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December 13, 2016

Why you need Good CIBIL Score for Home Loan Approval

approved loan for your homeCIBIL Score is a crucial aspect in determining your home loan eligibility. Every time you apply for home loan, your lender checks this score for approving/disapproving your application. It is a summary of your credit history as per your credit behaviour. It depends on the following factors:

Past payments: All your previous payments, whether on time or delayed, are recorded with CIBIL. Consistency in making payments is considered good whereas more recent delays are seen negatively.

Settlements, defaults and write-offs: Multiple write-offs, defaults on previous loans and more recent write-offs (as opposed to older ones) have negative effects on your credit score. Defaults and delays on secured loans are worse than on unsecured loans.

Credit as proportion of income: The higher the loan balance you have, the lower your credit score will be. Less loan balance shows smart credit utilization on your part.

Credit cards: If you have high credit card balances, your credit score will be low. Consistency in repaying credit card debts improves the score. Credit cards (unsecured loans) are viewed negatively by lenders as compared to secured loans.

Different ranges of CIBIL Score

Every person with a financial history has a CIBIL score and it can range anywhere between 300 and 900, with 900 being the highest. A person can also have a score of 0 or -1, which means that they have no credit history in terms of loans and credit cards. So to get the credit history started, you must have at least one credit card or applied for a loan. Here is a breakup of CIBIL scores and what it means:

  • 550 – 650: It is a fair score and accepted by many lenders. This score shows that you have been quite regular with your repayments, other than a few exceptions. Most lenders trust borrowers with this score and approve their home loans but usually with a higher interest rates.
  • 300 – 550: This is the worst score anybody can have and it means that you have been defaulting on your payments. With such a score, getting credit is extremely difficult.
  • 650 – 750: For home loan eligibility, this score is very promising. And if you have this credit score, you will not face any issue regarding approval of application.
  • 750 – 900: It is the best possible score anybody can have and it indicates your expertise at managing your finances. Lenders will approve even a larger loan amount to you at great rates when you apply for home loan.
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August 17, 2013

Using a Refinance to Reduce Debt

Reduce debt to get financial freedomRefinancing is a great option that homeowners have especially when mortgage rates are lower than what they already have in place. Can refinancing a mortgage eliminate debt? The reality is that refinancing a mortgage cannot eliminate debt, although using a refinance to reduce debt can be a very successful financial strategy.

When refinancing, the homeowner is basically turning in the existing mortgage for a new loan. The new loan can have a different rate, a different term and a completely different program. Normally, borrowers will try to obtain a lower mortgage rate and/or a lower term, if possible. In most cases, the standard fixed rate mortgage is chosen even when refinancing from an adjustable rate mortgage. Fixed rate mortgages offers borrowers security by knowing that the same mortgage payment will be in place for the entire term of the loan.

Debt consolidation is often done when refinancing. By doing so, the borrower is combining the balances of other debt, such as credit cards, loans, etc., and adding it to the mortgage balance. While this increases the funds needed for the mortgage, the other debt is paid off at closing. The debt is not eliminated, it is simply moved to another debt vehicle which is the new mortgage.

Moving other debt to a new mortgage can only be done if the borrower has enough equity in the home. The homeowner must also qualify for the refinance according to the lenders guidelines. This type of loan is considered a cash-out refinance and will generally have a higher mortgage rate than a no cash out loan. The new mortgage will include the funds that are necessary to pay off the other debt. The debt amount is then part of the new mortgage and is paid as part of the the monthly mortgage payment for the full term of the loan.

By utilizing a debt consolidation refinance, many homeowners are able to free themselves of the burden of carrying an overabundance of debt that must be paid on a monthly basis. This debt usually carries a higher interest rate which can make multiple monthly payments uncomfortable. Adding these expenses to a refinance often results in a more cost effective budget for a homeowner because the total debt payment is usually reduced. The end result to the homeowners is typically a better monthly cash flow.

In order to reap the benefits of a debt consolidation through refinance, homeowners must make it a goal not to incur additional debt. With less debt, a homeowner’s financial stability will can often remain intact which leads to added security in case a hardship should arise. The savings recognized from a mortgage refinance can be accumulated or used in lieu of credit cards. This is the beginning of the path to financial freedom for many homeowners. However, incurring additional debt expenses after the refinance can lead a homeowner to repeating the process with multiple debt consolidation loans which, in the end, will not be cost effective.

Everyone dreams of the day when there will not longer be a mortgage payment to make. While it may seem so far away, time does move quickly and, with careful planning, it will be a reality faster than you think. Planning a refinance with debt consolidation will also help a homeowner reach their goals of eliminating overwhelming payments on a monthly basis.

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December 15, 2011

How to Understand Mortgage Finance

Knowing how your mortgage works can help you keep it from working against you.  Many people think that their mortgage payment is only used to pay off the amount of the loan.  That assumption can hurt those people, as the mortgage payment is based on the length of the mortgage loan taken out.

1. How a Mortgage Works

If a mortgage is to be paid over 30 years, the payments extend the amount owed, due to the interest charges added to the total. This interest is also compounded, meaning eventually you will also pay interest on this interest. Quite simply, a large chunk of you payments could be devoted to simply paying interest.

2. Getting the Best Deal

Once the interest has been paid, the loan amount will be lessened each year and the 30-year mortgage will be paid in full with interest at the end of the 30 year period.  Understanding that your mortgage payment is actually an interest payment might help you to try and learn how to save money.  For instance, make sure that you can pay more than the monthly payment and that you can even pay in full. This may sound like irrelevant, but an unforeseen inheritance or great night at the casino could make this a distinct possibility. Also, make sure you shop around for the best deal. If your credit score is low enough, you may be able to get a great interest rate!

3. Paying it Off

You can save money on your mortgage by making the mortgage payments on time, avoiding late fees. If you can pay more than is due, this will also help. An extra $100 a month means an extra $1200 a year and this could save you years of payments. Try to anticipate your future income and you could make sure your payment plan fits well.

4. Tips and Secrets

Your mortgage is attached to the property that you have borrowed money to buy.  However, you are still in control of that property if you continue to make your payments on time. For instance, if your house is a little bigger or nicer than necessary, you can sell your property for more than you have borrowed to buy it and use the proceeds to pay off your mortgage and make a profit.  Or, if you have a great interest rate on a savings account, you could put the money you’d normally use to make higher payments in this account and profit – then use the profit to pay a big chunk of your mortgage in a lump sum.

It’s easy to save money on your mortgage, but you need to understand it fully. Speak with your lender to find out where every dollar you pay goes and ask every question that comes to mind. Also be sure to ask for any ways you could say money, because you’d be surprised at the secret options out there!

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