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Arm Loans; What is A Home Equity Loan?

A home equity loan is a one-time lump sum credit a homeowner can acquire by placing their residence as the guarantee for payment. This type of credit is most appealing to consumers who may have poor credit standing, but need a large amount of money. Aside from these benefits, the borrower gains a lower interest rate and the possibility of tax-deductible interest. Why do lenders offer large amounts and charge lower interest rates? Because lenders understand that most homeowner debtors diligently pay their loans rather than risk losing their homes. Besides, the borrower cannot tuck the house away or conceal it.

The three biggest advantages a home equity loan offers are:

Large Loan Amount

The borrower can obtain as much as 85% appraised value of their home, minus the unpaid mortgage payments owed on the first mortgage. However, there are other factors as well that the lender will assess, such as the borrowers’ credit standing, monthly income, or ability to pay and state of unsettled loans. If the borrowers’ credit record is spotty, the loan will necessarily be smaller.

Low Fixed Interest Rate & Tax-deductible.

This type of loan has a lower interest rate, in comparison to personal or credit cards loans. Additionally, a fixed interest rate assures you that the payment remains constant right until the end of the entire loan. This makes it easy to work the monthly payments into your budget. Another advantage a borrower can claim are tax deductions on the interest of the loan for as much as $100,000.00. However, do not assume that the advertised APR (annual percentage rate) is the real rate. Ask and shop around.

Ease of Use

The one-time release of the entire loan will enable the borrower to consolidate existing debts, pay for home improvements, or use the amount for emergencies, or any big-ticket items.

The two real disadvantages are:

Home Foreclosure

If you default in paying the principal and interest fees for the loan, you will lose your home. This is certainly not the ideal type of loan for a couple who might use their retirement money to bail themselves out of the difficulty, or first time homeowners, who are inexperienced in handling finances. That is why, when you negotiate with the lender, you should ask about the penalties attached for late payments, as well as the conditions in defaulting payments and have all your agreements documented.

Long Term Repayment Period

The convenience of repaying the loan, which can vary from a 15 to 30 years period, is ultimately more expensive, because you are taking longer to pay. Another negative possibility is, if the real estate market bottoms out, you will be paying for a house which is worth a lot less. This could spell disaster especially if you are intent on selling the house. On the other hand, you are required to pay the remaining loan balance if you put the house up for sale. Given what you now know about home equity loans, become a more prudent borrower. Carefully consider why you need the loan and if you can comfortably meet the monthly payments. Then educate yourself on the options that will best serve your financial needs and still leave you with your home.

Posted in Uncategorized, home equity loan, home loan, loan, loan calculator, equity loan, home equity loan rate, loan rate, fixed rate home equity loan, home equity loan comparison, home equity loan bankruptcy | Comments(0) August 2007

Home Loans and Loan Interest Rates

Obtaining home loans can be a difficult decision for any person. Couple that with the sometimes high and unavoidable interest rates it can be a downright nightmare. When shopping for home loans, you will need to consider the interest rates being charged. In some places the rates of interest will be ideal for your situation and others will seem too high. The best way to choose the right home loans is to have a solid understanding of what factors go into determining your interest rates.There are several factors that go into determining what interest rates a loan company or bank will charge for home loans; however, the most important factor is your credit report and FICO score. Essentially, the lower your score, the higher the interest rates charged on home loans or the higher the chances of being turned down. Your credit report contains information about every aspect of your life. When we say every aspect of your life, we mean that. When applying for home loans, the creditor will, with your permission, access your credit report. Your credit report contains information about any form of credit you have obtained, bankruptcies, criminal record, court history, history of bill payment, where you live, as well as where you work and how long at each. What is more, each time a creditor accesses your credit report, rather it is for home loans, personal loans, credit cards, or rental history, and it is documented as well. A FICO score is what is used to determine your credit worthiness of receiving home loans. What this means is that you are assigned a score that basically summarizes your ability to pay, your history of paying, and other such information into one score, which tells potential creditors everything they need to know. Just as there are many factors involving your credit report that will help potential lenders of home loans determine your credit worthiness, the number of times accessed by creditors also weighs heavy on the decision as well. If in a short time period, several lenders have accessed your credit report, this could cause lenders to deny your home loans application or offer you a high interest rate. All of the above factors are considered when a lender is determining the interest rates of home loans. It is important that you understand the information that is contained in your credit report and how creditors will view it when applying for home loans.

Posted in Uncategorized, home equity loan, home loan, loan, home equity loan rate, fixed rate home equity loan, home equity loan bankruptcy | Comments(0) July 2007

Give us more credit too, SMEs tell banks

Even as the government is pushing for higher credit availability for small and medium enterprises (SMEs), the classification of home loans up to Rs 20 lakh under priority lending may impact credit flow to the sector. There is no separate sub-category for SME lending under priority sector lending (PSL), which is 40% of the net bank credit. Lending to agriculture is 18% and the remaining 22% is spread between exports, SMEs, etc. Many banks meet priority lending targets by giving advances to exports, since they are unwilling to take on the risks involved in SME lending. “We have reasons to believe that with housing loans up to Rs 20 lakh classified as priority, SME lending may take a hit,” says Anil Bhardwaj of the Federation of Small and Medium Enterprises (FISME). The SME sector wants the same priority that consumer finance or housing loan enjoys in the banking system. The advances to small-scale industries was Rs 83,179 crore in 2004-05. Banks now have a wider definition for SMEs ranging from tiny units to mid-corporates. A wave of banks have specialised teams on SME lending, but are fighting shy of lending aggressively to this sector. The RBI definition of small enterprises is, up to Rs 5 crore investment in plant and machinery. For the purpose of convenience, banks, however, classify SMEs according to turnover. Nearly 90% of the total SME lending is on account of public sector banks. “Banks find it difficult to appraise these projects because, unlike agriculture, they are not aware of the growth patterns and cycles across various industry segments. There is considerable delay in processing of loans due to this reason,” says Mr Bhardwaj said. SME loans are lent at 200 basis points above the prime lending rate (PLR). The interest rates have gone up from 11% to 14%. “Banks are constrained by data on the sector, and are, therefore, not in a position to assess risks associated with the sector. They do not have indicators like the lifecycle concept, as in the consumer finance area,” a banker said. Globally, the size of SMEs is much larger and the exposure of banks to the sector is higher as well. “The success and failure of SMEs piggyback on the success and failure of the bigger corporates that they work for,” Robin Roy, principal consultant, banking and financial services, PwC says. “Basel-II guidelines on capital requirement attach the same risk weights to SMEs as retail, thus, it is expected that lending to the SME sector will improve. Under Basel guidelines, the risk weights for SMEs will be 75% against the current provisioning of 100%,” a banker said.

Posted in Uncategorized, home equity loan, home loan, loan, loan calculator, home equity loan rate, loan rate, fixed rate home equity loan, home equity loan comparison, home equity loan bankruptcy, bank loan | Comments(0) July 2007

Federal Home Loan Bank of San Francisco Reports Second Quarter Operating Results

The Federal Home Loan Bank of San Francisco today announced that its second quarter 2007 net income rose $16 million, or 13%, to $144 million from $128 million in the second quarter of 2006. For the first six months of 2007, the Bank’s net income rose $39 million, or 16%, to $286 million from $247 million for the first six months of 2006. These increases primarily reflected growth in net interest income, as well as differences in fair value adjustments for the respective periods. Net interest income for the second quarter of 2007 rose $11 million, or 5%, to $212 million from $201 million for the second quarter of 2006. Net interest income for the first six months of 2007 rose $23 million, or 6%, to $417 million from $394 million for the first six months of 2006. The increases in net interest income were primarily driven by the effect of higher interest rates on higher average capital balances, partially offset by lower net interest income on the Bank’s mortgage portfolio (mortgage loans and mortgage-backed securities). Net income also reflects fair value adjustments on trading securities, derivatives, and hedged items, after assessments, which resulted in net fair value gains of $6 million in the second quarter of 2007, compared to net fair value gains of $2 million in the second quarter of 2006. Most of these net fair value gains consisted of unrealized fair value adjustments. Fair value adjustments on trading securities, derivatives, and hedged items, after assessments, resulted in net fair value gains of $16 million in the first six months of 2007 compared to net fair value losses of $1 million in the first six months of 2006. Most of the $16 million net fair value gains in the first six months of 2007 consisted of unrealized fair value adjustments. The $1 million net fair value losses in the first six months of 2006 consisted of $2 million of net unrealized fair value losses, partially offset by $1 million of net fair value gains on the termination of hedges related to consolidated obligations. Nearly all of the Bank’s derivatives and hedged instruments are held to the maturity, call, or put date. For these derivatives and hedged items, net unrealized fair value gains or losses are primarily a matter of timing and will generally reverse over the remaining contractual terms to maturity or by the exercised call or put dates. As of June 30, 2007, the cumulative effect of SFAS 133 on the Bank’s derivatives and hedged instruments was a net unrealized gain of $32 million. During the first six months of 2007, total assets fell $10.3 billion, or 4%, to $234.6 billion from $244.9 billion at December 31, 2006, primarily because advances decreased by $12.7 billion, or 7%, to $171.0 billion from $183.7 billion. In total, 109 institutions increased their advances during the first six months of 2007, while 102 institutions decreased their advances. In addition to the decrease in advances, interest-bearing deposits in banks decreased by $1.0 billion, or 11%, to $8.3 billion from $9.3 billion. The decrease in advances and interest-bearing deposits was partially offset by an increase in Federal funds sold, which grew $3.7 billion, or 23%, to $19.1 billion from $15.4 billion. The dividend rate for the second quarter of 2007 is 5.14% (annualized), compared to 5.22% for the second quarter of 2006. In the second quarter of 2007, the Bank retained $14 million, or 10% of its earnings excluding the effects of SFAS 133, to continue building retained earnings to its target amount of $296 million, in accordance with the Bank’s Retained Earnings and Dividend Policy, and is making available for dividends an amount equal to the remaining 90% of earnings excluding the effects of SFAS 133. In the second quarter of 2006, the Bank retained $7 million for the buildup of retained earnings, which was equal to 5% of its earnings excluding the effects of SFAS 133, and made available for dividends an amount equal to the remaining 95% of earnings excluding the effects of SFAS 133. The annualized dividend rate for the first six months of 2007 is 5.01%, compared to 5.13% for the first six months of 2006. In the first six months of 2007, the Bank retained $28 million, or 10% of its earnings excluding the effects of SFAS 133, for the buildup of retained earnings and is making available for dividends an amount equal to the remaining 90% of earnings excluding the effects of SFAS 133. In the first six months of 2006, the Bank retained $15 million for the buildup of retained earnings, which was equal to 6% of its earnings excluding the effects of SFAS 133, and made available for dividends an amount equal to the remaining 94% of earnings excluding the effects of SFAS 133. In addition to the impact of the change in the amount of earnings retained to build the Bank’s retained earnings, the difference between the dividend rates for the second quarter and the first six months of 2007 compared to the same periods in 2006 reflects a lower net interest spread on the Bank’s mortgage portfolio, partially offset by a higher yield on invested capital during the second quarter and the first six months of 2007 compared to the same periods in 2006.

Home loan rates set to rise further

Interest rates on loans are set to shoot up further with the Reserve Bank of India on Friday deciding to make money costlier by hiking the inter-bank short-term lending rate by 0.25% and the mandatory deposits banks are required to make with the RBI by 0.5%. These measures are likely to hit economic growth. But, in a significant policy-turnaround statement, RBI said growth had now become a secondary concern. Controlling inflation is the central bank’s top priority. This would leave banks with no choice but to increase home loan rates by half a percentage point to 11.50%. The measure, besides affecting prospective loan seekers, will also hit those already paying home loan EMIs at floating rates. Interest rates on personal and commercial loans are also set to increase by the same amount. In the last two years or so, banks have increased home loan rates from 6.5% to 11%, resulting in equated monthly instalments rising by 43%. Surprisingly, RBI announced these measures around four weeks ahead of its annual credit policy. It increased the statutory requirement for banks to keep deposits with RBI (credit reserve ratio) by half a percentage point to 6.50%. This squeezes money out of the banking system by forcing banks to deposit an extra Rs 15,500 crore with RBI. Besides this, the central bank has also increased the overnight inter-bank lending rate (repo) against government bonds by a quarter of a percentage point to 7.75% — raising the benchmark interest rate.
With these measures, RBI intends to bring down the inflation rate to below 5.50% from the current 6.46%.
A senior official of a public sector bank said this would lead to an increase in the cost of funds, leaving the banks no option but to pass it on to customers. The only silver lining is a possible hike in deposit rates as well, with banks now trying to raise more money to offset the squeezing effect of the CRR hike. Some economists, however, are critical of these moves to tighten money supply. They argue that the current high inflation is mainly because of rise in prices of primary articles like foodgrains and commodities, which can be controlled only through supply side management. The increase in the interest rates, they say, will hurt economic growth.

Banks could face more home loan defaults

The National Housing Bank (NHB) is keeping a close watch on the possible defaults that could take place due to rise in equated monthly instalments (EMIs) on home loan borrowers. Though there is not much concern on housing finance companies, but in the case of housing loans provided by banks. Industry estimates suggest that about 85-90% of home loan borrowers have taken loans on a floating-rate basis. Lenders like Housing Development Finance Corporation (HDFC), ICICI Bank and State Bank of India (SBI) also have about 90% of their existing home loan customers on the floating-rate basis. Last year, housing finance regulator NHB released a study projecting that 93.5% of the home loans borrowers had used the floating-rate mechanism. “We are thinking that people who own single house for accommodation purpose should not feel the pinch of the rise in EMIs. Rather the burden should be borne by people who own two or more houses, most of the time, which is for speculation purpose of selling when property prices appreciate,” says RV Verma, executive director, National Housing Bank. He said that the regulator is currently studying the data to assess the impact on the hike in EMIs on defaults. “We have not come up with any number yet, but we are studying,” said Mr Verma. Similarly, the government, on its part, has been keen that the impact of high interest rates should somehow be softened on small-and-medium borrowers. Union finance minister P Chidambaram had asked chief executives of public sector banks to protect the interests of borrowers in the Rs 8-10-lakh category to the extent possible. The last fiscal witnessed a steep surge in interest rates. For example, in case of HDFC, floating rates for home loans had gone up to 11.25% from 8.5% in the beginning of FY07. Officials say that various housing finance companies say that in case a borrower is well below the retirement age, the loan period gets extended while the EMI remains constant. However, customers may well opt for a higher EMI without changing the loan tenure. A customer may also prepay part of the loan to keep the EMI and tenure unchanged. However, there is an increasing fear of defaults in case the tenors are extended for customers. Some of the banks are reluctant to increase the repayment period beyond 20 years. Every 0.5 percentage point rise in home loan rates translates into a higher EMI of around Rs 32 per one lakh for a 20-year loan. Likewise, customers would need to pay an additional Rs 30 per one lakh for a 15-year loan, Rs 28 per lakh for a 10-year loan and Rs 26 per lakh for a 5-year loan.

Floating home loan borrowers feel the pinch

These days nine out of 10 existing home loan borrowers are feeling the pinch after the latest rise in interest rates. Here’s why — nearly 90% of home loans borrowers have taken loans on floating rate basis that is subject to frequent changes based on interest rate movements. Leading home loan financiers like Housing Development Finance Corporation (HDFC), ICICI Bank and State Bank of India (SBI) confirmed that nearly 90% of their existing home loan customers are paying floating rate interest. As a thumbrule, every 0.25 percentage point rise in home loan rates translates in a higher equated monthly installment (EMI) of around Rs 16 per one lakh for a 20-year loan. Likewise, customers would need to pay an additional Rs 15 per one lakh for a 15-year loan, Rs 14 per lakh for a 10-year loan and Rs 13 per lakh for a 5-year loan. For instance, following the latest rise in interest rates, if a certain home loan borrowers of a 15-year tenure Rs 10 lakh loan from HDFC was paying an interest of 11% floating rate is now has to pay an 11.50% rate. In such a case, they will have to shell out a higher EMI of Rs 1,682 against Rs 11,366 earlier — a net increase of Rs 316 per month. Incidentally, HDFC raised its lending rate by 0.75 percentage point for new customers and 0.50 percentage point for old customers. This is the fourth successive rate hike since May 2006 for HDFC customers who have borrowed on a floating rate basis. HDFC is now charging 11.25% floating rate and 13.25% fixed rate for new customers. HDFC managing director Keki Mistry, however, does not expect any further rise in home loan rates. “The interest rate issue was revolving around the issue of high inflation. I feel we have reached the peak. I don’t foresee any change in interest rate in near future. SBI has said that it would not tinker with the interest rate for its existing home loan borrowers. ICICI Bank, on the other hand, increased its home loan rates by one percentage point to 14% for fixed rate loans and to 12% for floating rate loans. In case one borrows from ICICI Bank on floating rate basis, for a 15-year tenure of Rs 10 lakh, the customer will now have to pay an EMI of Rs 1,200 as against Rs 1,137 before the hike in home loan rate. For HDFC, almost 86% of its home loan borrowers opted for the floating rate. ICICI Bank’s retail head Rajiv Sabharwal said 90% of the bank’s existing home loan borrowers are floating rate customers. A senior official also indicated around 85-90 % of the bank’s home loan borrowers have taken loans on floating rate basis. NHB, in a study released early last year, also projected that 93.5% of home loans are floating rate loans. Officials with various housing finance companies, however, maintain that in case a borrower is well below his or her retirement age, the tenure of the loan gets extended while EMI remains constant. However, customers may well opt for a higher EMI without changing the loan tenure. A customer may also prepay part of the loan to keep the EMI and tenure unchanged. “The fixed home loan rates are significantly higher than floating loan rates. Again, there is a reset clause for all fixed loan rates. In our case, we reset the rate for fixed option on every two years. Therefore, at the time of a loan origination, there is always the temptation to opt for the floating rate option,” the SBI official said.

Bank cuts home loan interest rates

Mangalore-based Corporation Bank, as part of rationalising the interest rate structure of its home loan portfolio, has revised the interest rates with effect from Monday. The interest rates have come down in the case of two slabs of repayment period. As per the new rate structure, the loan amount having repayment period of up to five years, under the floating rate scheme, would carry 8.5 per cent interest (no change from the prevailing rate). The slab of above five years, and up to 10 years would carry nine per cent interest. Above 10 years to 25 years, the rate will be 9.5 per cent. There is a reduction of 25 basis points in the above five years’ category. Under the fixed rate category, up to five years, the loan will carry 8.75 per cent interest (no change from the prevailing rate), where as the rate for the slab of above five years to 10 years, including 10 years, has come down to 9.25 per cent. Earlier, the rate for a repayment period of 10 years under fixed rate scheme was 10 per cent. The revised rates are applicable to existing Corp Home loan accounts with floating rates, as well as fresh loans with floating rates disbursed on or after Monday. In the case of fixed rate housing loans, the revised rates of interest are applicable only to fresh loans under the Corp Home Scheme disbursed.

Posted in Uncategorized, home equity loan, home loan, loan, loan calculator, home equity loan rate, loan rate, fixed rate home equity loan, home equity loan bankruptcy, bank loan | Comments(0) July 2007

OBC increases home loan rates by 50-100 bps

Oriental Bank of Commerce has increased the rate of interest on home loans by 50 basis points to 100 basis points (0.5-1 per cent). The new floating rates for loans up to Rs 20 lakh would be 9.25 per cent for upto 10 years maturity and 9.50 per cent for maturities of 10-20 years. For loans above Rs 20 lakh, the rate would be 9.75 per cent and 10 per cent respectively for the aforesaid maturity periods, the bank said in a statement. As regards fixed rate, for home loans up to Rs 20 lakh, these would be 10.25 per cent for upto 10 years maturity and 10.50 per cent for maturities of 10-20 years. For loans above Rs 20 lakh, the fixed rate would be 10.75 per cent and 11.00 per cent respectively. The above rates would be effective from August 7 and would be applicable on new loans sanctioned . There is no change in the bank’s Benchmark Prime Lending Rate (BPLR) which is presently at 11.50 per cent

Posted in Uncategorized, home equity loan, home loan, loan, loan calculator, fixed rate home equity loan, home equity loan comparison, loan officer, home equity loan bankruptcy, bank loan | Comments(0) July 2007

Banks could face more home loan defaults

Lenders like Housing Development Finance Corporation (HDFC), ICICI Bank and State Bank of India (SBI) also have about 90% of their existing home loan customers on the floating-rate basis. Last year, housing finance regulator NHB released a study projecting that 93.5% of the home loans borrowers had used the floating-rate mechanism. “We are thinking that people who own single house for accommodation purpose should not feel the pinch of the rise in EMIs. Rather the burden should be borne by people who own two or more houses, most of the time, which is for speculation purpose of selling when property prices appreciate,” says RV Verma, executive director, National Housing Bank. He said that the regulator is currently studying the data to assess the impact on the hike in EMIs on defaults. “We have not come up with any number yet, but we are studying,” said Mr Verma.

Similarly, the government, on its part, has been keen that the impact of high interest rates should somehow be softened on small-and-medium borrowers. Union finance minister P Chidambaram had asked chief executives of public sector banks to protect the interests of borrowers in the Rs 8-10-lakh category to the extent possible. The last fiscal witnessed a steep surge in interest rates. For example, in case of HDFC, floating rates for home loans had gone up to 11.25% from 8.5% in the beginning of FY07. Officials say that various housing finance companies say that in case a borrower is well below the retirement age, the loan period gets extended while the EMI remains constant. However, customers may well opt for a higher EMI without changing the loan tenure. A customer may also prepay part of the loan to keep the EMI and tenure unchanged. However, there is an increasing fear of defaults in case the tenors are extended for customers. Some of the banks are reluctant to increase the repayment period beyond 20 years. Every 0.5 percentage point rise in home loan rates translates into a higher EMI of around Rs 32 per one lakh for a 20-year loan. Likewise, customers would need to pay an additional Rs 30 per one lakh for a 15-year loan, Rs 28 per lakh for a 10-year loan and Rs 26 per lakh for a 5-year loan.

Posted in Uncategorized, home equity loan, home loan, loan, loan calculator, home equity loan rate, loan rate, fixed rate home equity loan, bank loan | Comments(0) June 2007

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