How to Calculate Loan Repayments

Calculating loan repayments may seem complicated, but with the right information, it's really quite simple. It's also crucial information when considering a loan, so that you will know exactly what you, and can't, afford. You can either use a loan payment calculator, a number of which are easily available online, or you can do the math yourself. To calculate the payments yourself, simply follow the instructions below.

The following example assumes you're borrowing $5,000 for a term of 5 years, at a 6 percent interest rate.

First, determine your total amount of interest by multiplying the loan amount by the interest rate, and then multiply that by the number of years for the loan. For this example, multiply $5000 x .06 x 5. Your total interest is $1500.

Next, add the total amount of interest to the principal to calculate the total repayment amount. This example is $5000 plus your interest of $1500, for a total of $6500. This is the total amount you'll pay.

Now determine the number of monthly payments, which is simply 12 (months) times 5 (years), making it 60 payments for our example. Finally, to figure the amount of your monthly payment, divide your total amount ($6500) by the number of payments (60). You can now see that your monthly payment for this example is $108.33 per month.

Now that you see how easy it is to calculate loan repayments, you can determine the impact that borrowing a different amount, over a different time, or at a different interest rate will have on your monthly payments. If you are handy with excel, this is a great tool to prevent you from doing the same calculations over and over again.

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What Are the Home Equity Loan Rules in Texas?

The state of Texas has some pretty interesting refinance rules. This is especially true when one wants to pull cash or equity out of their home.

There are two types of mortgage refinances. The first type is called a rate and term refinance. This is simply when someone wants to lower their rate or change the term of their original home loan. For example, someone with a 30 year mortgage at 7% may want to refinance to a 5.25%, 15 year mortgage.

In this instance they are not pulling cash out they are just changing the rate and/or the term of their original loan. During the "refinance boom" (2001-2004) many loan officer and mortgage brokers did dozens and dozens of rate and term refinances because mortgage rates dropped so low.

Most people refinance when their home loans when the market rate is much lower than their current mortgage rate. A good rule of thumb is when you can save about 1% it may make sense to refinance.

The second type of refinance is called a Texas Cash out Refinance. This is when someone wants to pull cash out of their home in addition to lowering or changing the rate or term.

Texas once outlawed the ability to pull cash out of one's home but now allow this as long as the loan meets these criteria:

80% Texas Cash Out Rule: This rule states one that the loan can not exceed 80% of the home's appraised value.

For example, if one's home is worth $100,000 and the current mortgage owed is $50,000 than an equity loan can go up to $80,000 (80% of 100k). Thereby netting the borrower $30,000, less closing costs.

3% rule: This rule state that the total fees can not exceed 3% of the loan's value. For example, if someone does a 100K equity loan the total fees can not exceed $3000. This means broker, title, survey, appraisal, underwriting, doc/prep (everything!) can't exceed 3%. This law was intended to protect borrowers but it actually penalizes lower loan amounts making it difficult for those with small loans to take advantage of their equity.

This is a great example of regulation doing the opposite than what it was intended. So for those with loan amounts under 100K, it's very difficult to do a home equity loan as state law also requires one to purchase a new title policy each time one refinance. Title policies usually run 1% of the loan amount.

However, it's important to note that the 3% law does not apply for those doing an investment cash out home equity. So it's actually easier to do a home equity loan on an investment property than on an owner occupied property in Texas!

12 Day rule: This is one of the more unique rules. Whenever you do a home equity loan your loan officer or mortgage broker will ask you to sign a 12 day form. This form states that the loan can't close until 12 days after the date of the application. I guess the state of Texas wants you to have 12 full days to think about your loan!

3 day rule: Then, after we wait 12 days, we are required to wait 3 days until we fund. Not to mention one is required to look and sign the final HUD (settlement statement) 24 hours before closing.

So to make things simple: The loan can't close for 12 days. Then, once the HUD is prepared by the title company the borrower(s) must review and sign the HUD 24 hours before we close. Then we can't fund the loan for 3 full business days.

These rules are why it often takes 30 full days to fund a Texas Cash out loan.

Oh, and by the way. The final rule...one must wait 12 full months between home equity loans. So if you do a Texas cash out one year and the price of your home goes up significantly you must wait a year before refinancing.

Because Texas home equity loans have so many rules it is important your mortgage professional truly know the rules so everything goes smoothly with your refinance.

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How to Calculate the Debt Service Coverage Ratio (DSCR)

Debt Service Coverage Ratio (DSCR)

Debt Service Coverage Ratio (DSCR) is a ratio to measure a property's amount of available cash remaining after servicing the loan payments. In addition to LTV, DSCR is the other loan constraint in any real estate transaction. It is calculated as:

DSCR = Net Operating Income

Annual Loan Payments

Example 1: Suppose an investor owns a property with an NOI of $500,000. The annual principal and interest payment for his loan is $370,000. The DSCR would be:

$500,000 = 1.35x

$370,000

This result means that the property produces a net operating income 35% greater than what is required to pay the loan.

$500,000 - $370,000 = $130,000

$130,000 = 0.35 x 100 = 35%

$370,000

This additional income can be used by the investor as a return on his equity investment or for additional investment into the property. When a loan has an NOI that is equal to the annual loan payment, it is considered to be at breakeven. This means that the property is operating only enough to cover its loan obligations. When a property has an NOI that is below the annual loan payment, it is considered to be operating below breakeven.

Example 2: Assume an investor has a property that has an NOI of $250,000. The annual principal and interest payment for her loan is $275,000. The DSCR would be:

$250,000 = 0.91x

$275,000

This result means that the property only covers 91% of the required debt service payments. It is important to understand why a property may have a low debt service. It may be due to a worse-than-expected performance from market conditions such as declining rent or higher vacancy. Alternatively, the owner may have expensed a roof replacement which artificially lowered the property's NOI and thus making it appear the property is not performing well. Regardless, the investor would be required to pay the bank the amount of money necessary to service the annual debt service or face foreclosure.

When evaluating property, it is important to understand why DSCR constraints vary from lender to lender and from market to market. The higher the DSCR greater equity is needed to purchase a property. And the lower the DSCR less equity is needed to purchase a property. DSCR is one of the restraints in any real estate transaction.

Shortcoming #1: DSCR is not the only loan constraint. Most loans have a minimum debt service coverage ratio (DSCR) and maximum LTV. Simply because a lender tells you they will loan up to a 1.25 DSCR (or whatever their parameter) of a property does not mean you will receive all of the loan proceeds.

Shortcoming #2: DSCR is a calculation of NOI. Care should be taken in understanding how each group determines an NOI. A borrower's pro forma NOI may vary greatly from a lender's NOI and thus both may have different expectations of the necessary equity required in the transaction.

Shortcoming #3: Lenders vary DSCR constraints to make loans less risky. The higher the DSCR the greater the cushion the property has to pay for unexpected expenses or to weather volatile market conditions. Since a higher DSCR requires a greater equity investment, the lender feels their loan is protected.

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Mortgage Loan Modification Assistance - How to Get My Loan Modified

The home loan industry has changed stated income loans requirements if you don't know yet. Most lenders now want full documentation loans and borrowers qualifying by using traditional debt to income ratio calculations. This directly affects the high cost housing markets like California, Florida, and the tri-state area of New York, New Jersey, Connecticut as well as parts of Maryland, Virginia, and Massachusetts. The reason is a lot of homeowners in these markets used adjustable rate mortgages and qualified by using stated income, stated assets and some instances no verification of employment.

The adjustments for adjustable rate mortgages (ARMs) will continue through 2010 and into 2011. Most homeowners will be unable to refinance due to loss of equity in their home, their job, or other hardship. So, their best option is to negotiate with their loan servicing company or let the home go into foreclosure. Homeowners need to understand that when they send in a payment to the lender or loan servicer, that is their primary business to collect debts not negotiate with the public to change terms or modify interest rates. Furthermore, in a majority of the cases the borrowers do not get through to the right person or worse yet call them back in a timely fashion until they are close to foreclosure.

If a borrower has a truthful hardship and the bank is slow to react or refuses to listen what happens is a foreclosure results and the borrowers credit is hurt for seven years. When you are facing this situation and getting nowhere with a business and you don't get the results you need in a timely manner, you should hire an attorney who specializes in foreclosures and loan modifications!

There are many stories from borrowers who say they most banks will not discuss your situation unless you are behind two to four months in payments. Once that occurs, your hard earned credit scores from years of being responsible are wiped out. Furthermore, you may never be eligible for a home loan at market rates for quite some time.

The solution is to use a loan modification company that actually does have an attorney on staff to get answers and responses quickly so your situation is resolved quickly. You end up keeping your home, getting a loan modification, reducing your interest rate to an affordable level, and in some cases reducing your loan principal but there's no guarantees. An experienced debt representative from the attorney backed loan modification company will call you to see if you do qualify based on certain criteria.

Although, some firms will take your money even if you don't qualify. Those are the ones you have to watch out for. They hit you when you're down. Work with a loan modification company that has success, years of experience, paralegals and an attorney on staff. You will feel more at ease knowing you have the best team working on a solution for you whether it be a short sale, a deed in lieu of foreclosure, tax ramifications of short sale, or a loan modification.

A lawyer who specializes in negotiating with lenders can achieve magical results especially if they find RESPA or TILA violations to use for leverage. A real estate attorney understands how to speak their language and get the lender to negotiate. When a homeowners uses an Attorney, the lender's loss mitigation and legal department become very receptive and responsive. Get a good legal team on your side to stop foreclosure and get a loan modification!

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Taxation of Forgiven Debt - The 1099C & You

Often people fall on hard times and stop paying on credit cards. After a while the account may go to an outside debt collector who might offer a settlement of the debt for 30-40% of the original sum. Once this is paid, the debtor often thinks the matter is closed, but it is not! It is very likely that the creditor will issue a 1099-C. This is a notice to IRS of the forgiven debt. If the debtor does not address this on his return he may get an IRS bill a year or two later with penalties and interest.

A foreclosure on a home may also result in a 1099-C from the mortgage lender if the property is sold for less than the amount of the loan. In this instance, a person loses their home and may also face a tax bill. Usually, the bill comes many months after the tax return was filed as a result of an IRS document matching program. This "under-reporter" notice brings grief to the taxpayer.

The key issue is whether or not the debtor was insolvent. If they were insolvent, it may not be taxable depending on the circumstances. There is an "Insolvency exclusion." You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. So it is possible none of your forgiven debt is taxable or it is possible that all or only a portion of it is counted as income.

You may not have any taxable income from the 1099C, but you must account for it on your return. The issue is whether or not you were solvent at the time of the debt cancellation. You only owe tax on the forgiven debt to the extent you were solvent. For instance, if the forgiven debt was $10,000 but you are only worth $5,000; you would only be liable for income tax on that amount. A home foreclosure is complicated and you may have other legal arguments besides insolvency.

There are five situations where a cancelled debt does not have to be reported as income:

Bankruptcy - the debt was already discharged through a bankruptcy proceeding.

Insolvency - your total debts exceed your total assets at the time your debt was settled or deemed non-collectable.

Indebtedness is due to a qualified farm expense.

Indebtedness is due to certain real property business losses.

Discharge of your debt was treated as a gift (You owed Mom $10K and she said "Don't worry honey, consider it a gift").

If you are insolvent you need to explain this to the IRS on your tax return. You can fill out IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness or attach a detailed letter to your tax return explaining the calculation of your total debts and assets.

Do not ignore a 1099-C! Failure to address the 1099C will result in a tax assessment by the IRS for any amount over $600 plus penalty and interest. This will likely occur 12-18 months after you file when IRS matches up the info reported to them with what is on your tax return. Have a tax professional do your return and they can help you determine how much of the 1099-C is taxable.

If you get a letter from IRS on a 1099-C you left off your return, get help ASAP. Otherwise, IRS might file a Federal Tax Lien and take action. Look for a CPA, Enrolled Agent, Accredited Tax Advisor, Accredited Tax Preparer, or Tax Attorney to help you with serious tax issue. You may call the IRS at 1-800-829-1040 for help as well.

Websites you can check out include:

http://www.irs.gov

http://www.naea.org

http://www.nsacct.org

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Government Grants For Women - Money You Don't Have to Pay Back

With the availability of government grants for women, single mothers, returning students and women business owners have the opportunity to obtain free grant money that never has to be repaid. See if you qualify for government grant money today.

What exactly are free government grants?

Grants are cash awards distributed by the government other private or charitable organizations to worthy applicants who can prove to put this funding to good and verifiable use. Once obtained, this free money never has to be repaid. By obtaining these funds, women can get the cash they need to go back to school, start a business, or obtain help with other expenses.

By searching a current grant database, individuals have an opportunity to find these available funding programs. Applying does not require a credit check, down payment or any kind of collateral. As long as you meet the minimum qualification requirements, any tax payer can apply for grants as long as they are at least 18 years old.

Women Business Owners Grants - Women who desire to establish a new business or expand an existing one are often able to acquire thousands of dollars in free government money to finance the costs of establishment or expansion.

Child Care Grants - Financial aid is offered to mothers to help afford quality child care services.

Housing Grants - Government grants can be used to help women obtain low-income housing or down payment assistance on the purchase of a new home.

While there are eligibility requirements and qualifications that must be met in order to get your grant request approved, there is no limit on the number of grants that can be applied for or received. By searching the grant database, individuals may be able to find multiple programs that can provide the funding needed to reach their goals.

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Should I Refinance my Car Loan?

There are mainly two condition why one would be willing to refinance a car loan: a) If one wants to steer clear of repossession and can't afford the loan's monthly payments. b) If one wants to take advantage of better market conditions and wants to lower the monthly payments by refinancing with a lower interest rate.

For both of these situations, car loan refinance seems to be the most comprehensive solution. However, refinancing won't always be advantageous and you might even spend thousands more due to an adverse financial transaction.

When Refinance is the only way to go

If you can't afford the monthly payments you might want to refinance your car loan in order to reduce the loan installments. A reduction can be obtained either by a reduction of the interest rate or by an extension on the loan's length. You can also combine these two factors and get a more significant reduction.

Chances are however, that if you need to refinance, you probably have a bad credit score and poor credit history. This will prevent you from getting a low interest rate and you'll probably have to agree to a higher interest rate. Thus, your only possibility of getting a reduction on the amount of the monthly payments is by extending the loan's length.

Do your research and find the best offer available. There are many lenders out there and even if you have to agree to a higher interest rate, it doesn't have to be the highest. So ask for loan quotes, compare what the lenders have to offer and choose the best deal so as to spend as little as possible.

Refinancing to save money on interests

If you just want to take advantage of better market conditions and you don't need to reduce your monthly payments due to an inability to repay the loan, you are in better conditions to negotiate enhanced loan terms. Find a lender willing to offer you a lower interest rate and extend or shorten you repayment schedule according to your needs.

Make sure the amount you save from the reduction on the interest rate is not secretly added to your loan in the form of administrative fees, closing fees, application fees, or any other euphemistic expression. Otherwise, you won't be saving any money and the refinance loan might end up being a useless financial transaction.

Refinancing a car loan is an overall simple financial operation but you need to be careful and pay special attention to the interest rate charged and any other costs and fees hidden in the small print. Either if you are forced to refinance or if you want to seize the benefits of better market conditions, doing your research, comparing and then deciding is the smart way to go.

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