Chances are you’ve heard of an endowment mortgage, but you’re not quite sure what it is. Nowadays this unique type of mortgage is in the news everywhere and is receiving a bad rap from many people. So what’s the truth about an endowment mortgage, and how does it really work?

Endowment mortgages can be somewhat complex, although the system behind them is simple. They work in two parts. On one hand, they are a simple interest-only mortgage, and are treated as such. The borrower pays interest on the mortgage to his lender, and any terms that can apply to a normal mortgage are applied to these interest payments, including capped rates, fixed rates, variable rates, and any other special incentives the lender may offer. However, the borrower is not paying off his mortgage with these payments, as he would be with a typical mortgage: He is only paying the interest.

The mortgage itself is paid separately, and only at the time it ends. During the term of the loan, the borrower makes separate payments into an endowment fund. This fund is invested in stocks, shares, and life insurance, and allowed to mature throughout the term of the mortgage. At the close of the mortgage term, the endowment is cashed in to pay off the mortgage.

The downside here is obvious: If the endowment investments don’t do well, then the endowment will not pay off the total balance, and the homeowner will still be responsible. Today’s extremely low interest rates and sluggish stock market have turned some people away from the idea of endowment mortgages.

However, there are advantages to this unusual type of plan.
Throughout the years of your mortgage, your monthly payments remain low (only the cost of interest) and will not be a strain in your income. The money you set aside for your endowment is, essentially, working for you; regardless of how well the market performs, chances are good that you will get back more than you paid in. Also, lenders that offer endowment mortgages offer borrowers a few escape clauses. If your endowment is in progress, and the stock market is doing poorly, you may be given the option to opt out of your endowment and invest your money instead in an additional savings plan which accrues interest on your payments. It won’t gain you as much as an endowment potentially could, but it will protect you against poor investment performance. Most lenders will also allow you to switch your entire mortgage, or just the amount of the projected shortfall, to a standard repayment mortgage.

For the financially organized, endowment funds can be a great way to pay your way through owning a home and come out clean on the other side. With an endowment mortgage, just as with any other investment, it pays to keep a close eye on your cash.

Joseph Kenny is the webmaster of the loan information sites http://www.selectloans.co.uk/ and also http://www.ukpersonalloanstore.co.uk.

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We all see them every day, those ads for 4 point this or 5 point that interest rates. Unfortunately many, probably most Americans would not qualify for these. Mostly they are for people with perfect credit or just teasers to just get you in the door. Have you paid any attention to the fine print in the ad? Well for starters, it’s so small that no one could possibly read them. Even it the print was large enough to read, they only show it for a few seconds so you could never read it.

The bottom line is you would need a credit score of 700 or higher and an LTV of 80% or less. You also need to go “full doc” with W2s, pay-stubs or tax returns if you’re self-employed,
proving sufficient income for at least 2 years.

And those super low closing costs, that’s just another ploy. There are no free lunches. No matter how you cut it, you pay these costs either directly or through a higher rate.

So what really determines your interest rate? Well, it’s all about perceived risk by the lender. There are several risk factors.

1) Your LTV (Loan to Value) - The higher the LTV, the higher the rate. The lower the LTV, the lower the rate, up to a point - say around 70%. Below this LTV, your rate may not change at all.

2) Your Credit Score - It’s the middle score of the three bureaus. The lower the score, the higher the rate will be.

3) Your Rent or Mortgage Payment History - While a few sub-prime lenders don’t check this, most do. The more “lates” (30 days late) you have, the higher the rate, and mortgage “lates” of 120 days are treated as a foreclosure even if it wasn’t technically foreclosed on. Remember the golden rule.

4) The Period the rate is fixed - The longer the rate is fixed, i.e. 30 years vs. a 2 year ARM, the higher the rate.

5) Rural Property - Some lenders reduce the LTV allowed if the property is rural, however some will raise the rate and they don’t want to lend on more than 5 or 10 acres.

6) Loan size - Every lender has a minimum loan size. Most are $50,000 although some will go lower. They really don’t like small loans as they are just as time consuming and they make less money on them. As a result, they add on to the rate so the payment on a $75,000 loan may be less than the payment on a $74,000 loan.

That’s about it for interest rate factors except to say all lenders have what may seem as quirky rules. So you may get “dinged” for some off the wall credit blip, but these are the exception and not the rule. A good broker should know these. They should also know if your loan is right for a particular lender to be sure you get the best rate with the least amount of problems. Lenders have “sweet spots” just like athletes. The more you fall outside their normal loan type, the more problems you will have. I have seen brokers try to push a loan through their favorite lender as they have the best rates and after a long delay, the rate is no better due to various “add-ons”. Worse yet, the process drags on and you get turned down and loose the home to another buyer. Don’t be shy. Quiz the broker about how he selects a lender so this doesn’t happen to you. Best of luck.

Michele is a black belt home seller and buyer. Her husband is a mortgage professional. Between them, they know more than 99.9% of people about the home selling and buying process. Learn their tricks at http://www.sell-my-home-for-more.com

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A debt coverage ratio, also known as the debt service coverage ratio, is a popular benchmark used in the measurement of an income-producing property’s ability to produce enough revenue to cover its monthly mortgage payments. To calculate a property’s debt coverage ratio, you first need to determine the property’s net operating income. To do this you must take the property’s total income and deduct any vacancy amounts and all operating expenses. Then take the net operating income and divide it by the property’s annual debt service, which is the total amount of all interest and principal paid on all of the property’s loans throughout the year.

If a property has a debt coverage ratio of less than one, the income that property generates is not enough to cover the mortgage payments and the property’s operating expenses. A property with a debt coverage ratio of .8 only generates enough income to pay for 80 percent of the yearly debt payments. However, if a property has a debt coverage ratio of more than 1, the property does generate enough revenue to cover annual debt payments. For example, a property with a debt coverage ratio of 1.5 generates enough income to pay all of the annual debt expenses, all of the operating expenses and actually generates fifty percent more income than is required to pay these bills.

Let’s say Mr. Jones is looking at an investment property with a net operating income of $50,000 and an annual debt service of $30,000. The debt coverage ratio for this property would be 1.2 percent and Mr. Jones would know the property generates 20 percent more than is required to pay the annual mortgage payment.

If you want to purchase an income property, chances are your lender is going to require a minimum debt coverage ratio. The debt coverage ratio allows the lender to see if a property generates enough income to cover the property’s operating expenses and debt service. To a lender the higher the debt coverage ratio, the less risk there will be with the investment. Debt coverage ratio requirements vary from lender to lender with some being as low as 1.1 and others charging as much as 1.35. Most lenders will accept a debt coverage ratio of 1.2 or above.
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Article by Yon Olson, President of Accelerated Capital, Inc. - A Bend Oregon loan and mortgage company specializing in home and commercial real estate loans for all credit types. Call Yon at 541.617.0876 or visit us online for your Bend Oregon home loan or mortgage http://www.acc-cap.com/

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