Are mortgages a risky business?

Written by Jenny Barclay


A bank or mortgage company is nothing more than a box in which to keep money. The owner ofrepparttar box has to do a few calculations. Firstly, how much is he going to offer those people who deposit cash in his box, in return for such a deposit? Secondly, how much of that money should he keep as cash in caserepparttar 112406 owners of that cash want it back? Maybe 5%, maybe 10%, what arerepparttar 112407 regulations in his jurisdiction? Thirdly, how much is he going to charge those people who wish to borrowrepparttar 112408 money of others, previously deposited in his box?

The person who ownsrepparttar 112409 box then sets out to find lots of other people to put their spare cash inrepparttar 112410 box, in return for which he promises to give them their money back plus interest. Inrepparttar 112411 eyes of some economists, these people are lenders and not investors. This terminology is based onrepparttar 112412 fact thatrepparttar 112413 capital investment of lenders does not change, whereasrepparttar 112414 capital value of investors, in stocks or property for example, can go up or down. The owner ofrepparttar 112415 box then has to find other people who do not have spare cash, but in fact wish to borrow it.

Fixed or variable?

Bothrepparttar 112416 lenders andrepparttar 112417 borrowers can sometimes be bewildered byrepparttar 112418 variety of terms offered by such institutions. The easiest terms to understand are those that are based on a current rate that will vary according torepparttar 112419 market for interest rates, which alters daily, althoughrepparttar 112420 companies will try to even out such daily fluctuations with only periodic changes inrepparttar 112421 rate. Fixed rates, for a given period, are more difficult forrepparttar 112422 average lender or borrower to understand, a fact that has given rise inrepparttar 112423 past to greedy companies being able to reap huge benefits from such lack of knowledge. The reason for an institution wanting to attract deposits at a fixed rate could be based onrepparttar 112424 fact that their advisors calculate that interest rates are going to rise. Should they find it possible to attract deposits at e.g. 3% over 3 years, and then find that current rates are 5%, they will be somewhat pleased. Inrepparttar 112425 case of a borrower finding that they are in this situation they should be congratulated for being better at guessing thanrepparttar 112426 company’s advisors. Onrepparttar 112427 other hand, a borrower tied in to a contract at say 10% for several years who then finds that rates have dropped to 5%, will not exactly be celebrating. In my short experience since I started at university fourteen years ago, I have seen deposit rates vary from 14.5% down to 1.5%.

5 Tips for Savvy Use of Your Home Equity Line of Credit

Written by Tim Paul


Tapping your home's equity to pay college expenses, consolidate credit card debt or even to buy a new car or boat is common place. Many economists attributerepparttar additional buying power afforded consumers through home equity debt as a primary reasonrepparttar 112405 nation's economy has been able to emerge fromrepparttar 112406 recent recession. Yet, aside from simply allowing consumers to spendmore,repparttar 112407 flexibility and efficiency of a home equity line of credit (HELOC) can providerepparttar 112408 financially savvy person withrepparttar 112409 means to savemoney, make money or simply take advantageof opportune situations he or she might otherwise miss out on. Here are five tips to show you how:

Tip 1: Take Advantage of Higher Insurance Deductibles! You probably know that raising deductibles on auto and homeowners insurance policies can mean big savings on insurance premiums. If you increaserepparttar 112410 deductible on a homeowner's policy from $500 to $1,000, you'll cut your premium by as much as 25%! Yet many people don't do this because they fear they may not haverepparttar 112411 necessary cash available inrepparttar 112412 event of a loss. With low-interest cash readily available through a home equity line of credit you'll haverepparttar 112413 security and confidence you need to raise your deductibles and reaprepparttar 112414 savings!

Tip 2: Lock In Big Savings! Credit card companies (e.g.repparttar 112415 GM card) frequently have shopping programs with names like "Main Street Savings" on a 30-day free trial basis. These programs allow you to buy discounted gift cards (20% discount) for major national retailers like Target, Sears, and Home Depot. The flexibility afforded by a home equity line of credit can allow you to purchase (duringrepparttar 112416 free trial period) a large amount of discounted gift cards for major retailers you frequent. Then use these cards instead of cash or credit when you purchase everyday items (The cash you would have spent can be used to pay downrepparttar 112417 HELOC). Although you pay low interest onrepparttar 112418 home equity credit line, you receive a front-end discount of 20% on everything bought. When combined with store coupons and sales, you can realize total savings of 70% or more! In short, a HELOC providesrepparttar 112419 low interest cash availability to take advantage of bargains like this that you might otherwise have to pass on.

Tip 3: Take Advantage of 0% Balance Transfer Offers! We've all seen no-fee credit card offering "0% APR" on balance transfers for 6, 12, and even 18 months. If you have a balance on your HELOC, you may be able to take advantage of these offers. Here's an example of how: last year I accepted such an offer and promptly transferred $10,000 from my home equity credit line balance (which had a 4.25% rate). Then I cut uprepparttar 112420 card! Forrepparttar 112421 next eleven months, I paidrepparttar 112422 monthly minimum credit card payment (3% ofrepparttar 112423 outstanding balance) by writing a check from my home equity line of credit. Inrepparttar 112424 twelfth month, prior torepparttar 112425 expiration ofrepparttar 112426 0% offer, I paid offrepparttar 112427 remaining balance with another home equity credit line check. Duringrepparttar 112428 12 months, I also made sure to continue my regular payment towardsrepparttar 112429 HELOC atrepparttar 112430 same level, meaning that more of each went to pay down principal and less went to interest. Net result: interest savings of over $350.00, lower principal balance on my HELOC, and a positive addition to my credit repayment history!

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