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The most difficult decision for some individuals purchasing a new car is whether they should buy the car or lease one for a set term then make the choice of purchasing the vehicle or trading it in for a new model.  There are many advantages and disadvantages to each option and someone that does not fully understand the differences between the two may find that they made the wrong decision after the signing the paperwork.

Advantages Of Buying

The largest advantage of buying over leasing is that you will own the car once the payment term is up and you have made all of the payments for the vehicle.  This means that once the car is fully owned by you, you will not have to make any more payments for the vehicle that you are driving and you can sell the vehicle at any time for any price you wish to charge.  Buying the vehicle also lowers your car insurance premiums because the insurance companies assume you will take better care of the car if you will own it when the payment term is up.

Disadvantages Of Buying

The monthly payments for buying a car are often much higher than the payments for leasing the same vehicle and the buyer will be required to put down a substantial down payment for the vehicle, increasing the initial out of pocket costs.  New cars depreciate quickly in the first few years so it is possible to owe more on the car than the car is actually worth for years before the car loan is paid off.  This can leave you with little to no equity in the car until the payment terms are over – typically 4 to 6 years.

Advantages Of Leasing

The biggest advantage of leasing a vehicle is that the amount that you will pay out of pocket to acquire and maintain the vehicle will be much lower than if you chose to purchase the vehicle outright.  Down payment requirements are much more lenient and you will not have to pay the sales taxes up front.  The monthly payments are lower for a leased vehicle and you can easily trade in the vehicle for a newer model every few years.

Disadvantages Of Leasing

When leasing a car, you are locking yourself into payments that provide you with no equity in the vehicle for the foreseeable future and when the lease term is over, the car must be returned to the dealership.  If you would like to purchase the vehicle after the lease term has expired, you will need to find financing for the remaining value and begin to make loan payments.  There are mileage restrictions for leased vehicles and the cost of exceeding the allowed amount can be substantial.

Purchasing a home is easily the largest financial purchase you will ever make so it makes sense that you would want to be as prepared as possible before making a final decision.  The individuals that end up having trouble with their mortgages are those who made common mortgage mistakes when applying for or accepting the mortgage agreement.  There are several mistakes that are made commonly to look out for and knowing what these mistakes are will make it easier for you to avoid them when obtaining a mortgage.

Choosing An Adjustable Interest Rate

One of the biggest mortgage mistakes a person can make is choosing an adjustable rate for their mortgage loans instead of getting a fixed rate.  Although the initial interest payments may be lower than those of fixed rate mortgages, if the interest rate rises it can increase your payments significantly.  These interest rate adjustments are a large contributing factor in the high rate of foreclosures among those who chose an adjustable rate mortgage.

Choosing An Exotic Mortgage Product

Over the last decade, many mortgage lenders begin offering exotic mortgage products to help individuals qualify for larger loans to buy larger houses with a lower down payment.  Many of these mortgage loans are only possible if accounting tricks are used or actual income data is ignored and many of these loans turn sour as soon as an introductory time period has passed or something triggers a higher interest rate.  Many people chose these loans hoping to refinance into a more traditional mortgage when their credit score improved, but foreclosure typically results before the person can refinance.

Neglecting To Read The Agreement

Many people trust that their mortgage lender is doing the right thing for them and sign any document that the lender puts in front of them without thoroughly reading it first.  This is an invitation to disaster because there could be hidden clauses and triggers in the agreement that you will not be aware of until it is too late.  Be sure to read any documents associated with the mortgage loan carefully to ensure that you know exactly what you are agreeing to in the contract.

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If extra money is needed, obtaining a loan against the money that has been placed in a retirement plan may be an attractive suggestion.  When a significant amount of money has been invested in a retirement plan and the person is not planning to retire in the near future, a retirement plan loan is an easy method to obtain the amount of money desired.  There are several things that must be kept in mind when deciding whether this option is right for your situation.

Retirement Plan Loan Pros

The biggest pro associated with retirement plan loans is the ease of acquiring the loan.  When the loan is based on the balance of a retirement account, lenders rarely deny the loan because the retirement plan funds are used to pay off the loan in cases of default, guaranteeing that the lender will get their money.

Another pro of retirement plan loans is the swiftness of loan application approval.  Traditional loans based on income and debt levels involves the need to verify income or provide documents detailing your net worth, while applying for a retirement plan loan rarely involves these steps.  If the total borrowed with the loan is less than the balance of the retirement plan account, the lender should need very little additional documentation for loan approval.

Retirement Plan Loan Cons

Most retirement plan loans have a strict limit on the amount that can be borrowed against the retirement plan.  Most lenders state that the loan amount cannot be more than 50% of the vested balance of the account.  For example, if the vested balance of the retirement plan account is $50,000, then the maximum loan amount will be $25,000.

Another problem with retirement plan loans is the reduction of capital in the retirement plan account if the person defaults on the loan.  Traditional loan options, such as renegotiating the interest rate or refinancing the loan, are not available with retirement plan loans because these loans become payable almost immediately after default and the amount owed to the lender is subtracted from the balance of the retirement plan account. 

This balance reduction can be tremendously hard to replace due to annual deposit limitations on retirement plan accounts. If the loan goes into default, the amount of money withdrawn from the plan to pay off the loan is treated as taxable income and the taxes must be paid in the same calendar year.

It is important to understand the positives and negatives associated with retirement plan loans before making a final decision.  In some cases, taking out a retirement plan loan is the best option while in others, it may be better to look for other sources of funding.

There are two types of personal loans that you can obtain as an individual. The first is a secured personal loan, and the second is an unsecured personal loan. A secured personal loan is a loan that you get with collateral, and therefore is a much easier loan to get as a result. The reason for this is that they know they can get back their money with the collateral by selling it, so the risk is much lower.

An unsecured personal loan is one that does not have the backing of collateral.  These loans are much harder to get and are based on your credit rating. As a result, you may have to pay higher interest rates for an unsecured personal loan with credit that is not perfect.  Typically, an unsecured personal loan will leave the individual responsible for repaying the loan, but there will be a personal guarantee from the individual that they will repay the loan in a manner that matches the terms of the personal loan.

What Are The Risks?

The borrower’s risk is lower with an unsecured personal loan because if they do not pay back the loan, the only damage that they suffer will be to their credit rating.  With no collateral backing the loan, the borrower will not lose any of their personal property in the event of a default on the loan.  The borrower’s credit score will be reduced by a significant amount, but over time the credit score can be repaired and restored to its former heights.

A good way to display the difference between a secured personal loan and an unsecured personal loan is with an example. If you borrow money from a friend and they tell you that they will hold on to your laptop as collateral until you repay the money, then you know that if you don’t pay them back within a reasonable period of time, you will lose your laptop. Your friend knows that if you do not pay back the loan, they will not have their money but they will have a new laptop. However, if you borrow money from a friend and they do not require you to give them anything for collateral, then if you do not pay back the loan you will not have to give up your personal property.

One important consideration that needs to be made when you are getting a mortgage loan is the nature of the current mortgage loan market. Individuals that are not experienced with financial markets or the terminology used in those markets will need to find a way to get information about the mortgage loan market that is accurate and reliable.  This will ensure that they will not make mistakes through ignorance and end up in a situation that can only be resolved through foreclosure.

Getting Information

One of the best ways to learn about the mortgage loan market and determine if the time is right to get a mortgage loan is to talk with a mortgage loan consultant from a mortgage loan office or banking institution that you have done business with in the past. A mortgage loan broker can accomplish the same thing and give you the information that you need to make an informed decision about whether it is right time for you to obtain a mortgage loan.

The mortgage loan market fluctuates up and down regularly and different times of the year will have different numbers set as the prime interest rate. Changes in the interest rates will change the amount of money paid on top of the principal of the mortgage loan.  It is important to look at the mortgage loan market with your mortgage loan consultant to find out what is the best option for your needs.

If the mortgage loan market is doing well, interest rates will be higher because there are more people borrowing. Therefore, the mortgage loan companies can to make more money because they are in a better position with so many people borrowing. However, if there are less people borrowing, then there will be lower interest rates because the mortgage loan lenders want to entice people to borrow. Look at the mortgage loan market and time your loan request to ensure it is made at the right time.

Refinancing a home is not a decision that should be taken lightly because there can be a number of negative consequences to refinancing a home for the wrong reason or at the wrong time.  These negative consequences could include the addition of thousands of dollars to the mortgage loan or the eventual loss of the home if the refinancing terms are not favorable.  There are a number of things that should be taken into consideration before making the decision to refinance your home in order to ensure that the best decision for your financial situation has been made. 

Why Are You Refinancing?

There are many different reasons cited for refinancing a home loan and some reasons are much more responsibly thought out than other reasons.  Bad reasons for refinancing a home loan include paying for an expensive vacation, paying off credit card debt without creating a new spending plan, and purchasing luxury items.  Refinancing for these reasons add thousands of dollars to the balance of your mortgage loan with very little gain to show for it in the long run.

Average Interest Rates

If current interest rates are much lower than the average interest rates when you purchased your home, it may be to your advantage to refinance and obtain a lower interest rate.  This is only true if you are refinancing into a fixed-rate mortgage loan, as the interest rate for an adjustable-rate mortgage or an exotic mortgage can change at any moment.  If current interest rates are higher than the interest rate you are currently paying for your mortgage loan, refinancing may cost you more than staying with your current mortgage.

Length Of Residency

The length of time that you intend to stay in the home should also have an effect on your decision whether to refinance your mortgage loan.  Refinancing is only economically feasible if you intend to stay in the home for at least 5 years after the home has been refinanced.  If the length of time that you intend to stay in the home is shorter than 5 years, refinancing will cost you money, as almost every dollar you pay will be going towards the interest of the loan, not the principal.

Purchasing a home is the biggest investment that you can make for your future and is probably the most expensive thing that you will ever purchase.  Obtaining a mortgage for the home can be tricky and choosing the wrong type of mortgage can end up costing you thousands of additional dollars each year.  There are a number of things that should be taken into consideration when choosing a mortgage for your home to ensure that you are getting the best financial product for your needs.

Type Of Mortgage

The first thing that you will need to decide when choosing a mortgage, including self build mortgages, for your home is to choose what type of mortgage you would like to get.  Although the adjustable rate mortgages may seem attractive with their lower initial payments, if interest rates rise you will be paying thousands of dollars more in interest to the lender and your mortgage payments may become unaffordable.  A fixed rate mortgage is preferable to an adjustable rate mortgage because the payments will remain the same for the entire life of the mortgage.

Mortgage Term

The length of the mortgage plays a large part in calculating the amount that you will be paying each month.  Most mortgage lenders will offer a term of 15 years or 30 years for a conventional mortgage and allow the homeowner to pay more than the mortgage amount to pay off their mortgage at a faster rate.  A shorter term for the mortgage will mean a higher monthly payment for the term of the mortgage, but the homeowner will pay less than half of the amount of interest that would be required under a 30 year mortgage term.

Mortgage Payment

A good rule of thumb to follow is that your monthly mortgage payment should not exceed 30% of your monthly take home pay or you may find yourself with a payment amount that you cannot afford.  If the payments required for a 15 year mortgage term is higher than this, you should consider signing for a 30 year mortgage term and put any additional money that you have at the end of the month towards paying off the mortgage earlier.

Mortgages To Avoid

There are some mortgage products that are common today that should be avoided at all costs.  This includes most of the “exotic” mortgage loans, such as interest only mortgage loans.  Many of the people that opted for these products did so because it allowed them to buy more house than they could truly afford through clever accounting techniques and deferring a portion of the required payments.  As these individuals soon found out, these types of mortgages have payments that can skyrocket in the blink of an eye and are very difficult to pay off or refinance.  A fixed rate mortgage loan is the best way to go.

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Refinancing a home can be a simple and quick way to obtain additional cash, but it is not always a good idea to pull equity out of your home using refinancing.  There are a number of negative actions that can occur when you refinance a mortgage and it is important to be sure that the need is equal to the risks and penalties you will be taking on by refinancing.  Before you decide that refinancing your mortgage is the best solution for your situation, be sure that you are not draining the equity of your home for a bad reason, like the ones listed below.

Taking An Exotic Trip

Cashing out the equity in your home by refinancing your mortgage to take an exotic vacation is always a bad idea.  The benefits that you will get from these types of trips are minimal and fleeting while the penalties for taking a large chunk of money out of your home are long lasting and will continue to create repercussions for years to come.  Instead of taking the equity out of your home for a vacation, you should save up the money through paring down unnecessary spending and take a vacation that you can afford without refinancing.

Paying Credit Card Debt

Refinancing a home to pay down credit card debt is typically a bad idea because it does not address the reason for the debt creation.  Paying off credit card debt by refinancing your home is a quick fix that reduces the amount that you owe in the short term by paying it off over a longer term, but does nothing to curb the over-spending that caused the debt problems in the first place.  If you have high debt levels, then you need to trim your spending and pay off those debts without incurring more debt in the form of refinancing.

Lowering Interest Rate By A Small Percentage

Although a smaller interest rate will always seem attractive when refinancing, it is important to be sure that the drop in interest will be worth the effort and time that you are putting into the refinancing.  Many people forget that there are fees and costs associated with refinancing a mortgage loan which can quickly eliminate any gains obtained by a small percentage interest rate reduction.  If the interest rate will not drop more than a few percentage points or the payments will not be noticeably smaller by a significant amount, there is no reason to refinance at that time.

In today’s market of souring home loans in the midst of a persistent recession and record levels of unemployment, banks have foreclosed on many more homes than in any time in recent history.  Some areas of the country have been decimated by wave after wave of foreclosures, leaving whole neighborhoods vacant and abandoned.  The people caught by these economic hard times may believe that after their home has been foreclosed on their ordeal will be over, but many are finding that foreclosure is not the end of their problems.

The Big Issue

At the heart of the matter is that many of the homes across the nation today have dropped in value by a significant amount, leaving many of the people that brought their homes at the height of the housing boom owing more on their home than the home was worth.  In addition, a large number of these people purchased their homes with exotic mortgage loans that were due to reset to much higher payments after several years in the home, thinking that they would be able to refinance the home to a fixed rate or lower rate loan before the payment amount increased.  Unfortunately, they were banking on the value of their home continuing to rise and most were unable to refinance with negative equity in the home.

The Resulting Problem

As lenders have foreclosed on homes across the nation, many of these homes have been resold to other buyers for less than the amount still owed on the mortgage loan that the original owner obtained for the home – also known as a short sale.  In the event of a short sale, the lender has the option to recoup the difference between the amount that the person owed and the amount that the home was sold for from the original borrower.  Imagine the surprise when these borrowers realize that they are still liable for thousands of dollars of payments for a home that they are no longer in possession of.

In many locations across the nation, the lender has the right to recoup the amount between what has been owed and what the home sells for along with numerous penalty fees that are tacked onto the loan amount for missing payments and going through the foreclosure process.  In an example detailed by a local newspaper, one man found that after he lost his home to foreclosure, he still owed his mortgage lender $148,064 because of the difference between what he owed and what the lender sold his home for in a short sale.  Many who find themselves in this situation have no other option than to file for bankruptcy protection.

In the past, lenders rarely went after the individuals whose homes were foreclosed on for the difference between the sale price and what was owed on the home loan because these people rarely had any assets that could help them pay the amount and pursuing these borrowers in court cost a large amount of time and money.  The difference today is that a number of people are simply walking away from homes with values that are underwater to avoid paying significantly more than the home is worth, regardless of whether they could afford to continue making the payments on the home.  With the number of foreclosures across the nation continuing to rise, lenders are determined to get what they are owed, especially if they suspect that the person could continue making their payments but are making a conscious choice to stop paying on their mortgage loan.

The current housing market is one of the most favorable for buyers in the last decade and many individuals that are tired of paying rent for a place that they cannot redecorate have chosen to purchase a home instead.  There are large numbers of homes on the market and many sellers are willing to reduce the asking price of the home to increase the chances of selling the home. 

Obtaining a mortgage loan has become more difficult for those with lower credit scores, but if you have good credit and a steady income, many banks are still willing to loan the money needed to purchase a home.  Here are some steps that you can take to ensure that you are getting the best loan possible.

Search For The Best Rate
The interest rate for traditional fixed-rate 30-year mortgage loans are still some of the lowest in history and the low interest rate will save you thousands of dollars in interest payments over the life of the loan.  Different banking institutions may be offering different interest rates to lure customers away from competitors and comparing rates between companies may shave several percentage points off of the amount of interest that you are paying on the loan.  Be sure to examine the rates offered by commercial banks, credit unions, and federal loan programs to see all of the options available to you, which will make it easier to make an informed decision about which loan to apply for.

Get Preapproved
One of the worst feelings in the world is finding the perfect home and then finding out that you do not qualify for a loan large enough to purchase that home.  Preapproval provides a chance for you to fill out the application and discover if there will be any problems or barriers to receiving the loan before getting in too deep with the seller or real estate agent.  The lender will run your credit and examine the supporting documents that you provide and reply with a letter either indicating preapproval or denial.  Then, once you have found the home you desire, you can complete the loan approval process by paying the application fee and verifying your income to the satisfaction of the lender.

Lock In Your Interest Rate
Many lenders will not lock in the interest rate that you will be paying on the loan until 30-45 days prior to closing because interest rates can fluctuate from day to day and most loan interest rates are tied to the going rate.  The final interest rate that is offered to you should be very close to the one that was offered to you during your preapproval process and if the interest rate is dramatically different, you should inquire why.  If the lender cannot give you a good answer backed up by supporting documentation, they may be trying to rip you off and you should find another lender.  In the recent past, there have been many instances of this type of bait and switch documented, so don’t fall prey to unscrupulous lenders because you do not want to push back the closing date by several weeks.