Types of mortgages

Mortgage loans by the methods of repayment and interest have types:

1. Typical mortgage: the loan process goes uniformly with equal parts (for example, every week or month)

2. Mortgage, in which contributions are periodically increased. The schedule, by which the amount of contributions will gradually increase, is agreed. Such loans prevent loss when changing the interest rate level in the money market;

3. Mortgage, the amount of payments of which changes ( with reduced rate) in the early stages there is a grace period payments and decrease in interest payments.

4. Pledged account mortgage: the buyer makes a certain sum on the guarantee account. After, before repayment of the loan, to installments are paid.

5. Mortgage with a variable interest rate: the interest on the loan are made up of several indicators, the main of them are the financial condition and the situation in the country, particularly in the banking sector.

6. Loans, which value of the property is divided: the contract between the parties provides that the borrower is provided credit at reduced interest rates, and the lender gets the property value increase by the end of the transaction term.

In terms of our market there are often have difficulties with the repayment of loans. The bank in this case loses its financial stability, there is a reduction of its active credit history. Therefore, banks are taking all measures to prevent and ensure the full and timely repayment of the loan.

How not to get into debt.

Drawing up a budget is a necessity that can also be really fascinating. You should record all incomes and expenses to be sure that the expenses do not exceed the incomes. Try to follow this rule and turn it into an interesting game.

Let's consider the list of incomes. Each of you can easily make this list which includes your earnings, bank interest, etc. But it is necessary to remember that volatile earnings, bonuses and awards are not stable. You can not rely on these and therefore you can get into debt. It’s better to use these funds to do something pleasant for your family.
Making the list of expenses is more difficult.

You need to record all your expenses thoroughly, otherwise you will not be able to control them. If you know exactly how much money you spend and you remember what you spend it for you can record only monthly expenses.

<strong>List of monthly expenses.</strong>
You need to draw a table which will include columns such as "food", "housing", "clothing". Each of these graphs will present a category of your expenses.  But remember about the subcategories, e.g. the food for the holidays and so on. When making  this list, remember the quarterly, semi-annual and annual costs, which include taxes, insurance, etc. Do not forget about savings which are a necessary part of your expenses as well. Financial experts recommend everyone have savings equivalent to six months’ salary.

<strong>Expenses don`t exceed income</strong>
You should divide all your expenses into three groups: the most important ones, important ones and unimportant ones.  It’s clear that all the goods in the list “the most important” must be bought at once, but  you can sometimes postpone buying something from the category “important”. At the same time the category “not important” represents goods which you can afford only if you have some extra finances. These categories are like three doors – the key always opens the first door, you should try a little to unlock the second door, and you should try hard to unlock the third one.  The key is the finances, the more money you’ve got, the more multi-purpose the key is.


<strong>Don’t fall into a pit of debt.</strong>
Growing loans can easily cross out the rules that regulate your life. Of course you can take out a  loan for housing, a car and so on. But keep in mind one rule -  don`t pay by card at the store. By doing that you can start falling into this pit. But if you have fallen, you have to climb out of it as soon as possible, even if you have to use your savings. You should not wait until the debt pit gets deeper.

To keep interest rates lower, you should pay much larger payments than the bank expects. If you can not do this, then think about buying a cheaper car, house and so on. Large percentages make it is difficult to repay the loan.

Whether the table makes sense or not all depends on you. If you’ve got a family, they all have to stick to these rules and take them seriously.

In an era when everything is changing rapidly, it is important to have control over your money and to draw a budget. So try to stick to these simple rules.

A mortgage: how to make a better decision

It is important to consider the nuances regarding repayment mortgage, the details of which are specified in the body of the contract. Pay attention to the typical things that bank employees do not like to mention aloud. The real overpayment may be more than it is written in capital letters in the promotional materials. Various commissions and interest on these and other additional payments can greatly increase the cost of housing, increasing the advertising interest rate by half, and sometimes two times. A mortgage with annuity payments, where payments are made in equal installments during the term of the mortgage, is not advantageous . It is better to choose options, where the payments are reduced in proportion to the remaining loan amount. The more frequent the changes of the payment amount take place, the more profitable for the recipient of a loan the contract is.

Ads for mortages often promise a way to get a property “right now”, guaranteeing standard registration and certification. The thing you might not expect is that it can say that the apartment pledged. Thus, the tenant can be registered only with the permission of the bank. Also, the bank can refuse to allow you to sell or to lease the apartment.  At the same time, another bank could provide the borrower with greater freedom. It’s important to clarify these factors in advance.

Getting a mortgage, you're getting into a close relationship with the bank as well. From the contract and applications, you'll learn that the bank has the right to check your location to make sure you disappear, and that they get all your payments properly. The bank also cares about the employment of the borrower. In case income gets lower the bank may require the early repayment of a mortgage loan. You are required to submit certain information to the bank annually. It is usually information about a lack of public debt, and data on incomes. Also, the credit institution has the right in the contract to ask you for this information at any other time in its sole discretion. In short term mortgage the borrower must submit documents to the bank for change of residence, marital status, change of place of work and other cases specified in the contract. All these difficulties will continue until you have paid the full amount of money owed to the bank on a mortgage. Thus, you must be mentally prepared for this close interaction.

If there is a situation when a client, thinking over the proposed version of the mortgage contract, wants to make amendments and additions to some of its points the bank usually refuses, offering only one option - a standard contract. The process of the contract agreement with the bank is rather formal. The new version of the agreement must be endorsed by the representatives of numerous banking services, and then it must be sent to be signed by the head of the bank. It is doubtful that a major bank will agree to such a cumbersome mechanism for an average borrower. Therefore, if you are not satisfied with something in the contract, you either need to look for another bank which offers mortgage loans, or to reconsider your opinion and sign an agreement on the terms of the bank.

To sum up, I want to warn the potential borrower, who got the approval of the application for a mortgage loan not to be excessively emotional. Before the finish line once again pay attention to these typical details in the contract. Hire a competent lawyer to read and evaluate the contract. Only after this, make a decision on whether to accept the terms of the mortgage and move into a new apartment.

How to get a loan for apartment renovation

Of course, you can take an ordinary consumer loan in cash, requiring only the provision of a minimum package of documents. However, we should remember that for ease and speed of processing of the loan the borrower will have to pay a higher interest rate, which can be up to 50% per annum. That is why the best solution is to get the loan for apartment renovation. The interest rate for this type of loan varies between 16-18% per annum, and you can repay the debt from 1 year to 10 years.

Loans for apartment renovation are targeted loans, which means the bank will require estimates for renovation from the borrower. Loan funds may only be used for the purchase of building materials, payment for renovation, and the purchase of furniture.

Loans for renovation are the most advantageous for those who bought the apartment with the help of mortgage. Some mortgage programs include a loan, which can be spent for finishing new apartments and for renovation of  secondary housing. This option will make it possible to save a substantial sum of money. Firstly, these loan programs have low interest rates. Secondly, you can save on payment of commissions, because there is no need to pay for the insurance and banking service the second time.

Planning the budget

The budget can be called an ordinary plan, where all the income is distributed to the necessary expenses which are inevitable in the future. There is no need to explain the value of a clear plan. It is impossible to achieve any meaningful purpose without it.
For example,say your goal is to build a house. Everyone understands that it is foolish to start with brickwork. Initially the plan of the house is designed, the necessary calculations of building material are made, the set of other factors is taken into consideration, and only then the construction of the building begins.
Financial operations are like the process of building a house. Any budgeting is aimed towards saving money and its competent distribution. If you want to save some money next month you need a clear plan to get it done.

The phrase "to save money" is quite abstract and bears little value. For example, a man who is said "Save on fuels today," may not properly what he was said. The phrases "Use less gasoline for your car today" or" buy the gasoline at the gas station, where the price is lower" are much clearer. In this case, the phrase "to save money" will become the core of budgeting and planning.

There are certain guidelines for drawing up a personal budget. To begin with, you should understand what sum of income you expect in the planned month. If the salary is stable and does not change over time, it will be counted as income. If the salary changes when, for example, a person receives a percentage of the revenue or he gets payment by the piece, then you need to analyze the finance obtained in previous months of work. This allows us to understand the trend: whether the income increases or declines. It will be easier to plan the future budget having this information. To facilitate this process, you can use special software.
So, the income per month is known. We can now proceed to the distribution of future expenses. If you have a little knowledge of budgeting it is easy to determine expenses. However, if you do not have such knowledge, you will need extra work: you will have to record all expenses the following month. To do this, you can find a computer program.

Now you have the data on income and expenditures, which are obtained from the analysis of past months. Now you need to review each item of funds spent carefully and see which of them could be saved. For example, if there are significant expanses on the Internet in the list should you think about changing the provider not to pay more for its service. Or you have noticed a rather large expenditure on the car. In this case should you think about the possibility of buying a bicycle? In this way, you can save on fuel and vehicle maintenance, as well as it gives you a chance to take sports. Similarly every item of expenditure can be analyzed. This process does not take long, but will bring tangible benefits.

Having  the data on the amount of income that is expected, and the amount of the planned expenses, you can tell the difference between them. If it is positive, we should put this amount in a bank account or in a piggy bank. If the difference is zero or negative, then you need to re-evaluate the budget: the income and expenditure. You may have forgotten an item of income. Or you will have to refuse to buy something you were going to buy, something like a new dress or a new telephone.

Of course, drawing a good budget is not a guarantee of financial success and prosperity. It is important not only to plan a budget, but to meet it. On this stage you will need stamina, willpower and patience.

Save Money or Take Out a Mortgage? Pros and Cons

What's better – saving money for an apartment or getting a mortgage? Saving money on your own is the usual option, but not necessarily the cheapest. In many European countries you couldn't get a mortgage just ten years ago. In spite of all the positive aspects of the saving money option, all of your savings can be insufficient because of the constant rise in housing prices. And the rate of increase isn't slight – 30% has been the annual average over the last seven years. Choosing to save money, you can spend the best years of your life saying no to buying a variety of things for the sake of illusory dreams of buying an apartment, while living in a rented apartment or house that you will never own.

In Europe, storage is widely used to cope with the housing problem (HBC and other forms). This method is also available in our country. On the plus side, the nominal value of this option is low. But here are some minuses:
1. The amount of money needed means you will have to save for a long time;
2. You do not immediately become the owner of the property, while with a mortgage you become the owner at once;
3. There is considerable risk that the cooperative in which you have invested your hard earned money will go bankrupt.

So let’s consider the option of a mortgage. This option is the most optimal solution for the housing problems in the world. These are the positives of a mortgage:
1. Economic gains – the rise of prices for real estate is much greater than the increase in price of an apartment funded by a mortgage loan;
2. The bank risks its money that it granted to you, which means you do not risk your own money;
3. Immediate satisfaction – you become the owner of the property immediately, and not in a few years.

Now let’s determine how much more expensive housing will be if you purchase it with a mortgage loan. To get an accurate answer we should factor in all the parameters, including the interest rate on the loan, duration of the loan, tax rate, amount of the initial payment, and so on.
Here are some examples:
Example 1: the loan term is 10 years, the initial payment is 25% of the sum, the interest rate is 10.5% per annum, the loan is a repaid loan.
In ten years, if we take into consideration the cost of income tax paid on the interest and credit interest, the housing price is projected to rise by 40%, or about 4% per year. As the rate of increase in prices of houses and apartments in the city is about 30%, the benefit of the mortgage is obvious.
Example 2: the loan term is 10 years, 25% of the sum is the initial payment, 10.5% per annum is the interest rate, the loan is paid back for the first five years, then early full repayment takes place.
In five years, if we tale into consideration the cost of income tax paid by the interest and credit interest, the housing price will rise by 29%, or about 6% per year. The rate of increase in prices of real property in the city is about 30%, so the benefit of the mortgage is evident.
The third example: the loan term is 15 years, 25% of the sum is the initial payment, 10.5% per annum is the interest rate, the loan is paid back on schedule for the first seven years, then early full repayment takes place.
In seven years, if we take into consideration the cost of income tax paid by the interest and credit interest, the housing price will rise by 28%, or about 5% per year. Rate of increase in prices of real property in the city is about 30%, and the benefit of the mortgage is again evident.

Review of the American Credit Services Market

We should note that the expansion of services in the field of credit is connected quite closely with the growth of banking and the liquidity risks of these financial institutions. In the USA, the percentage of problem loans is approximately 5.5% of the total. This makes lenders keep high average rate in consumer lending, despite the fact that high interest rates on loans frighten off potential customers because of the risk connected with the precarious situation of the USA Dollar on the world markets.

For three quarters of 2012 the total amount of credit portfolios of American banks grew by almost 1.2%. This suggests positive activity in the financial sector. Looking into the process a little deeper however, the growth of credit portfolios in 2012 is explained by activity of ordinary people, while legal entities did not show much interest. Experts link passive corporate clients to the unstable situation in the euro zone, which currently has no explicit positive impact on the American economy.
According to the Central Bank, growth in the sphere of credit services is expected to fall next year, based on the desire of both the government and financial institutions to bring as many legal entities to this area as possible, and as a result to reduce the amount of loans among the population due to more stringent requirements for providing this service.
The average rates for all types of loans in the last quarter of this year increased significantly; the average rate of consumer credit granted in cash without collateral is approximately 17 - 26% per year, in contrast to last year's 16 - 23%. For a similar service, but in currency, the annual rate increased as well, and it currently stands at about 22.5%. Rates in real estate lending and the purchase of cars have changed only slightly. However, this is only a temporary phenomenon. Bank managers treat customers who want to get a loan secured by real property with particular interest and care.

Mortgage loans are becoming less actual each month, which happens due  to a negative trend in the real estate market (considering that it's real estate that is mostly pledged), which makes banking experts assess such collateral much lower than the minimum real market value.

The average term of a loan in the USA is three to five years.
The growth of annual interest rates for loans in American banks is explained by the fact that they receive loans from foreign banks, where rates on loans have greatly increased during the last six months. Activity of most European banks have been substantially limited by the current political and economic austerity policy. American  banks are forced to raise interest rates until more attractive, cheaper offers appear on the market. Sadly, such offers aren't expected in the near future.

Buy collateral – get a bargain!

Making the decision to grant a loan to a borrower, the bank calculates his solvency and the probability of return of money on the original terms. However, if a citizen is ready to pledge his property, the value of which is calculated by a credit institution, he will receive credit by a simplified scheme.

Only property that can be easily sold at profitable prices in the case of non-completion of the contract is pledged. Reality, highly liquid vehicles, the property of a company owned by the borrower and other products are the main items pledged. The smaller the amount of the proposed loan is, the more individual the items pledged are.

Usually, the Bank assesses the collateral at a reduced price, and sometimes the value is reduced by half - two times compared to market value. Thus, the bank compensates for possible costs if for any reason the property will be difficult to sell.
Banks prefer to negotiate with a borrower who has temporarily become insolvent, because the procedure for the removal of collateral is usually long and sometimes requires several trials.
If negotiations and litigation end in favor of the lender, the intent is to quickly and profitably sell off the collateral.
For the early sale of collateral the bank provides its potential customers with a significant discount. The ground for foreclosure is often the site of the credit institution, where there is a convenient navigation by type of sales, cost and other specified additional conditions.

In the USA, there is a steadily increasing trend in the number of overdue loans. Therefore the sale of collateral by banks is constantly gaining momentum. Fighting for more customers, some banks offer lower barrier opportunities to purchase a loan or deposit or periodically hold auctions on some product groups, reducing the price by thirty, forty, or sometimes fifty percent of their fair market value.

Thus, according to specialists, the mass realization of collateral can reduce or slow down the rise of prices in real estate and, most importantly, takes the work of banks to a new level, making them more and more competitive to auto shows and shops selling electronic goods.

We suggest that everyone buy property which is a potential collateral, analyze bank offers, and get a bargain.

How to get credit with a bad credit history

With the introduction of borrower credit histories the process of reliability assessment has become much easier. The bank looks at how the borrower performed his credit duties before and decides whether to grant credit or not on the basis of the data.

It is worth noting that in our time there are hardly any borrowers who haven't got a single delay on payment or some violation of contract. The financial services industry faces very tough competition, and as a result the banks can't only work with clients with clean credit histories.

In addition, the criteria for evaluation of credit history in each bank are different. But most often they consider the following facts: the duration of the delay and the reasons for delays in payments on the loan. A one-time late payment for up to 5 days can be considered as a slight delay. If the delay of the payment on the loan was made during the economic crisis (in 2008-2009) the bank also takes this fact into account, because at that time many people lost their jobs or got part-time salary.

A borrower with a long delay on a loan can also expect to receive a new loan, if his previous loan is fully repaid with all fines. Thus, the intruder has already suffered his punishment and some lenders can close their eyes to this fact.

If the bank refuses to give you a loan because of damaged credit history, firstly it is necessary to improve the situation with the first loan and repay the debt, and only then apply for a new bank loan.