” signifying a prime mortgage.


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Tags: Mortgage, mortgages

Using the SBA 7a Loan for a Business Acquisition

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One of easier ways of becoming an entrepreneur is to acquire a business that has already been established by someone else. The risks related to acquiring a business are significantly lower than starting a business from scratch. Established businesses already have customers, an operating history, and hopefully profits as well. Additionally, obtaining a business loan for the acquisition of a business (while more paperwork) is usually easier than obtaining financing for a startup. This primarily due to the fact, again, that the risks are lower.

The 7a SBA loan can be used for business acquisition purposes. As we have discussed before, the flexibility of this loan can allow you to finance varying parts of the acquisition differently. Prior to applying for a SBA guarantee, you should see if the business for sale has been preapproved for a SBA loan. If a business broker is involved then the broker may have acquired pre-approval from the SBA so that the transaction can happen more quickly. Additionally, a business broker will have generally assembled much of the paperwork required by the bank and the SBA in order to render both a lending and a guarantee decision.


From time to time, business owners that are selling their businesses will already have a business plan in place showcasing the necessary components of the business and the owner’s anticipation of how the business will grow over the next three to five years. This business plan is generally modified by the incoming owner based on the ideas that the new owner will implement once the business has been acquired.

Whenever you intend to acquire a business, it is imperative that you complete your due diligence. Prior to applying for a 7a SBA loan , your accountant should thoroughly review the profit and loss statements, cash flow statements, and balance sheet of the prospective business to ensure that they are factually correct and match the business’ tax returns.

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Tags: Loan, SBA loan

What is an SBA Business Loan?

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An SBA business loan is a debt instrument provided by you to by a lending institution that has been guaranteed by the United States government through the Small Business Administration. Many entrepreneurs wrongly think that it is the federal government that grants the loan. This is not the case. With an SBA loan, the government essentially acts as your cosigner for the loan. In the event that you default on the business loan, the US government will provide the bank with a reimbursement for the loan. As such, banks love to make SBA loans as they present very little risk to the bank, provide small business owners with the capital that they need, and increase activity in community bank branches – all while making a nice profit for themselves.

Applying for an SBA business loans is a difficult process despite the fact that the only limitations regarding who can apply is that you must be of good moral character (ie. no criminal record) and an American citizen. You should be immediately aware that receiving approval from the SBA to receive a loan is a difficult process and can take anywhere from 45 to 180 days depending on how well you have prepared the appropriate documentation and business plan for the business loan.


The documentation required to obtain a business loan that is backed by the SBA is significantly larger than that of a conventional business loan. Additionally, there are several different SBA loan programs that are available to you depending on your borrowing needs. These loan programs include, but are not limited to:

SBA 504 Loan
SBA 7(a) Loan
Express Program Loans
Military Veteran Business Loans
Rural Business Loans
Micro Business Loans

When determining which SBA loan is right for you, you should always consult with a properly trained accountant or financial advisor that can take into account your entire business and personal financial situation.

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Tags: Loan, Business Loans

How to Choose a Car Finance Broker

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Financing a car is a very important process and today with the availability of numerous car finance brokers it has become an easy option to get secure car loans. Today these car finance brokers are also playing a vital role in assisting car buyers. In fact, consulting and taking help of car broker can definitely be most appropriate option if you don’t have any clue about what to look at according to your budget. A finance broker is the most experienced personnel and clued-up on how to approach the financiers in a way that can persuade them to approve the loan. They usually have good relations and reputation with the lenders as being reliable, and so they know which lenders are likely to be open to a client. 

In general, they act as the key source and offer services such as finding a used or brand new car model that the customer wants and within a budget range. At times, these car brokers even assist car buyers in negotiating with a used car seller. However, these days there are many car finance brokers and making a proper selection is turning out to be a very complicated process. You need to understand that not all car finance brokers are fair. Therefore, if you are looking to finance a car or choose a car finance broker then here are a few important points that you should keep in mind while making a selection:

Standards

You must confirm whether your car finance consultant or broker is a member of FBAA or COSL or both of these industry associations. While Finance Brokers’ Association of Australia Ltd. (FBAA) is one of Australia’s leading membership bodies for finance broking professionals, the Credit Ombudsman Service Limited (COSL) is an independent organisation that is mainly indulged in handling complaints about finance brokers. You can easily confirm finance consultant’s membership by searching through their member list. Adding to this, WA Finance Broker License is yet another additional requirement for finance brokers serving in Western Australia. Nevertheless, if you are looking for finance broker and residing in the state of WA or other states of Australia, it is essential that the broker must hold a WA Finance Broker License. A broker holding WA Finance Broker License entails passing a comprehensive range of checks, educational requirements and operational requirements.


Accreditation

While selecting a car finance broker also ensure you know about their range of lender accreditations. The range of accreditations held by a broker governs the range of options they can offer. You must note that a broker’s accreditation can not just change the range of finance options available to you, but it may even affect the quality of those options.
 
Experienced Staff

You must choose car finance broker that recruits and retains professional and knowledgeable staff. The broker must be an experienced professional who can demonstrate and explain about why a particular product is highly recommended or even suites your specific circumstance. If possible make sure you even ask for testimonials from previous clients that in turn may help you in the confirmation of their experience.

As mentioned earlier, today there are many finance brokers available in the market. Therefore, you must find out more about any extra service that a broker can provide. You should expect your finance broker to supply detailed information about timeframes, and any fees or extra charges related with your finance. The key point is if a broker is being able to clarify the comparison rate of your recommended vehicle finance and the overall cost of your finance package then it is quality sign of a good finance broker.

These are some important points that can help you in choosing your car finance broker easily. Today a lot of responsibility goes along with buying a car and taking financial help through car broker. Just taking care of few essential steps can help you select your car broker and further purchase a nice new or used car.

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Tags: Finance

Financial Aristocracy?

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The Financial Stability Plan unveiled by Treasury Secretary Timothy Geithner yesterday is neither an incoherent, shaky hodge-podge of programs as critics contend, nor does it yet articulate a clear strategy for restoring the long-run health of the financial system. Let’s review the rationale and structure of the Plan along with its weaknesses and risks.

First, there are sound economic reasons for using massive amounts of taxpayer money to fix the banking system. The economy rests on the foundations of private entrepreneurship, which itself requires a well-functioning financial system. That system is currently broken and it would take an exceptionally long time for the financial system to recover without government intervention. While the economic stimulus plan winding its way through Congress will help, the economy will not soon enjoy sustained economic growth unless the government fixes the financial system.
Second, the Financial Stability Plan will rigorously audit banks to ascertain the financial condition of banks. While it is difficult to understand why this type of assessment was not done much earlier, given that the problems in the banking system first arose in the summer of 2007, these audits are necessary for identifying which banks are potentially solvent and which are hopelessly broken.
Third, the Plan calls for the creation of the Public Private Investment Fund (PPIF), which will be jointly run by the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC). With financing from private investors, the PPIF will purchase low-quality, illiquid assets from banks. Although the details are vague, private investors will probably be encouraged to participate through official guarantees that insure investors against large losses. These guarantees will increase the price of banks’ assets with a commensurate boost to the equity value of the bank. By replacing the toxic assets on banks’ balance sheets with up to $1 trillion of cash, this “bad bank” will recapitalize and hopefully revitalize banks, creating more opportunities for banks to lend to firms and households.

Fourth, the government will directly inject up to $350 billion of taxpayer money into the banks using the funds remaining in the Troubled Asset Relief Program (TARP). By further enhancing banks’ balance sheets, the Plan seeks to encourage lending. At this point, the Plan is vague about whether the government will receive warrants, common stock, or some other security in return for these funds.


Fifth, the Plan will facilitate lending through non-bank financial institutions, which account for almost half of credit issued in the United States. The Federal Reserve will vastly expand is Term Asset Backed Securities Loan Facility that encourages the financing of car loans and credit card debt, and also extend this Facility to include commercial and residential mortgage-backed securities, as well as small business loans. This component of the Plan could expand to as much as $1 trillion. Furthermore, Geithner announced steps to reverse the dramatic decline in Small Business Administration (SBA) lending by increasing the federally guaranteed portion of the loans and giving the SBA more discretionary power to expedite loans. The Treasury also indicated that next week it would detail a $50 billion initiative to facilitate the renegotiation of mortgage terms for millions of homeowners facing imminent foreclosure.

Thus, the Plan successfully sketches a strategy for rapidly creating well-capitalized banks with clean balance sheets and well-functioning securities markets.

There are potential problems, however.

First, as currently constituted, the Financial Stability Plan will enrich existing owners and senior managers of banks. When taxpayers guarantee the value of bank assets, those assets become more valuable to investors. This taxpayer-induced increase in the price of bank assets translates virtually one-for-one into higher bank stock prices, profiting existing owners. This will add to earlier taxpayer support for bank shareholders. In November of 2008, the Treasury paid a 40 percent premium for banks shares. And, by expanding the insurance of bank liabilities, the Federal Reserve has boosted the value of bank shares, enriching current shareholders. Senior managers also benefit because some of their compensation is tied to bank stock prices and the bailout of existing owners will enhance the security of current bank managers. Many of the same people who helped orchestrate the current crisis will be directly rewarded by taxpayers and kept in their current leadership roles.

The issue is not vindictiveness; it is the fairness and legitimacy of the system and hence the willingness of the public to finance the reconstruction of a sound financial system. As President Obama accurately noted, “We don't disparage wealth. We don't begrudge anybody for achieving success, and we certainly believe that success should be rewarded. But what gets people upset, and rightfully so, are executives being rewarded for failure." When the government uses its power to refill the coffers and bolster the power of a financial aristocracy, this weakens faith in the integrity of the system.
Second, and perhaps most importantly, by rewarding and protecting leading architects of the current financial crisis, the Plan will hurt the future operation of the financial system. Although official regulators can and should play a major role in supervising banks, sound banking also requires the rigorous oversight of private equity and debt holders. Owners and debt holders with lots to lose have greater incentives to scrutinize bank managers than those without much financial exposure. If the government bails out the existing owners and debt holders that enjoyed extravagant profits while failing to exert adequate governance over their banks, this will reduce the incentives of future owners and managers to operate prudent banks. Put differently, if the current Plan saves the existing equity and uninsured debt holders in the name of financial stability, it risks undermining the very financial system that we need for sustained growth.

Although it is essential to use taxpayer resources to save the banking system, this does not mean saving existing bankers. Indeed, to save and strengthen the system, existing shareholders, bond holders, managers must face the financial losses commensurate with their devastating failures.

Within the boundaries of the Financial Stability Plan, there is sufficient scope to rectify these weaknesses. Specifically, when injecting capital into insolvent banks, the government should receive common stock and uninsured debt holders should receive a “haircut” on the face value of their securities. When the PPIF supports the purchase of toxic bank assets from banks at above market prices, the government should receive common stock from the banks. Since many of the major banks are insolvent, this will make the government the majority shareholder in many banks. These shares can be sold to private investors. Just as the government is seeking to coordinate the purchase of trillions of dollars of toxic assets, it can coordinate the purchase of a few hundred billion in bank stocks, where these banks will have extraordinarily clean, transparent balance sheets once the Plan is implemented.

This amendment to the Plan is fair and helps rebuild and fortify the foundation of a sound financial system. It is fair because people take responsibility for their actions. It starts the rebuilding process by incentivizing owners and debt holders to oversee banks more prudently. It is true that this amendment could create even greater disruptions in the short-run. There might be disruptions as bank owners are diluted, uninsured debt holders take a “haircut,” and banks are re-privatized to new owners that instill their own managers. The evidence, however, suggests that there are far greater risks associated with undermining the legitimacy of the financial system, creating a financial aristocracy, and reducing the incentives for bank owners and debt holders to operate banks prudently.

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SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

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Section 1. Short Title.“Emergency Economic Stabilization Act of 2008.”

Section 2. Purposes.

Provides authority to the Treasury Secretary to restore liquidity and stability to the U.S. financial system and to ensure the economic well-being of Americans.

Section 3. Definitions.

Contains various definitions used under this Act.

Title I. Troubled Assets Relief Program.

Section 101. Purchases of Troubled Assets.

Authorizes the Secretary to establish a Troubled Asset Relief Program (“TARP”) to purchase troubled assets from financial institutions. Establishes an Office of Financial Stability within the Treasury Department to implement the TARP in consultation with the Board of Governors of the Federal Reserve System, the FDIC, the Comptroller of the Currency, the Director of the Office of Thrift Supervision and the Secretary of Housing and Urban Development.

Requires the Treasury Secretary to establish guidelines and policies to carry out the purposes of this Act.

Includes provisions to prevent unjust enrichment by participants of the program.

Section 102. Insurance of Troubled Assets.

If the Secretary establishes the TARP program, the Secretary is required to establish a program to guarantee troubled assets of financial institutions.

The Secretary is required to establish risk-based premiums for such guarantees sufficient to cover anticipated claims. The Secretary must report to Congress on the establishment of the guarantee program.

Section 103. Considerations.

In using authority under this Act, the Treasury Secretary is required to take a number of considerations into account, including the interests of taxpayers, minimizing the impact on the national debt, providing stability to the financial markets, preserving homeownership, the needs of all financial institutions regardless of size or other characteristics, and the needs of local communities. Requires the Secretary to examine the long-term viability of an institution in determining whether to directly purchase assets under the TARP.

Section 104. Financial Stability Oversight Board.

This section establishes the Financial Stability Oversight Board to review and make recommendations regarding the exercise of authority under this Act. In addition, the Board must ensure that the policies implemented by the Secretary protect taxpayers, are in the economic interests of the United States, and are in accordance with this Act.

The Board is comprised of the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of the Treasury, the Director of the Federal Home Finance Agency, the Chairman of the Securities and Exchange Commission and the Secretary of the Department of Housing and Urban Development.

Section 105. Reports.

Monthly Reports: Within 60 days of the first exercise of authority under this Act and every month thereafter, the Secretary is required to report to Congress its activities under TARP, including detailed financial statements.

Tranche Reports: For every $50 billion in assets purchased, the Secretary is required to report to Congress a detailed description of all transactions, a description of the pricing mechanisms used, and justifications for the financial terms of such transactions.

Regulatory Modernization Report: Prior to April 30, 2009, the Secretary is required to submit a report to Congress on the current state of the financial markets, the effectiveness of the financial regulatory system, and to provide any recommendations.

Section 106. Rights; Management; Sale of Troubled Assets; Revenues and Sale Proceeds.

Establishes the right of the Secretary to exercise authorities under this Act at any time. Provides the Secretary with the authority to manage troubled assets, including the ability to determine the terms and conditions associated with the disposition of troubled assets. Requires profits from the sale of troubled assets to be used to pay down the national debt.

Section 107. Contracting Procedures.

Allows the Secretary to waive provisions of the Federal Acquisition Regulation where compelling circumstances make compliance contrary to the public interest. Such waivers must be reported to Congress within 7 days. If provisions related to minority contracting are waived, the Secretary must develop alternate procedures to ensure the inclusion of minority contractors.

Allows the FDIC to be selected as an asset manager for residential mortgage loans and mortgage-backed securities.

Section 108. Conflicts of Interest.

The Secretary is required to issue regulations or guidelines to manage or prohibit conflicts of interest in the administration of the program.

Section 109. Foreclosure Mitigation Efforts.

For mortgages and mortgage-backed securities acquired through TARP, the Secretary must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs. Allows the Secretary to use loan guarantees and credit enhancement to avoid foreclosures. Requires the Secretary to coordinate with other federal entities that hold troubled assets in order to identify opportunities to modify loans, considering net present value to the taxpayer.

Section 110. Assistance to Homeowners.

Requires federal entities that hold mortgages and mortgage-backed securities, including the Federal Housing Finance Agency, the FDIC, and the Federal Reserve to develop plans to minimize foreclosures. Requires federal entities to work with servicers to encourage loan modifications, considering net present value to the taxpayer.

Section 111. Executive Compensation and Corporate Governance.

Provides that Treasury will promulgate executive compensation rules governing financial institutions that sell it troubled assets. Where Treasury buys assets directly, the institution must observe standards limiting incentives, allowing clawback and prohibiting golden parachutes. When Treasury buys assets at auction, an institution that has sold more than $300 million in assets is subject to additional taxes, including a 20% excise tax on golden parachute payments triggered by events other than retirement, and tax deduction limits for compensation limits above $500,000.

Section 112. Coordination With Foreign Authorities and Central Banks.

Requires the Secretary to coordinate with foreign authorities and central banks to establish programs similar to TARP.

Section 113. Minimization of Long-Term Costs and Maximization of Benefits for Taxpayers.

In order to cover losses and administrative costs, as well as to allow taxpayers to share in equity appreciation, requires that the Treasury receive non-voting warrants from participating financial institutions.

Section 114. Market Transparency.

48-hour Reporting Requirement: The Secretary is required, within 2 business days of exercising authority under this Act, to publicly disclose the details of any transaction.

Section 115. Graduated Authorization to Purchase.

Authorizes the full $700 billion as requested by the Treasury Secretary for implementation of TARP. Allows the Secretary to immediately use up to $250 billion in authority under this Act. Upon a Presidential certification of need, the Secretary may access an additional $100 billion. The final $350 billion may be accessed if the President transmits a written report to Congress requesting such authority. The Secretary may use this additional authority unless within 15 days Congress passes a joint resolution of disapproval which may be considered on an expedited basis.

Section 116. Oversight and Audits.

Requires the Comptroller General of the United States to conduct ongoing oversight of the activities and performance of TARP, and to report every 60 days to Congress. The Comptroller General is required to conduct an annual audit of TARP. In addition, TARP is required to establish and maintain an effective system of internal controls.

Section 117. Study and Report on Margin Authority.

Directs the Comptroller General to conduct a study and report back to Congress on the role in which leverage and sudden deleveraging of financial institutions was a factor behind the current financial crisis.

Section 118. Funding.

Provides for the authorization and appropriation of funds consistent with Section 115.

Section 119. Judicial Review and Related Matters.

Provides standards for judicial review, including injunctive and other relief, to ensure that the actions of the Secretary are not arbitrary, capricious, or not in accordance with law.

Section 120. Termination of Authority.

Provides that the authorities to purchase and guarantee assets terminate on December 31, 2009. The Secretary may extend the authority for an additional year upon certification of need to Congress.

Section 121. Special Inspector General for the Troubled Asset Relief Program.

Establishes the Office of the Special Inspector General for the Troubled Asset Relief Program to conduct, supervise, and coordinate audits and investigations of the actions undertaken by the Secretary under this Act. The Special Inspector General is required to submit a quarterly report to Congress summarizing its activities and the activities of the Secretary under this Act.

Section 122. Increase in the Statutory Limit on the Public Debt.

Raises the debt ceiling from $10 trillion to $11.3 trillion.

Section 123. Credit Reform.

Details the manner in which the legislation will be treated for budgetary purposes under the Federal Credit Reform Act.

Section 124. Hope for Homeowners Amendments.

Strengthens the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures.

Section 125. Congressional Oversight Panel.

Establishes a Congressional Oversight Panel to review the state of the financial markets, the regulatory system, and the use of authority under TARP. The panel is required to report to Congress every 30 days and to submit a special report on regulatory reform prior to January 20, 2009. The panel will consist of 5 outside experts appointed by the House and Senate Minority and Majority leadership.

Section 126. FDIC Enforcement Enhancement.

Prohibits the misuse of the FDIC logo and name to falsely represent that deposits are insured. Strengthens enforcement by appropriate federal banking agencies, and allows the FDIC to take enforcement action against any person or institution where the banking agency has not acted.

Section 127. Cooperation With the FBI.

Requires any federal financial regulatory agency to cooperate with the FBI and other law enforcement agencies investigating fraud, misrepresentation, and malfeasance with respect to development, advertising, and sale of financial products.

Section 128. Acceleration of Effective Date.

Provides the Federal Reserve with the ability to pay interest on reserves.

Section 129. Disclosures on Exercise of Loan Authority.

Requires the Federal Reserve to provide a detailed report to Congress, in an expedited manner, upon the use of its emergency lending authority under Section 13(3) of the Federal Reserve Act.

Section 130. Technical Corrections.

Makes technical corrections to the Truth in Lending Act.

Section 131. Exchange Stabilization Fund Reimbursement.

Protects the Exchange Stabilization Fund from incurring any losses due to the temporary money market mutual fund guarantee by requiring the program created in this Act to reimburse the Fund. Prohibits any future use of the Fund for any guarantee program for the money market mutual fund industry.

Section 132. Authority to Suspend Mark-to-Market Accounting.

Restates the Securities and Exchange Commission’s authority to suspend the application of Statement Number 157 of the Financial Accounting Standards Board if the SEC determines that it is in the public interest and protects investors.

Section 133. Study on Mark-to-Market Accounting.

Requires the SEC, in consultation with the Federal Reserve and the Treasury, to conduct a study on mark-to-market accounting standards as provided in FAS 157, including its effects on balance sheets, impact on the quality of financial information, and other matters, and to report to Congress within 90 days on its findings.

Section 134. Recoupment.

Requires that in 5 years, the President submit to the Congress a proposal that recoups from the financial industry any projected losses to the taxpayer.

Section 135. Preservation of Authority.

Clarifies that nothing in this Act shall limit the authority of the Secretary or the Federal Reserve under any other provision of law.

Title II—Budget-Related Provisions

Section 201. Information for Congressional Support Agencies.

Requires that information used by the Treasury Secretary in connection with activities under this Act be made available to CBO and JCT.

Section 202. Reports by the Office of Management and Budget and the Congressional Budget Office.

Requires CBO and OMB to report cost estimates and related information to Congress and the President regarding the authorities that the Secretary of the Treasury has exercised under the Act.

Section 203. Analysis in President’s Budget.

Requires that the President include in his annual budget submission to the Congress certain analyses and estimates relating to costs incurred as a result of the Act; and

Section 204. Emergency Treatment.

Specifies scoring of the Act for purposes of budget enforcement.

Title III—Tax Provisions

Section 301. Gain or Loss From Sale or Exchange of Certain Preferred Stock.

Details certain changes in the tax treatment of losses on the preferred stock of certain GSEs for financial institutions.

Section 302. Special Rules for Tax Treatment of Executive Compensation of Employers Participating in the Troubled Assets Relief Program.

Applies limits on executive compensation and golden parachutes for certain executives of employers who participate in the auction program.

Section 303. Extension of Exclusion of Income From Discharge of Qualified Principal Residence Indebtedness.

Extends current law tax forgiveness on the cancellation of mortgage debt.

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Borrowing Student Loans Responsibly

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As you may know, student loans are today’s largest form of student aid. Researches have found out that it made up to 54 percent of the total aid awarded every year. However, with the rise of student loans, several cases of student loan defaults occur. The student loan debt is even today’s one of the major problems of most student borrowers. It is rising every year and the college expenses as well as the graduate school costs have definitely gone up faster than inflation. Well, let me tell you that this case often surface when you take a particular loan then another student loan followed by another loan. It is often said that as much as you take student loan offers, your loan debt gets bigger and bigger.  Since the case for student loan debt always happens and it carries certain burdens to the attainment of the student’s dream of higher education, it is then important that you consider some steps that will help you lower or manage your debts. Perhaps one of the most necessary things to consider is to borrow loans responsibly.

Think Before Your Borrow

Many people find it easy to rush through the student loan process. However, if you take a minute considering some of the money saving tips mentioned below, you could save yourself some bucks in the long run. So, read on.

Falling Into the Loan Trap? Oops! Avoid it!

Most of the time, you may find it tempting to borrow up to the maximum amount. Well, this is what many people call as the “loan trap”. It is the case where you borrow the maximum amount of money from the student loan lending company or institution even if it is more than you can afford to repay. It often occurs for the fact that need-based loans are very easy to apply for and they don’t usually require payments while you are attending your degree. So, to avoid certain consequences as you enter the repayment period, you should avoid the loan trap.

How Much Loan Do You Actually Need

Before you consider borrowing a student loan for your college, think first how much loan you really need. Always note that when taking out student loan, you don’t have to borrow the entire amount which is usually specified in your award letter. Just borrow what is enough.

Reduce Your Loan As Much As Possible

There are several options available for student loan borrowers. But, before opting for one, it is necessary that you question yourself if you can hold down the expenses; if you can work more, either in the academic year or during vacations; or if there are scholarships available for you. It is often said that if you minimize spending or bring in more money, the amount you have to borrow for your education tends to go down.

Consider Student Loans with the Best Terms

Note that the lower the interest rate, the less pricey the student loan is. This actually means, the less you will have to repay for your student loan debt.

Student Loans

As you may know, most of the students thinking for student loans have access to a special loan source these days. These sources, like the Air Force Aid Society, have student loans terms that are comparable to the Perkins or Subsidized Stafford or Direct Loans. Of course, it may be worth your time to look into the possibilities. There are some sources these days that offer low-interest student loan programs, and perhaps one of the most resourceful is the College Board’s online Scholarship Search.

Parent Loans

As mentioned, there are two available forms of education loans for parents. These programs are what commonly offered by some colleges anywhere in the world. But, for great chances of availing the benefits of such programs, it is best to check with your financial aid office to see if the school you wish to attend offers its own loan program. This will also allow you to know if you qualify for the loan, before you submit a PLUS loan application.

How Much Should You Borrow?

Many experts agree that you should borrow only as much as necessary. As mentioned earlier, it is often tempting to borrow whatever you are offered or are eligible to borrow. However, it is necessary to think first carefully about hoe much you really need, as well as to consider other possible options.

Always note that there is actually no need for you to borrow the entire amount shown in your award letter. And, even more important is that, never plan to borrow as much as you can up the yearly limits because if you do so, expect yourself to be deep down in debt.

Consider Options That Will Reduce Your Loans

If you are thinking for borrowing money to support your education, try to ask yourself first if you have savings left that you can use instead of taking out a student loan from the school of your choice. Also, think if you can get by with less by way of holding down expenses, or if you can do something great, like working more, either in the academic year or during vacations just to support your education. Also, think for the possible scholarships that you can apply for, or you can be qualified for. There are actually a lot of options left for you out there. The best move to take now is to know and understand them.

Estimate Your Loan Payments

It is worthy to note that the more you borrow for your education, the higher is the amount of your monthly repayments will be once you finish your degree. So if possible, try to estimate your loan payments. There are a number of student loan repayment calculators out there that you can use to do the math. What’s more, you have the chance to calculate your monthly payments based on the estimated starting salary of your chosen occupation.

The Essential Borrowing Tips

Now that you have pondered enough about your student loan with the things you have to consider before borrowing, as well as with the amount you need to borrow, I guess it is now important for you to look at the most recommended tips for borrowing student loans. Just consider the following:

As mentioned, planning and thinking your moves for taking out student loans is very necessary for a successful borrowing. If you do consider what have been mentioned above, then there is no doubt for you not to attain your dream education, and even a successful career in the future.

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Tags: Loan, student loan

How Choose a Mortgage?

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One of the most difficult aspects of organising a mortgage is sorting through the four thousand mortgage packages currently available.
However it's not as bad as it sounds because these are really just variations on a few types of mortgage.

To simplify things, we suggest you start by deciding which type of mortgage you want.

The best way to do this could be by deciding which types of mortgages you definitely don't want.

This process of elimination will help you draw up a shortlist of mortgages that you will bother considering.

You can then look for a good mortgage lender who's offering the type you want. (You can read more about Types of mortgages now or later)

While it's quite possible for you to work it all out for yourself you may find it easier to ask an Independent Financial Adviser (IFA), or a mortgage broker, to advise you on the best type of mortgage for your needs.

Comparing Mortgages

It's a Buyers Market. Shop Around

There are hundreds of companies offering over 4000 different mortgages, which means there's a lot of competition for your money.

It's what's called a buyers market so you're in a stronger position to shop around than you may think.

The worse mistake you can make is to think "I'm not worthy" and grab the first mortgage that comes along. Take your time and shop around.

Of course the lenders traditionally give the impression that they're doing you a favour by even considering little old you for such a huge loan.

The truth is they want you. If they don't seem keen for your business they're probably not doing their jobs.

Making Comparisons

Having decided which type of mortgage you want, shop around for the best deal on offer.

Make sure the comparison is accurate by getting "like for like" quotes from the lenders ie for the same amount borrowed over the same period.

The most obvious thing to check is the "Headline Interest Rate". But this may be misleading. The real comparison will be in the APR.

Look at any application fees, the cost of the valuation and survey and so on.

Good vs Bad Lenders

The less scrupulous mortgage lenders are those who try to sucker you in with a very low interest rate but are using it to trick you into paying their higher insurance premiums.

And they'll trying to force you to stay with them by charging nasty penalties if you leave - say after they've decided to raise your interest rate to unreasonable levels because they feel like pleasing their shareholders.

The best type of mortgage lenders are those who charge a reasonable interest rate and don't try to tie you in. Why not? Because they understand customer inertia and know that most of us stay with our mortgage lenders or bank anyway.

They know that most of us will buy their insurance policies because we can't be bothered to save "only" a hundred pounds a year by shopping around. That's if they're actually bothered about making a profit.

Unlike the PLCs, Building Societies do not have the huge pressure of making profits to pass on to their shareholders... They like to make a profit. But they don't have the same pressure that the likes of Enron used to think was a good thing. Ask yourself whose side your lender will be on. Their borrowers - ie you - or their shareholders?

Mortgage buying tips

1- Don't take the first mortgage you're offered
There are big differences in the deals you can get amounting to many thousands of dollars.
So make sure you've made comparisons with others.

2- Shop around
There's a lot of competition between the mortgage providers.
Like supermarkets they'll use techniques like offering "loss leaders" to lure more customers (Their pay off is that later on you're not likely to go elsewhere because of "consumer inertia" - which we've all got black belts in when it comes to financial products).

3- Look for a mortgage lender who is offering a "loss leader"
Provided there's no overhanging lock in you could shop around for another good deal at the end of it and save thousands.
In other words buy with a view to get a new mortgage deal every 2 years or so.

4- Don't be taken in by a low sounding initial interest rate
This is known as the headline rate. Very low rates usually come with cunning long term "tie ins".
What will happen at the end of the low interest rate term? Do you have to stay with the same mortgage lender who is suddenly only offering you a very uncompetitive rate unless you pay a big penalty to leave?

5- Beware Redemption Penalties
When you take out a mortgage you have an agreement with the lender. This covers the amount you repay and is set for a particular period.

For example you may have a mortgage for a three year fixed interest rate of 5%.

If you want to get out of this deal before the three years is up you'd probably have to pay a redemption penalty. This is a charge which supposedly compensates the mortgage lender for the time and expense of your leaving.

Some lenders may try to hide the redemption penalties in the small print.

Simply ask your prospective lender what the exit / redemption penalties are. If you're not sure what they mean ask them to spell it out. If you still don't understand you can take it that there's something they might be trying to hide so walk away.

6- "Overhanging lock-ins"
This is a penalty for leaving a lender AFTER a special deal interest rate has come to an end (ie not DURING the agreed timescale of the deal).

So, using the same example as above, if you got a mortgage with a three year fixed interest rate of 5% the mortgage lender could charge you a penalty if you left after the three years was up, say in year four.

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What is Remortgaging

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Remortgage tt's about switching your mortgage to another mortgage lender, in order to lower the amount you're paying on your mortgage.

In short a remortgage is about saving money. It is of particular relevance if the value of your home has risen.

Remortgaging usually involves changing your mortgage lender, though not necessarily.

Most lenders offer the sort of special deals you'll be looking for only to attract new customers into their web and deliberately exclude existing customers. However you may find that your lender offers you a better deal so as not to lose you. (This would still be remortgaging).

HOW MUCH CAN I SAVE?

If you're paying an interest rate of say, 7.5% on a $100,000 loan and you can change your mortgage to another, which charges you 7% you'll be saving $31 per month.

That is $372 a year or $9,300 over a 25 year mortgage term. (If invested instead this could be worth considerably more). And that's only for one half of a percentage change.

The main thing to know is the cost of the penalties you will have to pay for giving up your old mortgage.

A quick call to your mortgage provider should tell you this. Just have your reference number to hand.

Similarly a quick call to an Independent Financial Adviser or the possible new mortgage provider will show you how much your new mortgage will cost.

It is easier to do it this way than with a calculator because there are so many variables involved.

WHY ISN'T EVERYONE REMORTGAGING?

Remortgaging is fairly easily to research. However there's a lot of ignorance of the sort of savings possible and, of course, our old pal consumer inertia plays its happy role.

That's not too surprising considering the hassle most of us remember about the process of getting a mortgage in the past.

Even if they want to reduce their mortgage payments, some of us, this writer included, signed up to deals where we didn't think the leaving penalties would be a problem.

HOW EASY IS REMORTGAGING?

In the bad old days remortgaging was a complicated process. You had to shop around and sort through the miasma of the mortgage lenders' jargon.

Now however, lenders are "up for it", desperate to steal customers from their competitors and will offer deals deliberately aimed at doing this.

All you have to do is give your details to a mortgage broker or IFA and see if they can come up with a better deal.

Shop around to make sure you're getting the best remortgaging deal possible. If it's going to save you money take your hands out of your pockets, straighten your back and sign the lenders application form - which the broker / IFA will have sent you.

It's easy to put this off. Who can blame you. Filling in mortgage application forms aren't the best fun you'll ever have.

But they're also fairly manageable and every day you delay in completing it is costing you money

You can start the ball rolling on this or any other independent mortage website by submitting your basic details. These will go to a broker who'll quickly send you an offer.

The key is to shop around. We recommend you always get three quotes when buying any financial product.

HOW DO I CHOOSE THE BEST DEAL?

The bottom line is you're looking for a mortgage with a cheaper interest rate.

However you have to keep your eye out for the usual catches.

Watch out for tie ins, either with insurance to go with the mortgage, or the penalties that will hang like a noose around your neck to make you stay with the lender after the special rate has expired.

Obviously you don't want to switch mortgages to supposedly save money only to find yourself trapped in an unnecessarily expensive deal.

These drawbacks should be taken into careful consideration - but they're easily checked.

The best remortgaging deal may be one that doesn't offer the lowest interest rate but doesn't tie you in.

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Tags: Mortgage, Remortgage, Remortgaging