Before you buy a house, you need to factor in the amount you are putting down for a house, which is also called a down payment. A down payment is a portion of the purchase price of a house that you must pay upfront. The down payment is not a loan from a mortgage lender. Assuming you want to purchase a home for $200,000 and you put down $6,000, which is 3 percent of the purchase price, the mortgage lender will provide you with a loan of $194,000, which is 97 percent of the purchase price.
Conventional Fixed Rate Mortgages: A conventional fixed rate mortgage is a mortgage in which the interest rate on the loan does not change throughout the life of the loan. The down payment for conventional loans can be as low as 3 percent. Borrowers with a 20 percent down payment do not have to pay for mortgage insurance. Typically, the term of a conventional loan is usually 15, 20, or 30 years. One of the advantages of a conventional fixed rate mortgage is that it enables borrowers to know the interest and principal payments loan since the rate will remain the same throughout the duration of the loan.
VA Loans: VA loan is a mortgage loan option available to veterans and active duty military members. It makes it possible for veterans and active military members to purchase a house without requiring a down payment.
FHA Loans: Federal Housing Administration loan (FHA loan) is for borrowers with low-to-moderate income. This loan requires a lower minimum down payment and credit scores. With a 10 percent down payment you can obtain an FHA loan. To get an FHA loan, you must go through a lending institution approved by the FHA.
Before borrowing money for a car, you need to truly understand the factors that determine your monthly auto payment. You need to factor in the auto loan amount, down payment, monthly payments, and the term of loan. Before saying yes to a financing option, always calculate the cost and negotiate a good price.
Down Payment: This is a payment you must pay up front when making an auto purchase. The amount you put down will determine your monthly payments. If you put down a larger amount of down payment, your loan amount will also be smaller.
Monthly Payments: Your monthly payments are your regular payments for the duration of the loan. Try as much as possible to keep the monthly amount low because of unexpected events that could influence your income.
Loan Term: This is the length of time over which you will pay back the auto loan. A short-term loan which ranges from 36 to 48 months is a better option because it lowers your interest rate over the term of the loan. A long-term auto loan ranges from 72 to 84 months. The advantage of this loan option is that it reduces your monthly payments. The disadvantage is that it increases your interest rate over the term of the loan.
When choosing a credit card, you should begin by thinking about what the credit card will be used for. The key factor in choosing a credit card is whether you will be paying off what is owed on a monthly basis or spreading the payments over a period. You can make use of the interest free period if you are able to pay off the balance on the card in full and on time every month.
If the card is to be used for borrowing and you won’t be able to pay off the balance on the card every month, then you will have to pay interest on the card. But remember to make sure that you can afford to make a regular payment.
For payments received after the due date, a late payment fee is assessed. Always check your credit card term to find out the late payment fee. You could lose some benefits associated with your credit card if you make late payments. For instance, you could forfeit the rewards you have earned on your card or even your promotional interest rate.
The two types of federal loans are subsidized and unsubsidized loans. The difference between the subsidized and unsubsidized loans is that subsidized loans are for students who are financial aid recipients while unsubsidized loans are made available to everyone, irrespective of financial need. The loan interest on subsidized loans is paid by the federal government while the loan interest on unsubsidized loans is paid by the student.
You can go for a private loan if federal loans don’t cover the cost of tuition. When going for a private student loan, you need to factor in the interest rate and loan term.
Interest Rate: When taking out a private student loan, one of the factors that you should consider is the interest rate. This is because a private student loan with the lowest interest is the right one to go for. If the interest rate is low, you will pay less over the term of the loan.
Loan Term: The loan term is the length given to pay off the loan. Some of the terms on private student loans range from 10 to 20 years. In addition to the interest rate, the term of your loan also determines what your monthly payment will be.
When borrowing to pay for tuition, only borrow what you need. You should borrow a sum that will keep your payments at approximately 10 percent of your monthly net income.
Home Equity Line of Credit (HELOC)
Home Equity Line of Credit (HELOC) is a line of credit you can have using your home equity. It is just like a credit card. You can borrow money up to a certain limit. The credit limit on a HELOC depends on the market value of your house and how much you owe on your mortgage. For example, if your home’s market value is $300,000 and you are owing $250,000 on your mortgage, then $50,000 is your home equity. The bank typically allows you to borrow 85 percent of your home’s market value minus the amount you owe on your mortgage. In this scenario, the amount you can borrow is $42,500.
Home’s value: $300,000
85% of home’s value: $255,000
Mortgage owed: $250,000
Line of credit amount= $255,000 - $250,000 = $5,000
For you to qualify for a HELOC, you are required to have home equity. What this means is that the amount of mortgage owed on your home must not be greater than your home’s value, it has to be lower than your home’s value.