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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There are many types of loans available to consumers. There is no shortage of people willing to lend money to qualified individuals. It is a matter of knowing what you need and what is available to you. Student loans, personal loans, auto loans- all types to offer to you. In order to get the best loan that fits your needs, You can find this information by contacting lenders, or researching online.

If you are in the market to purchase a home, finding the right home loan is crucial to investing wisely. There are many lenders who want your business. Many of them have different rates they can offer or added incentives for purchasing your mortgage through them. Personal loans are similar in that you can shop around for the best fit for your needs. Many times with auto loans, car dealerships can offer you a better rate if you get your loan through them instead of your bank. Military loans, just as they sound, are issued for military personnel and may offer a lower rate. Whatever you are looking for, check out your possibilities completely though.

There are also loan traps. A good example of this is a payday loan. While a great way to get money in a hurry for an emergency, they have added fees that can make your loan very costly. These loans let you barrow money from your future paycheck. Once you get your paycheck, they then deduct they money you borrowed plus interest and fees from you checking account. Unless you need money quickly and can afford the added expenses, they should be avoided.

In order to find the best loan for your needs, research your options. You can find information online by using a major search engine. Just type in the type of loan you are looking for and you will find many choices. Look into as many as you can. Ask questions. Negotiate the interest rates and the fees. Several companies will offer to approve your loan online. If have questions, call the customer service number. Get all your information together and compare your notes. Finding the right loan isn’t too difficult, if you take the time to research your options.

About The Author

Mike Yeager, Publisher

http://www.a1-loans-4u.com/

mjy610@hotmail.com

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Prepayment penalty loans are on the rise, which means mostly everyone who is buying or refinancing their loan with high loan to value or a maximum 100% financing will be required to take a prepayment penalty. Conventional lenders usually don’t require borrowers to have a penalty. Mostly, these loans are investor loans, direct lender loans, and portfolio lenders that either offer low adjustable rates or qualifies borrowers with minimal documentation. 100% (no money down) loans are usually attached with a prepayment penalty.

How to avoid mortgage prepayment penalties: always remember to ask for an option not to have it. The lender will then buy down the prepayment option by increasing your rates or your fees. Some lenders offer no prepay penalties for 100% financing if your credit meets their minimum required scores and if you can provide income documentation to fully qualify for your loans. No income, stated income, or no ratio loans typically will have a prepayment penalty.

It is very important for you to take this seriously. The penalty will play a huge factor when you want to sell or refinance your loan. When the market is going up in value and prices are rising to the tune of 20-30% per annum. Nobody thinks anything about these penalties, its invisible as far as some people are concern. But keep in mind that the prepayment penalty will cut into your future net proceeds when you sell your house. It will decrease the amount you can take out on a refinancing loan in good or bad times and the most important factor is if the property value starts to see earth you might not be able to do both, especially if you had bought your property this year and it has not appreciated as much. Mostly, all the analyst agree on one thing: all these aggressive loans that carry an interest only payment or an option loan (negative amortization) payment normally carries a prepayment penalty. That might be the most valid reason why properties will go into foreclosures and default.

Lenders are starting to have more stringent guidelines for loans that have a negative amortization feature. This means the principal balance on your loan will actually go higher each month if you choose the option that requires the minimum payment.

How can you request for the prepayment penalty to be waived by lenders?

This gets pretty tricky–and it’s actually something I have not done too much–but I always suggest it, because the reward could be very much worth the effort. Recently, we have been asking lenders to forgive the prepayment penalty portion of the loan if we were refinancing our clients’ loans. We have only been successful twice and it’s much less effort for us and the escrow company. I believe it’s pure luck because the lender actually can show you proof that you agreed to a penalty if you were to payoff the loan prior to its due date. But I would like to share something with you that might be very helpful to some readers.

If you are in a situation where you have to refinance or sell your house prior to the penalty term due to hardship, some lenders will require you to prove that you are actually in that state and cant continue further to pay your loan. Hardship comes in many forms: you have too much debt and can’t make the payments due to your current income status, property values have not gone up as much as you have thought they would and you have to payoff the loan, or maybe you have lost your job or gone on a disability status where you income has decreased. The lender will evaluate your whole situation and look into your complete financials and decide whether you qualify for the prepayment penalty to be waived.

If you are to sell your property it works a little differently. They will ask for listing agreements and they want to see some comps to justify why you are selling your house for a certain amount. You could also list things that needed to be repaired to the house, or other defects if there are any. A full disclosure of all costs of the sale will be required to show the lender that the net proceeds will come to a negative with the prepayment penalty in there, therefore you need to request for the penalty to be removed.

Remember, we are all enjoying a borrowed equity, due to prices of homes sky-rocketing. But there are signs of a slowdown. You should know that nothing will ever only go one way–it’s always a two way street. As for the real estate market, it’s always a cycle and it’s just a matter of when the next cycle will come.

Ken has been running his southern California home loans business since 1987. His honesty and courtesy equal loyalty to his customers. Forget about “good faith estimates.” With 1st Innovative Finance Group, all loan rates and fees are guaranteed upon application. Ken Go writes a California home loans blog and speaks English, Chinese, and Filipino (Tagalog).

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