Debt Snowball

DEFINITION of 'Debt Snowball'

Debt Snowball is a very well known process of debt repayment in which a debtor has to list all of his/her debts from smallest to largest (not including the mortgage), then devotes extra money each month to paying off the smallest debt first while making only minimum monthly payments on all of the other debts.

Once the smallest debt is paid off, the debtor starts putting extra money each month toward paying off the second-smallest debt while continuing to make only minimum monthly payments on all other debts. The debtor continues this process, paying off each debt from smallest to largest, until all of the debts are paid in full. The debt snowball method is advocated by Dave Ramsey, the host of a popular call-in personal finance advice radio show and bestselling author of several books and programs on getting out of debt.

Recovery of Bad Debt

What is a 'Bad Debt Recovery'

It is a debt from another loan, credit line or accounts receivable that is recovered either in whole or in part after it has been written off or classified as a bad debt. Because it generally generates a loss when it is written off, a bad debt recovery usually produces income. 

In accounting, the bad debt recovery would credit the "allowance for bad debts" or "bad debt reserve" categories, and reduce the "accounts receivable" category in the books.

BREAKING DOWN 'Bad Debt Recovery' 

Not all bad debt recoveries are "like-kind" recoveries. For example, a collateralized loan that has been written off may be partially recovered through sale of the collateral. Or, a bank may receive equity in exchange for writing off a loan, which could later result in recovery of the loan and, perhaps, some additional profit.

Debt Assignment

DEFINITION of 'Debt Assignment' :

A debt assignment means the debt transfer including all the rights and obligations associated with it, from the creditor to a third party who is wiling to. Debt assignment can be happened for both individual debts and business debts. The company assigning the debt may choose to do so in order to improve its liquidity and/or to reduce its risk exposure.

BREAKING DOWN 'Debt Assignment' : 

The debtor must be informed about the assignment of a debt so that he or she can make the payments to the new creditor. If the debtor sends payments to the old creditor after the debt has been assigned, it is likely that the payments will not be accepted, which could cause the debtor to unintentionally default. Also, when a debtor receives such a notice, it is a good idea for him or her to verify that the new creditor has recorded the correct total balance and monthly payment for the debt owed.

Bad Debt

What is 'Bad Debt' :

Bad debt is debt that is not collectable and therefore worthless to the creditor. This occurs after all attempts are made to collect on the debt. Bad debt is usually a product of the debtor going into bankruptcy or where the additional cost of pursuing the debt is more than the amount the creditor could collect. This debt, once considered to be bad, will be written off by the company as an expense.

BREAKING DOWN 'Bad Debt' :

Most companies make sales on credit as it generally allows them to increase their sales, even though some sales are to customers with less than desirable credit. Companies that do make credit sales will estimate the amount of sales they expect to lose to bad debt, which is found in the allowance for doubtful accounts.
A debtor with a history of bad debts will see their credit rating decline, which makes it difficult for the debtor to access any additional form of credit.

Can you get a Mortgage after a debt agreement?

This question is very much common for the people searching for home loans –

Question : will I be prevented from getting a home loan in the future if I enter into a Debt Agreement or a Personal Insolvency Agreement?

Answer : not necessarily.

It is obvious that it will depend on your current financial condition and the lender as each lender will assess your application differently using different criteria.

A few points you have to keep in mind before signing a Debt Agreement or a Personal Insolvency Agreement:

Both of these agreements will show up on your credit file for seven years from when you first entered into them. Whilst the agreement is still on foot you won’t be able to get new credit.

Know About Different Types of Home Loans in India

Home loans are an attractive and popular means of buying a dream house for most people. In India, the demand for home loans has increased manifold in the last decade. Every day numerous people apply for home loans to own a perfect abode for themselves. The fact thathome loans come with added advantages (like tax benefits) is the icing on the cake.

Lenders provide home loans not only for buying houses but for a variety of related purposes. The home loans market is brimming with diverse home loan products which cater to different needs of individual customers. The following are some popular types of home loans available in the Indian housing finance market:

Land Purchase Loans

Land purchase loans are taken to buy a plot of land on which a borrower wishes to construct his house. Most banks offer up to 85 percent of the price of the land. These loans can be availed for residential as well as for investment purposes. Almost all leading banks offer this loan like ICICI Bank (Land Loan), Axis bank (Loan for land purchase) etc.

Drop Bad Lenders

After the financial crisis, many consumers are leery of banks and lenders. Just remember this: if your lender is too demanding, keeps bothering you or seems shady, drop that lender. That’s what I did when I first went to refinance last year and wound up with a lending company clerk calling me at all hours of the day to make demands.

“I literally withdrew the loan from being harassed,” my sayings. There are lots of lenders out there – find one who wants to do business with you and who doesn’t charge a commitment fee.

When you do, I say, it’s a good time to lock-in the rates, as they are expected to rise the further along we get into the year.

It Isn’t Always Expensive or Only For Long-Term Homeowners

Many homebuyers might hear "closing costs" and shrink away from refinancing altogether. Or maybe a homebuyer plans to move in five years and assumes it’s a stupid idea to refinance, because he won't ever break even. That’s not necessarily true if you can find the right loan.

The trick is to look for a loan that rolls the closing costs into it or settle for a higher interest rate for a rebate to reduce or eliminate closing costs.

“A general rule of thumb is that a change in rate of 0.125% will change the points or rebate by 0.5 percent,” says Parsons.

So if you have $3,500 in closing costs on a $350,000 refinance with an interest rate of 4%, you could be able to accept a higher interest rate of 4.25% and receive a 1% rebate of $3,500, wiping out your closing costs.

“This kind of scenario, sometimes called a ‘no cost refinance,’ can make sense where the borrower intends to have the loan for a comparatively short time—less than three or four years," says Parsons. "They reduce their rate and save money without incurring any costs paid out of pocket or added to the loan. In a scenario like this, any reduction in the rate results in a net gain to the borrower.”

Ignore the 1% Rule for Refinance

Here’s an old rule of thumb you may have heard: You shouldn't  refinance unless you can get at least 1% less on your interest rate. Except that’s not always true.

“The fact is that there are occasions where a reduction in rate of even a quarter of a percent can provide benefits,” says Joseph Parsons, a senior loan officer with PFS Funding in Dublin, Calif. who also runs The Mortgage Insider blog. Do the math and find your break-even point to see when you’ll be saving money, and match that with how long you plan to stay in the home.

(To find the break-even point in number months, take the total savings per month and divide it into the total closing cost amount. So if closing costs were $6,000 and you saved $200 a month, it would take 30 months before you broke even with those closing costs and began saving money.)

A couple of items to remember while mortgage refinancing is in process:

A couple of items to remember while mortgage refinancing is in process:

• When refinancing your primary residence, you must wait three (3) business days from closing before disbursement. During this rescission period you may rescind this transaction at no further cost.
• It is important that you continue to make your present monthly mortgage payment on a timely basis until the mortgage refinancing transaction is complete. Your credit status could be affected if these payments are not received by the present lender on time.

Mortgage Refinancing

Is it the right time for you to consider mortgage refinancing? Learn more about if and when it is the right decision for your home's financing.

Should You Refinance – Consider all your mortgage refinancing options.

Once you have made the decision to refinance your present loan, you will receive a Loan Estimate within three (3) days of application, which represents our best effort to disclose the cost of mortgage refinancing. Some items that may differ from the Loan Estimate provided are:

• Taxes. Actual taxes could differ from the estimates provided due to a new property assessment and new tax rates which are not reflected on your Loan Estimate. This can result in a discrepancy. Mortgage payments with escrow will be based on actual taxes for the improved property.
• Payoffs. The payoff statement obtained just prior to closing discloses the unpaid principal balance, escrow balance, accrued interest, short falls, and late charges due. Some servicers credit the escrow balance to the unpaid principal balance in the payoff calculation; others send the refund directly to the borrowers. If these funds are refunded directly, you will be required to advance funds at closing to establish your new escrow account and await the refund from your original servicer.

The Mortgage Loan Process

The Mortgage Loan Process

The mortgage loan process doesn't have to be difficult. Once you have made the decision to pursue applying for a mortgage loan with Regions, your Mortgage Loan Originator will work with you to obtain the necessary documentation required for a loan decision to be made.

Below is a summary of the mortgage loan process so that you will have a better understanding of what you can expect:

1 - Borrower

• Contact Mortgage Loan Originator for financing information
• Provides initial documentation (tax returns, pay stubs, bank statements, etc.) necessary for underwriting
• Provide homeowner's insurance
• Signs final loan documents presented by Closing Agent
• Provides funds needed to close

2 - Mortgage Loan Originator

• Provides loan options to Borrower
• Quotes interest rates/fees
• Assists in completing the loan application
• Requests documents needed from Borrower for underwriting the loan file
• Provides Loan Estimate and other disclosures to Borrower
• Orders Appraisal
• Submits loan package to operations center for decision
• Locks in interest rate

What are the benefites of refinancing

When interest rates are low, you might consider refinancing your mortgage. Refinancing may allow you to replace your current loan with a new mortgage that has better terms. Here are some of the potential benefits of a refinance.

Increased cash flow

• Your loan’s monthly payment typically decreases with a lower mortgage interest rate.
• With a lower payment, you can use the extra funds for retirement savings, paying other debts, saving money for college, or other purposes.

Potential to switch to a different loan type

• If you have an adjustable-rate (ARM) or a balloon mortgage, reduced interest rates may make a fixed-rate mortgage more desirable, especially if you want the stability of an interest rate that does not change over time.
• If you have a long time left on your mortgage, lower interest rates may make it possible to switch to a shorter-term mortgage.
  • You can pay the principal balance down and build equity faster.
  • You may pay less interest over the life of the loan with a shorter term loan.
• If you have a jumbo loan, you may be able to refinance to a "blended jumbo" (Mortgage + Home Equity Financing). 

Opportunity to access the equity in your home

• While you’re lowering your interest rate, you may want to consider using the equity in your home to pay for major purchases or to make home improvements. This type of loan is known as a cash-out refinance.

Other choices to refinancing home loan

Other choices to consider

Refinancing is not your only choice for repaying your mortgage quickly. As a no-cost repayment option, consider sending additional principal payments with your regular payments.

• Principal payments will decrease the loan balance, reducing the overall interest owed.
• You can send any amount, whenever you have additional funds, such as when you get a tax refund or an employment bonus.

Assess how much longer you’ll stay in the home

Assess how much longer you’ll stay in the home
If you plan on owning the home for an extended period of time, and the interest rates are 1/2% to 5/8% lower than your current rate, refinancing may be the right choice for you.

Determine your break-even point
Your break-even point occurs when your savings from your new loan equals the cost of getting the new loan. 

Additional considerations
Keep in mind that you are starting over. Refinancing replaces your existing loan with a new one. If you refinance back to the same loan term on the new mortgage, you may pay more additional interest than you would save by lowering. Know more

How can I decide if refinancing may be right for me or not

How can I decide if refinancing may be right for me or not

Your home may be the largest asset you have. Before deciding to refinance, be sure to consider the following so you can make an informed decision.

Determine your estimated costs

When you refinance, you may pay:

• An origination charge, which may include fees such as application or processing.
• Discount points to lower your interest rate further. (May be tax deductible. Consult your tax advisor regarding deductibility).
• A prepayment penalty if your current loan has a penalty for early payoff.
• Other settlement charges such as appraisal, credit report, title search, and title insurance fees.

Cash-out refinances

Cash-out refinances often are used to pay down debt. They have pros and cons.

Imagine that you use a cash-out refinance to pay off credit card debt. On the pro side, you're reducing the interest rate on the credit card debt. On the con side, you may pay thousands more in interest because you're taking up to 30 years to pay off the balance you transferred from your credit card to your mortgage.

But the biggest risk in this scenario is in converting an unsecured debt into a secured debt. Miss your credit card payments, and you get nasty calls from debt collectors and a lower credit score.

Miss mortgage payments, and you can lose your home to foreclosure. Home equity debt that's added to the refinanced mortgage always was secured debt.

When Can I Refinance My Home

When Can I Refinance My Home

Most banks and lenders will require borrowers to maintain their original mortgage for at least 12 months before they are able to refinance. Although, each lender and their terms are different. Therefore, it is in the best interest of the borrower to check with the specific lender for all restrictions and details.

In many cases, it makes the most sense to refinance with the original lender, but it is not required. Bear in mind though, It's easier to keep a customer than to make a new one, so many lenders do not require a new title search, property appraisal, etc. Many will offer a better price to borrowers looking to refinance. So odds are, a better rate can be obtained by staying with the original lender.

How to Refinance Your Mortgage

How to Refinance Your Mortgage

Some 58 percent of homeowners who have mortgages—that’s about 28 million households—pay interest rates that are higher than today’s bargain rates. Many could save thousands by refinancing. Are you one of them?

Trading in a higher-rate mortgage for a cheaper one has become almost ritual in the past two decades. Some homeowners refinanced several times as interest rates on 30-year fixed mortgages went from around 10 percent in the early 1990s to about 4 percent in early November, when rates were at their lowest levels in 50 years.

Long-term savings
That has created yet another opportunity to cut your monthly mortgage payments or accelerate your home’s payoff by refinancing into a shorter-term loan, which can slash your total interest costs.

How much can you gain from refinancing? If you took out a 30-year, $200,000, 6.7 percent mortgage five years ago, your monthly payment is almost $1,300. Refinance the $188,000 balance with a 25-year, 4 percent mortgage, and your payment would drop by $300 per month, saving you $90,000 in finance charges over 25 years.

Rates on 15-year mortgages are even lower, averaging 3.4 percent in early November. Shortening the loan term often results in a higher monthly payment. If you refinanced the above five-year-old loan to a 15-year, 3.3 percent mortgage, your monthly payment would go up by about $30. But by paying off your loan 10 years sooner, you’d save $149,000 in interest.

You’ll get the biggest savings from refinancing early in your loan term, but if you can slash your rate, you can still save even if you have less than 10 years left on your mortgage. For example, if you have six years left on a 15-year, 5.6 percent mortgage written in 2002 and you refinanced to a 15-year, 3.6 percent mortgage, you’d cut your monthly payment by $922. You’d also extend your mortgage by six years, which would increase your total interest costs by $11,600. But if you paid an additional $850 each month toward your principal, you’d pay off the new loan in six years and save about $6,800 in interest.

To crunch the numbers on your own specifics, try the calculator at refinance-calculator. The calculator accounts for closing costs, about 2 percent of the principal, and can be paid out of pocket or folded into the loan amount.

Do you qualify?
The best candidates for refinancing have regular income, at least 10 to 20 percent equity in their homes, and a FICO credit score of 740 or better. But borrowers with scores as low as 620 can qualify for a Federal Housing Administration mortgage, which are available through banks, credit unions, and other lenders. People who don’t meet those criteria might have to jump over hurdles.

What Are The Advantages Of Refinancing

What Are The Advantages Of Refinancing

One of the main advantages of refinancing regardless of equity is reducing an interest rate. Often, as people work through their careers and continue to make more money they are able to pay all their bills on time and thus increase their credit score. With this increase in credit comes the ability to procure loans at lower rates, and therefore many people refinance with their mortgage companies for this reason. A lower interest rate can have a profound effect on monthly payments, potentially saving you hundreds of dollars a year.

Second, many people refinance in order to obtain money for large purchases such as cars or to reduce credit card debt. The way they do this is by refinancing for the purpose of taking equity out of the home. A home equity line of credit is calculated as follows. First, the home is appraised. Second, the lender determines how much of a percentage of that appraisal they are willing to loan.

What Is Refinancing

What Is Refinancing

Refinancing is the process of obtaining a new mortgage in an effort to reduce monthly payments, lower your interest rates, take cash out of your home for large purchases, or change mortgage companies. Most people refinance when they have equity on their home, which is the difference between the amount owed to the mortgage company and the worth of the home.

• Tips for Consumers Refinancing their Homes – Some things to think about before deciding to refinance.
• Is it Time to Refinance? – How you can tell you are in the best position to refinance.
• When Should We Refinance? – How refinancing at the right time can help you increase equity and pay lower interest rates.
• Home Mortgage Refinancing while in Bankruptcy – When filing for bankruptcy, refinancing a home mortgage loan can ease your burden.

What You Should Know Before Refinancing Home Loan

What You Should Know Before Refinancing Home Loan

Getting a new mortgage to replace the original is called refinancing. Refinancing is done to allow a borrower to obtain a better interest term and rate. The first loan is paid off, allowing the second loan to be created, instead of simply making a new mortgage and throwing out the original mortgage. For borrowers with a perfect credit history, refinancing can be a good way to convert a variable loan rate to a fixed, and obtain a lower interest rate. Borrowers with less than perfect, or even bad credit, or too much debt, refinancing can be risky.

How to check your CIBIL score online

How to check your CIBIL score online

You can access your CIBIL score online by visiting the official website of CIBIL. On the website, you will find an application form which you will have to fill in with identifying details such as your name, date of birth, address, phone number, income, identity proof and address proof, and loans you have taken.

Once, you fill all these details and submit the form, you will be directed to the payment page where you will have the option to pay the required charge of Rs. 470 either by using your credit card, debit card or through net banking.

After the payment is made, you will be directed to the authentication page where you will have to answer 3-5 questions about your loans and credit cards to proceed further.

Once you’ve identified yourself and authentication is successful, CIBIL will send you your score through e-mail within 24 hours.

How is my CIBIL score used for home loans

How is my CIBIL score used for home loans

Before processing your home loan application, a bank will obtain your credit score and repayment history from CIBIL.

CIBIL collects and organizes all your data and provides the same to all banks and financial institutions when required. It gets hold of this information with the help of banks and credit institutions which are members of CIBIL by default. Information is provided to CIBIL on a monthly basis based on which CIBIL prepares a credit information report (CIR) and credit score for each individual and commercial organization. Banks refer an applicant’s history to determine whether a home loan should be approved or not. Credit scores help banks disburse loans more efficiently by avoiding taking on risky customers thereby reducing defaults.

NPAs or Non-Performing Assets form a portion of many lenders portfolios. With home loans accounting for a large part of a bank’s loan book, an applicant’s creditworthiness becomes an important factor in maintaining quality assets.

CIBIL Score for Home Loan

Maintaining a good credit history is very important to get your home loan approved.

What is a good CIBIL score for Home Loan?

A good CIBIL score for home loan normally starts from 700 upwards. However, the closer you are to 900, the more faith the credit institution will have in your capacity to repay the home loan. With a good credit score along with fulfilment of other criteria as decided by the bank, you can get financing up to 85% of the total cost of the property.

CIBIL Score for Home Loan

CIBIL scores play a major role in processing home loan applications. In fact, it is a major criterion based on which a bank decides whether to process a home loan application or not. When you submit your filled home loan application, the bank will first check your credit score and credit history. If your credit score is low and you have a bad credit history, it will most likely reject your application. However, if you have a good CIBIL score, your home loan application will be processed quicker. While there is no universal score, every bank has a minimum CIBIL score which acts as a cut-off or indicator to accept or reject applications. In general, 750 and above is considered a good score, 350 -750 an average score or maybe unacceptable and below 350 would be considered poor.

HDFC HOME LOAN

HDFC Bank brings HDFC home loans to your doorstep. Over 3 decades of exclusive experience, a dedicated team of experts and a complete package to meet all your housing finance needs, HDFC Home Loans, help you realize your dream.

The HDFC Advantage

1. Pioneer of Housing Finance in India with over 35 years of lending experience
2. For over 3 decades, shared the hopes and joys of 4.4 million customers who have been nurturing the dream of home ownership
3. Most experienced and empowered personnel to ensure smooth & easy processing
4. Transparent dealing. All charges mentioned upfront while giving you the loan quote. No hidden charges

What are the features and benefits of HDFC Home Loans?

Home Loan:

Home loans for individuals to purchase (fresh / resale) or construct houses. Application can be made individually or jointly.

Home Improvement Loan(HIL):

The interiors of any home reflect the personal preferences and tastes of its owners making it imperative to constantly upgrade to keep up with changing times. HIL facilitates internal and external repairs and other structural improvements like Painting, Waterproofing and Roofing, Plumbing and Electrical Works, Tiling and Flooring, Grills, Aluminum Windows, Compound Walls and much more.

Top 12 Terms You Must Know Before Taking Home Loan!

Taking a home loan is a mammoth task, especially with all the paper work and cumbersome legal formalities involved. A lot of first time home loan customers are unfamiliar with several loan jargons and find themselves at a loss while dealing with bank officials and builders. But taking a home loan is one of the biggest financial liabilities you will incur. Thus, before you take the leap, you must familiarize yourself with related terms and common practices.

So, we have compiled a list of 12 Common Terms You Must Know Before taking a Home Loan:

1) Margin

2) Offer/Sanction Letter

3) Post Dated Cheques

4) Disbursement

5) Equated Monthly Installments (EMI’s)

6) Pre – EMI

7) Resale Property?

8) Pre – Approved Property?

9) What is Credit Appraisal?

10) Is Pre-payment of Home Loan Beneficial?

11) Security

12) Processing and Administrative Fees