Tag Archives: property
How Parents Can Find The Best Secured Loans Deal To Help Their Children Get A Home Loan
With the property market heating up, there has never been more pressure for first time homebuyers to purchase their own homes. Interest rates are at record lows and competition between buyers is driving up property values. As such, people who have never had a home before should seriously consider buying now. For many first time homebuyers, however, buying a home is difficult, especially if they don’t have a very large deposit to put towards their home loans. Not surprisingly many parents are choosing to help their children buy a home through a number of different ways. Many parents are in a good position to help their children with their first home, but deciding what form that help takes can be difficult. This article will look at what parents can do in order to get their children on the property market sooner rather than later.
Lend Money
The simplest way parents can help out their children is simply by lending them money. This form of lending would usually take the form of a personal agreement between the parents and their children, so it is entirely up to both parties to negotiate a repayment schedule and interest rates. Because the size of a deposit has such a big impact on the interest rates homebuyers will pay for their mortgage, a little boost at the beginning can lead to big savings over time. Although government schemes like Help to Buy have made it much easier for homebuyers to put up deposits of just 5% and still get approved, it is important to realize that these small deposit mortgages will still suffer from some of the highest interest rates on the market. Of course, for personal lending to really be a help, the parents would have to charge less interest than what banks and other lenders currently offer for similar sums.
Using an Existing Home as Collateral
If parents don’t have the money sitting in their bank accounts to simply lend to their children, they can still raise funds in other ways. Since many parents will have a great deal of equity in their homes, getting approved for the best secured loans deal should be fairly easy so long as other factors, like income and credit histories, are taken into account. With this type of lending, the parents would use their own home as collateral when they borrow money from a bank or building society. Because the home acts as a guarantee that the money will be repaid, lenders are likely to offer much lower interest rates due to the lower risk they are taking upon themselves. Parents could then use the money they raise in this fashion to help their children either raise a deposit or to simply help make monthly mortgage payments. However, parents need to be aware that this route is risky as they could have their own home repossessed if they default.
Joint Mortgage
Another way parents can use the equity in their own property to help their children buy their first home is by applying for a joint mortgage with the children. Joint mortgages are usually easier to get since the financial status and credit history of both the parent and the child will be taken into consideration. Therefore, the mortgage is much more likely to be repaid so the bank looks at these arrangements as being far less risky to its own business. As such, joint mortgages usually come with better interest rates than traditional mortgages, especially if the parent uses his own property as collateral. With a joint mortgage, however, both the parent and child will have ownership in the new property, meaning both members are responsible for repayment. Again, if an existing home is put up as collateral then the parent risks that home being repossessed if he and the child cannot keep up with the mortgage payments.
Getting onto the property ladder is notoriously difficult, which is why so many parents are choosing to help their children raise the necessary funds for a mortgage deposit. Parents can help in a number of ways, through a personal loan or by using their own homes as collateral, but whichever route they choose they must make sure they are agreeing to terms that will place both themselves and their children in a strong financial position in the years to come.
Examples And Summary Of The Loan Modification Process (Page 1 of 2)
If you are trying to stop foreclosure, or have a mortgage payment that is too much, then you’ve probably thought about getting a mortgage modification. A mortgage modification is when the terms of a loan are permanently changed to allow a reduced payment.
The reduced payment is accomplished by either reducing the interest rate, lengthening the term, or lowering the balance to be more in line with the current market value. In most cases, a combination of all three of these choices are used to reduce the mortgage payment. There are other interesting options to reduce a payment with a modification too, but they all center around the term of the mortgage, the payoff, and/or the interest rate.
Here is an uncomplicated example of how a mortgage modification can lessen the payment, using each of the three options above.
Method 1 Dropping the interest rate
Lets assume the mortgage balance is $200,000 and the current interest rate is 7.75% and the payment amount is $1,750. Lets also assume this borrower has 20 years left on a 30 year loan. The borrower can no longer afford this payment because of a loss of income. They can afford a $1,250 payment, so the bank agrees to reduce the interest rate to a fixed rate of 4.25% for the remaining life of the mortgage. This will give them a payment of $1,240, without the need to lengthen the term of the loan or lower the payoff amount..
Method 2 lengthening the term of the loan
Lets use the same example above, only this time, we’ll assume the homeowner can afford a $1,500 payment. The loan amount will still be $200K and the interest rate will still be 7.75%. But in this case, the investor was not willing to reduce the interest rate. This happens very often, because the investors on the loan are not willing to accept a reduced rate. In this case, extending the length of the mortgage will make the payment affordable again and the investors will keep their 7.75% interest rate. The $200,000 balance is re-amortized over a 30 year period to get a reduced payment of $1,430. Everyone is happy because the foreclosure was prevented and the new payment is affordable.
Method 3 Dropping the payoff amount
In order for a payoff amount to be reduced, the value of the house must be less than the payoff amount. In a few cases, lenders will reduce the payoff amount without this stipulation, but it’s highly doubtful. To get the payoff amount reduced, you must give documentation to the lender that foreclosing on the house will cost more than dropping the amount owed to make the loan affordable again.
In this case, we’ll assume the home’s current market value has been established at $179,000, but the payoff is still $200,000. If the bank forecloses on the property and tried to re-list it, their estimated loses will be 30% of the home’s value. So after foreclosing on the property and re-selling, they will receive approximately $125,000, if they are lucky. Most lenders expect to lose 30%-60% on every foreclosure property, so this amount is being very generous.