Creative Financing For Commercial Real Estate Investors

Commercial Real Estate Investing

There are many income producing commercial real estate properties that are being offered below market that are great investment opportunities. The problem or barrier for most real estate investors buying these properties is the down payment required to acquire them. As a rule general rule to purchase income generating apartment buildings and mixed use multifamily properties one should be prepared to spend 25% to 35% of the purchase price for the down payment. Plus the investor must have closing costs and reserves of 6 months or more. This is a substantial investment that eliminates many potential buyers. This can often be overcome by these creative financing strategies for commercial real estate investors.

Creative Financing

This is a highly misunderstood concept in real estate. My simple definition has two parts. Creative Financing requires a property with substantial equity and a willing and motivated seller. If the seller is motivated yet there is no equity there is no opportunity to utilize creative strategies to acquire the properties. By the same token if the property has enough equity and the seller is neither willing nor motivated no strategy will work.

3 Creative Strategies to Purchase Commercial Real Estate

1. Seller Financing and / or Carry Back: There are many ways to structure a deal  where the seller can finance the property or hold a second mortgage for a short time and then the buyer can refinance the loan. Many lenders requires the loan to be seasoned one or two years. Yet there are lenders that we work with that will refinance immediately requiring no seasoning. These deals close within 3 to 6 months from the initial seller financing contract.
2. Transaction Funding Programs: These are programs where a private lender will finance the loan from One to forty - five days. The key is to have a buyer ready to close immediately or to be able to refinance at once. This only works when the end lender is aware of the transactional financing and they require no seasoning. As in point #1 above most lenders require one to two years of ownership seasoning so having the proper end lender is important.
3. Down Payment Assistance Program: If the property has equity and the seller is willing to use it to help the buyer acquire the home, then a down payment assistance program similar to Ameri-Dream or Nehemiah (programs used to purchase residential properties financed by FHA loans) may be a great option for you. Ultimately the Down Payment Assistance Company (DPA) gives the down payment and the seller reimburses the company at closing. This can only happen if there is substantial equity in the building.

As previously stated creative financing requires substantial equity in the commercial income producing property that the seller is willing and motivated to use to strategically sell there property as soon as possible. Lower the price simply is not the answer because the main problem still exist. Commercial Real Estate Investors do not have 25% to 35% for down payment plus closing costs and reserves. Let a professional help you structure your deals to make them close.

Commercial Real Estate Investing is an opportunity whose time has come. Louis Jeffries has been a mortgage banker for over 20 years helping real estate investors achieve their real estate investing goals. Learn more about commercial real estate investing, down payment assistance for commercial properties, conventional and creative financing options. Go to http://fbcfunding.com for more information.

Article Source: http://EzineArticles.com/expert/Louis_Jeffries/190848

Real Estate Appraisal Methods

Real estate appraisal is the practice of developing an opinion of value of real property. It is presumed that no two properties are exactly alike, and that all properties differ from each other in their location, which is one of the most important determinants of their value. Real estate appraisals are generally performed by a licensed or state certified appraiser.

Typically, there are three (3) approaches to value, to wit: the cost approach, the sales comparison approach, and the income capitalization approach. With respect to residential appraisals, all three forms are identified in a standardized form known as the Uniform Residential Appraisal Report. More complex appraisals are usually reported in a narrative appraisal report.

There are several types and definitions of value sought by a real estate appraisal. Some of the most common are:

• Market Value - the price at which a property should exchange on the date of valuation between an educated buyer and a reasonably motivated seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without undue influence.

• Value-in-use - The net present value (NPV) of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, and may be above or below the market value of a property.

• Investment value - is the value to one particular investor, and is usually higher than the market value of a property.

• Insurable value - is the value of real property covered by an insurance policy. Generally it does not include the site value.

• Liquidation value - may be analyzed as either a forced liquidation or an orderly liquidation and is a commonly sought standard of value in bankruptcy proceedings. It assumes a seller who is compelled to sell after an exposure period which is less than the market-normal time frame.

Price versus value

It is important to distinguish between Market Value and Price. A price obtained for a specific property under a specific transaction may or may not represent that property's market value: special considerations may have been present, such as a special relationship between the buyer and the seller, or else the transaction may have been part of a larger set of transactions in which the parties had engaged. In essence, price does not always equal market value.

State certified or licensed appraisers must conform to the Uniform Standards of Professional Appraisal Practice (USPAP). Thus, the definition of value used in an appraisal or CMA analysis and report is a set of assumptions about the market in which the subject property may transact. It becomes the basis for selecting comparable data for use in the analysis. These assumptions will vary from definition to definition but generally fall into three groups of methodologies for determining value - the cost approach, the sales comparison approach, and the income approach.

Mario D'Artagnan is a Broker Associate at Rossman Realty Group, Inc. in Cape Coral, Florida. Mario is a former real estate instructor, having taught pre and post licensure courses along with residential real estate appraisal. For comments or questions, please contact Mario at:mariodartagnan1953@gmail.com, or visit his website at: [http://www.mariodartagnan.com].

Article Source: http://EzineArticles.com/expert/Mario_D'Artagnan/1585633

The "Lingo" Of The Real Estate Appraiser

A real estate appraisal is a service performed, by an appraiser, that develops an opinion of value based upon the highest and best use of real property. The highest and best use is that use which produces the highest possible value for the property. This use must be profitable and probable. Also of importance is the definition of the type of value being developed and this must be included in the appraisal, ie fair market value, condemnation value, quick sale value, etc.

Types of value

There are several types and definitions of value sought by a real estate appraisal. Some of the most common are listed:

Market Value

- The price at which an asset would trade in a competitive Walrasian auction setting. Market value is usually interchangeable with fair market value or fair value. The legal definition of market value is usually given by some variant of the following: "The most probable price at which a property would trade in an arms-length transaction in a competitive and open market, in which the buyer and seller each act prudently and knowledgeably and in which the price is not affected by any special relationship between them".

Value-in-use

- The net present value (NPV) of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, which may be above or below the fair market value of a property.

Investment value

- is the value to one particular investor, which may be above or below the fair market value of a property.

Insurable value

- is the value of real property covered by an insurance policy. Generally it does not include the site value. It is important to distinguish between market value and price. A price obtained for a specific property under a specific transaction may or may not represent that property's market value: special considerations may have been present, such as a family relationship between the buyer and seller, or else the transaction may have been part of a larger set of transactions in which the parties had engaged. It is the task of the real estate appraiser/property valuer to judge whether a certain price obtained under a certain transaction is indicative of market value.

Three approaches to value

There are three usual approaches to determining the fair market value of a property, cost approach, sales comparison approach, and income approach. The appraiser will determine which of the approaches is applicable and develop an appraisal based upon information from each individual market area. Costs, income, and sales vary widely from area to area and particular importance is given to the specific location of the property. Consideration is also given to the market for the property appraised. Properties that are typically purchased by investors (ie. skyscrapers) will give greater weighting to the Income Approach, while small retail or office properties (purchased by owner-users) will give greater weighting to the Sales Comparison Approach. Single Family Residences are most commonly valued with greatest weighting to the Sales Comparison Approach.

Cost approach

The Cost approach is sometimes called the summation approach. The theory is that the value of a property can be estimated by summing the land value and the depreciated value of any improvements. It is the land value, plus the cost to reconstruct any improvements, less the depreciation on those improvements.

Sales comparison approach

The sales comparison approach looks at the price or price per unit area of similar properties being sold in the marketplace. Simply put, the sales of properties similar to the subject are analyzed and the sale prices adjusted to account for differences in the comparables to the subject to determine the fair market value of the subject. This approach is generally considered the most reliable, IF good comparable sales exist.

Income capitalization approach

Income Capitalization Approach

Often simply called the income approach, is used to value commercial and investment properties.

Automated valuation models

Automated valuation models (AVMs) are growing in acceptance. These rely on statistical models such as multiple regression analysis and geographic information systems (GIS). While AVMs can be quite accurate, particularly when used in a very homogeneous area, there is also evidence that AVMs are not accurate in other instances such as when they are used in rural areas, or when the appraised property does not conform well to the neighborhood. Because of the limitations, AVMs have begun to fall out of favor with many lenders but are widely used in other appraisal problems such as mass appraisals for ad valorem real estate tax purposes.

Michelle Hiller

Seasoned Loan Expert

[http://www.quoteinwrititng.com]

Article Source: http://EzineArticles.com/expert/Michelle_Hiller/9609

What Does a Lis Pendens Mean in the Foreclosure Legal Process?

One of the legal terms that homeowners in foreclosure often come across is lis pendens. They may initially find out about the term when attempting to refinance their house and the mortgage broker turns them down because of this type of document filed against the property. If a lis pendens has been filed, it will show up with the county recorder as a document affecting the title.

A lis pendens does not stop or prevent foreclosure at all, as it is merely a document serving notice upon any other party that is researching the particular property affected by the document. In most cases of a homeowner behind on the mortgage payments, the lender's attorneys will file the initial foreclosure lawsuit with the court and a lis pendens will be sent to the county clerk or recorder's office to indicate that a particular property is in the process of a pending litigation.

The term lis pendens is Latin for "lawsuit pending," and the lawsuit that it is referring to is the legal process of foreclosure. If the lender was not suing for the property to be sold for payment of the defaulted mortgage loan, this document would never be filed in the first place, as no lawsuit would be pending.

In fact, a lis pendens specifically indicates that the property is facing foreclosure, and the document will show anyone, such as a title company or prospective foreclosure refinance lender, researching the real estate that it is involved in a lawsuit. So the lis pendens is meant to signify the foreclosure; it does nothing to prevent the foreclosure, but it does not itself affect the homeowners' ability to save their home.

The most commonly used legal mechanism that would stop foreclosure is filing bankruptcy with the court, and even this only puts the process on hold while the creditor and debtor are coming to an agreement to negotiate a settlement of the debt.

Homeowners may also wish to consider getting rid of the lis pendens affecting their home by mounting a defense against the lawsuit that has led to the foreclosure process. This is a direct defense of the litigation, though, not an extra legal process like bankruptcy that may be used to put the suit on hold.

If a lis pendens is filed with the county recorder against a piece of property, this indicates that the house is already in some stage of the foreclosure process. The homeowners are no longer in the preforeclosure stage, or merely behind in payments. At this point, foreclosure can not prevented, as it is already being pursued by the lender and its attorneys -- it must be stopped, and homeowners need to begin putting together a realistic plan and researching various ways to stop foreclosure, such as a mortgage modification, repayment plan, selling the house, or a foreclosure bailout loan.

The ForeclosureFish.com website has been designed to assist homeowners in saving their homes from foreclosure on their own. Hundreds of pages of information, articles, and blog entries are available, describing various methods that homeowners may use to prevent foreclosure Visit the website today and begin learning how the foreclosure process works and what can be done to stop it before losing your home:http://www.foreclosurefish.com/

Article Source: http://EzineArticles.com/expert/Nick_Heeringa/62890

Commercial Mortgage Lender Explains Credit Tenant Lease (CTL) Financing

Credit Tenant Lease (CTL) Financing is a unique commercial mortgage lending platform designed to finance the purchase, refinance and development of single tenant, triple net (NNN) leased, buildings. The buildings can be retail, office, industrial or warehouse; CTL loans can be written against any real estate as long as it's occupied by a "credit tenant".

For the purpose of CTL lending, a credit tenant is defined as a corporate entity that has earned an investment grade credit rating from the major rating agencies. Generally, any company rated lower than BBB- (triple B minus) by Standard & Poors or Baa3 by Moody's, is not be considered investment grade and would not qualify for CTL financing.

CTL loans are very different than traditional commercial mortgage loans. Lenders who originate CTL financing are primarily concerned with the structure of the lease and the strength of the tenant rather than the value of the real estate or the credit of the borrower. CTL lenders count the lease and the income it generates as the main collateral backing the loan. This is a distinct difference as-compared to standard commercial real estate lending and represents a unique perspective in real estate finance.

CTL lending is possible because of the popularity of NNN leases among strong corporate tenants. When a landlord executes a true or "absolute" NNN lease with a good tenant, he has almost no management or operational responsibilities. The tenant is responsible for everything from paying the utility bills to maintaining the building, even large real estate issues, such as repaving the parking lot or replacing the HVAC system are all the responsibility of the tenant, not the land owner. Consequently a lender with a lien against a NNN leased property likewise needn't worry much about the building; even if they have to repossess it in a foreclosure, they won't have to actually run it. For buildings with long term NNN leases and excellent tenants, it only makes sense that lenders focus mainly on the lease.

CTL loans are originated by commercial mortgage bankers or direct CTL lenders. Bankers will issue and sell a private placement mortgage bond in-order to fund the CTL loan. Direct lenders also collateralize the lease into a bond, but often hold the debt in their own portfolios rather than sell it on the secondary market.

Because of the straight-forward nature of CTL financing loans amounts are typically larger than other institutional loans. Many CTL lenders will make no restrictions on loan-to-value or loan-to-cost and will write the maximum possible loan. The only real condition on the size of the loan is that the rent collected must cover the mortgage payment. Most CTL lenders require a minuscule debt-service-coverage (DSCR) ratio of only 1.01%-1.05%.

Speed of execution is another benefit of CTL loans. It only takes 45-60 days, from start to finish, to complete a CTL transaction. Bank loans, on-the-other-hand, are notorious for being long, drawn out bureaucratic affairs.

Borrowers who take advantage of CTL financing tend to be sophisticated commercial real estate investors who understand the business of NNN investing. They are generally seeking dependable, long term income from their real estate holdings and want permanent, fixed financing. The terms of CTL loans are "co-terminus" with the term of the underlying lease and the rates are usually fixed for the life of the loan. CTL loans are nearly always self amortizing mortgages written for 15-25 years. Developers also use CTL financing for build-to-suit construction loans.

The ultimate credit tenant is the US Government. Uncle Sam still enjoys the highest possible credit rating and leases real estate all across the country. Federal court houses, Social Security Administration buildings, Department of Homeland Security field offices, and US Post Offices are all examples of buildings that have been purchased using a CTL mortgage loan.

Investment grade corporate tenants include the drug store chains, Walgreens and CVS, as-well-as, retail giants Walmart and Target. McDonald's is, of course, the most popular credit tenant in the food service industry. Virtually any company that can boast of a superior credit rating and leases real estate on a NNN basis, can qualify for streamlined CTL financing.

CTL is a very specialized lending platform designed to accommodate a very specific type of commercial real estate investing. It is a very fast and efficient method of funding the purchase, refinance or development of a building that is NNN leased to a high quality tenant. CTL loans are perfect for the individual investor who buys income property or the small-to-midsized developer who builds only one or two projects at a time.

In a time of continuing economic turmoil and difficult credit markets, it's nice to know that there are still dependable sources of commercial real estate lending. If you are buying, building or need to refinance a building that's leased to a credit tenant you can depend on CTL financing.

MasterPlan Capital LLC - Commercial Mortgage Lender - Credit Tenant Lease (CTL) Financing - Private and Institutionally Funded - Equity Financing - Asset Management - Simple, 1 Page Commercial Mortgage Application Online - Quick Answers - Close in 10 Days - The author, Vincent Remealto, is a commercial real estate valuation and underwriting analyst for MasterPlan Capital.

Article Source: http://EzineArticles.com/expert/Vincent_Remealto/149102

Predatory Lending in the Housing Bubble - Were You a Victim?

The most egregious examples of predatory lending occurred when interest-only loan products where offered to subprime borrowers whose income only qualified them to make the initial minimum payment (assuming the borrower actually had this income). This loan program was commonly known as the two-twenty-eight (2/28). It has a low fixed payment for the first two years, then the interest rate and payment would reset to a much higher value on a fully amortized schedule for the remaining 28 years.

Seventy-eight percent of subprime loans in 2006 were two year adjustable rate mortgages. Anecdotal evidence is that most of these borrowers were only qualified based on their ability to make the initial minimum payment. The low starting payment rate is often called a "teaser rate" because it is a temporary inducement to take on the mortgage. There was a widespread belief among borrowers that one could simply refinance from one teaser rate to another forever in a process known as serial refinancing.

This practice did not fit the traditional definition of predatory lending because the lender was not planning to profit by taking the property in foreclosure. However, the practice was predatory because the lender was still going to profit from making the loan through origination fees at the expense of the borrower who was sure to end up in foreclosure.

There were feeble attempts at justifying the practice through increasing home ownership, but when the borrower had no ability to make the fully amortized payment, there was no chance of sustaining those increases. In many ways, people were more stable in their homes prior to the financial innovations. Long-term renters can stay in their rentals for extended periods, particularly if private landlords are more concerned with vacancy than with collecting top dollar for their rental. Renting from the bank for two years prior to a foreclosure hardly seems a beneficial move.

The advantage of interest-only, adjustable-rate mortgages (IO ARMs) is their lower payments. Or put another way, the same payment can finance a larger loan. This is how IO ARMs were used to drive up prices once the limit of conventional loans was reached.

Subprime borrowers took out 2/28 loans in large numbers. The majority of these borrowers defaulted on their loans because they could not afford the payment recast. This was predatory lending. Despite the fact that lenders lost a great deal of money on these loans, they wrote the loans to profit from origination fees. Lending for a profit at the expense of borrowers is the definition of predatory lending, and many lenders were guilty of it during the Great Housing Bubble.

Lawrence Roberts is the author of The Great Housing Bubble: Why Did House Prices Fall?

Learn more and get FREE eBooks at: [http://www.thegreathousingbubble.com/]

Read the author's daily dispatches at The Irvine Housing Blog: http://www.irvinehousingblog.com/

Article Source: http://EzineArticles.com/expert/Lawrence_D_Roberts/189743

Do You Find Yourself With An Underwater Mortgage?

Being underwater with your mortgage is a terrible thing and no one buys a house thinking about the fact that it could happen to them. Some people might not even be aware of what an underwater mortgage even means let alone what they can do to solve the problem.

In the following article we will talk about what the term underwater mortgage means and different things you can do if you find yourself in that situation.

The Definition of Underwater Mortgage

You will not start out with an underwater mortgage but it can happen if you make poor financial choices, and sometimes just because of bad circumstances. Before you buy a home through a bank they will typically want an appraiser to take a look at the home and say what it is worth so the bank knows how much they should borrow you for the home. When you take out the mortgage for the first time it will be for the value of the home, minus whatever down payment you put on it. Over time however things can change and it can end up that you owe more on the house then it is actually worth. Basically even if you sold the house at current fair market value you would still not be able to cover the cost of the current mortgage. This is the definition of an underwater mortgage.

How can an underwater mortgage occur?

As stated earlier, a homeowner will never start out with an underwater mortgage, but circumstances can happen over time that will result in an underwater mortgage.

Sometimes an underwater mortgage can happen when the homeowner refinances the house. When you refinance the lending institution will want a current appraisal on the home because they will not be willing to use the one that you had when you first bought the house. If your property value has gone down you will not have enough equity in the home and you may find yourself with an underwater mortgage situation.

Underwater mortgage can also result in a homeowner borrowing too much against the home. Sometimes, people decide to borrow against the mortgage because the loan rates for the mortgage are at a much better rate than taking out another loan. The lender will decide to offer the loan depending upon the homeowner's credit rating, secure job, and good financial standing, and sometimes does so even if the mortgage has not been paid off. Then, months later, the homeowner's financial situation dramatically worsens by a sudden job loss, unexpected medical bills, etc. and the home is worth less than the amount of the mortgage must pay on it.

The situation that many homeowners fall into is the circumstance that they have the least control over. They bought their property and over time the property lost value while the mortgage amount stayed the same. In this case, the neighborhood may have worsened or the local real estate market is experiencing a heavy buyer's market. Or, the neighborhood is experiencing a high volume of foreclosures. Regardless of the reason, the value of the home is lower than the mortgage.

What can I do if I have an underwater mortgage?

If you find yourself underwater the best thing to do is speak with your current lender. Some banks, and lending institutions, will convert your loan to something with either more time, or maybe lower rates to help get you out from being underwater. Each situation will be handled differently so make sure you speak with the lien holder to try to find the right solution for your problem.

If you find yourself in a neighborhood that is going downhill fast it might be better to just sell the home for what you can and move to a new place. This is when working with a real estate investor would be a good thing because they can help you sell a house quickly.

Let us help you out if you are in a tough spot and trying to sell your home [http://www.sellmyhousesanfrancisco.com/sell-my-house-fast/88/things-to-consider-before-paying-all-cash-for-houses-if-youre-in-san-francisco.html/]. We will buy houses in all sorts of conditions and we might want to buy your home as well. Avoid the headaches of a traditional home sale and let us buy your home.

Article Source: http://EzineArticles.com/expert/Melissa_Gifford/1520795

Debt Yield - What Is It and What Is Acceptable?

1

Debt Yield is a relatively new metric and is still not used by most commercial banks who are portfolio lenders. It is used primarily by investment banks and conduit lenders to calculate their cash-on-cash return on their investment if they were to foreclose on the asset they are lending on. It is calculated by dividing the property's NOI by the 1st Trust Deed loan amount and multiplying that by 100. For instance, suppose your commercial property has a NOI of $500,000 annually and you received a $5,000,000. The Debt Yield Ratio would be calculated as follows:

Debt Yield Ratio: ($500,000/$5,000,000) x 100 = 10%

So, the lender would receive a 10% cash-on-cash return on their investment if they were to foreclose on your property. Why is this important to certain lenders? This ratio allows lenders to quickly analyze the loan amount in reference to property's NOI to determine the maximum loan amount that they are willing to offer. This metric was adopted because many lenders were getting into trouble by only using a debt service coverage ratio to determine maximum loan amounts. This ratio will not take into account cap rates, amortization on the loan, or even interest rate. It is only used to compare NOI to the 1st Trust Deed loan amount.

Most lenders will require a Debt Yield above 10% on all of their loans. Some conduit lenders may consider a property with a slightly lower yield because it is has a superior location or is a superior product, but 10% is a good rule of thumb because this generates a loan-to-value ratio of approximately 65% - 70%, target leverage for conduit lenders. Although this is currently used mostly by conduit lenders, don't be surprised if commercial banks soon adopt the Debt Yield Ratio to determine acceptable maximum loan amounts.

To summarize, if you are considering financing to purchase a new property or refinance one of your existing properties, take a moment to calculate the Debt Yield Ratio on your property that would be acceptable to a lender. This will allow you to go into a meeting with your prospective lender with a good idea of what they may offer you in terms of a loan amount. If you are looking for mezzanine financing on top of your 1st Trust Deed loan it is important to know that the mezzanine loan will not have any effect on your Debt Yield Ratio.

Posted by Chad Pitt

President

Commercial Alternative

Phone (714) 943-8818

Fax (866) 724-8171

cpitt@commalt.com

http://www.commalt.com

Article Source: http://EzineArticles.com/expert/Chad_Pitt/222646

Home Mortgage and Refinancing Loans Advertisements Rule One: Do The Math Part II

Did you know that there are two distinct parts to your home mortgage loan, principal and interest? Did you also know that if you don't closely watch both parts you could lose your house? Not to worry though, for home buyers with a fixed rate loan the monitoring of these two parts is done for you. However, for those who got trapped into adjustable rate loans, or low interest starter loans, you better be prepared to watch those two parts very closely. If you are shopping for a loan, be very leery of those sweet looking loans with low monthly payments. Those are the ones you have to watch. In the last article we briefly discussed amortization and negative amortization, and how potentially dangerous negative amortization can be. In this article we will talk about amortization, and do a little math to illustrate what it is. The reason to look closer at this issue is that amortization is what we call the two parts of a loan. This may sound a harsh, but many people lose their homes because of negative amortization.

The definition of amortization really quite simple, however we need to talk about a few other terms to put it into perspective. First is principal, which is the amount of money you owe on your home loan. If you take out a loan for $300,000, that is your principal. Second is balance, which is the amount you owe at any one time on your loan principal. Third is interest, which is the cost you pay for borrowing the money from a bank for your house. Understanding that principal and interest are two different things is a powerful piece of knowledge that is very helpful when shopping for the right home loan.

Okay, let's talk about the two parts. The monthly payment of loan on a mortgage is divided up between the interest due and the principal. So, what happens is, when you make a payment the money goes to the loan servicing company. The servicing company applies portions to both the interest and the balance. This process guarantees that if your thirty year loan is fully amortized, you will pay off your loan, both principal and interest, in thirty years. The system is simple in function, but is complex in calculation.

Here is a quick, and hopefully painless, look at those calculations, just so you have an idea of what people are talking about when the subject comes up. Let's say that John and Joan Jackson take out a loan to purchase their new home. When their loan is funded, or started, the Jacksons make a commitment to pay back that loan on a monthly basis, say $1798.00 a month. As stated above, a certain percentage (the thick math stuff) goes to interest, and the rest goes to the principal balance. As the balance of the principal goes down the percent that goes to interest also goes down, and more goes towards the balance. That is why you hear people say that you pay a lot of interest at the beginning of a loan. Here is an example of how the payment to interest and principal is divided.

The Jacksons have a $300,000 loan and the payments are $1798.00 a month.

The first month they would be paying $1500.00 in interest and $298.00 towards the principal balance. Halfway through the loan, when they owe $150,000, $750.00 will go to interest and $1048.00 will be applied to the principal. With Jackson's last payment, $8.99 will pay off the last of the interest, and 1789.01 will pay off the principal.

Restated, on the Jackson's first payment 83% goes to paying for borrowing the money, and 17% goes to the loan principal. On the last payment .5% goes to paying for the loan interest, and 99.5% goes to the principal. This example is based on a fully amortized loan in which the Jacksons are paying off the principal and the interest at the same time.

The importance of this subject is paramount. If you get into a loan with a low interest rate starter, or an adjustable rate loan, and it is goes into negative amortization, the results could double your payment. We will look at this next time.

FDP Mortgage Corporation is a family owned business with 25 years of experience bring the very best loan rate to their customers. Customer service and saving money are the top priorities at FDP. Find us at: [http://www.fdpfinance.com] Fill out an application today for a free mortgage quote at:

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Article Source: http://EzineArticles.com/expert/Tedmund_Thompson/41908

Refinancing a Mortgage - Debt Consolidation Refinancing

Homeowners faced with a substantial amount of debt may decide to refinance their home. Debts that are typically high in interest, for example, credit cards, may be consolidated with lower interest home refinancing. The difference between the two interest rates can be quite significant. There some issues that need to be addressed before deciding to refinance for debt consolidation purposes. They include comparison of interest rates and loan terms, together with the homeowner's present financial circumstances.

This article will explain the definition of debt consolidation, as well as recommend approaches for the topics of loan terms and current financial circumstances.

Debt Consolidation

The description "debt consolidation" may be misleading. Refinancing for debt consolidation does not mean the homeowner is merely combining their debts. A dictionary explanation of consolidate is to "unite, combine, merge". With debt consolidation refinancing, the homeowner in fact takes out a new home loan to pay off all of the outstanding creditors. These creditors can range from automobile dealers to credit card companies. The homeowner's level of debt will remain the same. The homeowner is then responsible for repayment of the new loan.

Once the refinancing is complete and all the creditors have been paid off, the homeowner is now locked into the terms and conditions of the refinancing loan. All terms and conditions associated with credit issued by previous lenders are no longer in effect. As well, interest rates applicable to the refinancing loan will now apply versus the past creditors' interest rates.

Will Refinancing Cost More Long Term?

There are two different aspects to consider before debt consolidation refinancing. Is the end purpose to reduce monthly payments? Or is it to increase interest savings? It is necessary to decide the reason for refinancing as even though a lower interest rate is generally available through home refinancing, this does not guarantee there will be a savings. There are other factors that determine whether refinancing is a beneficial option. The debt amount and length of the loan term also play a part.

Let us examine an example of a homeowner who has a debt which has a term length of five years with an interest rate marginally higher than that of a home loan. The homeowner obtains a refinancing mortgage which has a term life of thirty years. Because the homeowner will be paying the same debt amount over a much greater length of time, there will be no interest savings. There would be, however, reduced monthly payments.

This example brings us back to why it is important to decide the intention for debt consolidation refinancing. Interest savings or monthly payment reductions.

Will Your Financial Circumstances Improve with Refinancing?

It is important to look at the big picture when deciding whether refinancing is the appropriate option. If increased available cash is the object, long-term savings may not be a factor. The Internet has mortgage calculators that can be utilized to determine whether refinancing would result in realizing that objective. Consultation with a refinancing expert is also recommended to come to a definitive answer.

Making use of the information provided in this article will help the homeowner to make an educated decision.

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What Are Home Refinancing Pros and Cons - Can Saving Money Be Good and Bad?

When considering saving money on your mortgage, you must consider the home refinancing pros and cons. Unfortunately, what is a pro for one could be a con for another. This is why you must not just jump on the bandwagon but carefully consider your financial position when thinking about refinancing.

The idea behind refinancing is to get better terms on your loan. A basic definition of refinancing is to get a new loan to pay off another. That's the simple part. All the stuff that goes along with the new loan is what determines whether it is worth it for you to refinance. I will discuss some home refinancing pros and cons and you have to determine whether they are pros or cons for your circumstances.

Lower interest rate.
For most people this is a pro. A lower interest rate means lower monthly payments. A good rule of thumb is to start thinking about refinancing when interest rates are 1 to 2% lower than what you currently have. But the advertised interest rate may not be what you qualify for. Income, payment history, debt load and credit score all combine along with other factors to determine your interest rate.

This can also be a con because a lower interest rate means you are paying less interest throughout the year. This means that you will have less interest to deduct on your taxes. This may reduce your tax refund or cause you to pay more taxes at tax time.

Stretch out term.
This home refinancing pro can also be a con. If you've been in your house for some time and have paid down your loan, your principal could be quite low. When you take that lower amount and stretch it back out over 20 or 30 years, you can reduce your monthly payments quite a bit. But for older people or those who want to stop having home mortgage payments, this defeats the purpose.

There are many other home refinancing pros and cons that can determine whether it's a good idea for you to refinance.
Get In The Know now about refinancing, buying and selling homes, different mortgage types and other real estate information at Real Estate - Get In The Know

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Refinance Loan - A Short Guide For First Timer Home Loaners

Are you tired of having high interest rates for your home loans?

How can I lower interest rates for my previous home loan?

These questions comes into my mind before discovering this fantastic turn around method that was used by millions and millions of people specially those people who have been labeled as poor creditor. This method is what we called refinancing home loan.

Most of you might question me back "what is it?". This question is typical to first timer in home loans. Well based on wiki, refinance or refinancing loan is the term used to the replacement of an existing debt obligation with a new debt obligation bearing different terms. Its main objective of refinancing is to alter monthly payments owed on the loan either by changing its loan interest rate, or altering the term to maturity of the loan. Refinance or refinancing is also use to reduce the risk associated with an existing loan. Interest rates on adjustable-rate loans and mortgages shift up and down based on the movements of the various indices used to calculate them. By using this method, the risk of increasing interest rates drastically has been removed, thus ensuring steady rates over the period of time. This flexibility comes at a price as lenders typically charge a risk premium for fixed rate loans. So this explains some of the basic theories regarding on refinancing. Due to this definition from Wikipedia, I have formulated some advantages in it.

Advantages of Loan Refinancing 

• It helps to extend the maturity date of your previous loan. By refinancing your loan, it will extend your previous maturity date and eventually considered extinguished for all of your previous agreement.
• You can find lower interest rate when refinancing your loan. Off course, everyone will be happy with this. This will make things easier for your budget.
• If you have many existing loans, refinancing loans might be the best option for you. Instead of dealing with multiple parties, you can merge it into one loan to pay them off, and you'll only have the new loan to contend with.

After lay down all the best part of refinancing your loans, I also found some flaws with this method.

Disadvantages of Loan Refinancing 

• Sometimes paying a smaller interest rate for the new loan is not guaranteed. Because there is an accumulated percentage for the new loan, it only means that it has a probability of paying bigger interests than before.
• If you have existing loans, finding a lending institution for your new loan would be difficult. Because an existing loans leave a mark on your credit history, and most of the lending institutions will consider you as a risk in their investment due to your poor credit history.
Now that you have learned the basics of loan refinancing and found out that having a bad credit history will hinder only hinder you to avail the advantage of refinancing loan, it is wise to prevent these things and better check your overall finances.

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A Reverse Mortgage Definition Is, Simply Put, A Home Equity Conversion Mortgage

Available to persons age 62 and over, a home equity conversion mortgage, better known as a reverse mortgage, can accomplish a number of things for seniors. Particularly in these troubled times, many seniors find themselves with significant home equity, but limited income and diminishing retirement resources. Tapping into that home equity, without incurring another monthly mortgage payment, is a feature available to seniors.

It is possible to encumber a property with a reverse mortgage, which is one that does not have to be paid back until the property is sold or until the last remaining borrower passes on. There are no restrictions on how the reverse mortgage proceeds are used and the proceeds may be taken in either a lump sum, or in monthly checks to increase monthly income.

It may immediately seem as though a home equity conversion mortgage is a wonderful opportunity, and for many it is. However, there are many pros and cons which much be considered as this type of home equity conversion is really not appropriate for all people.

The most obvious benefits of a reverse mortgage are the freeing up of cash for any purpose, and/or the creation of additional monthly income if that is the primary need.

The most obvious disadvantage of a home equity conversion mortgage is the diminished value of the estate which will ultimately be left to heirs. The second obvious disadvantage is the possibility of greater need for the home equity funds at a future date. And, thirdly, these can be very expensive loans to obtain.

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Explain Refinancing a Mortgage - Refinancing is As Clear As Mud

In order to explain refinancing a mortgage I will break it down into several simple parts. What is the definition of refinancing, what's the refinance rule of thumb, when is it worth it to refinance and what are some reasons to refinance. You can get much more detailed information later.

Very simply, refinancing is getting a new loan to pay off your current loan. Why would you do this? Because you want to trade up. You refinance because you have done research and found a loan with better terms to fit you than the one you currently have. What are some of the better terms, a lower interest rate, or a stable interest rate, lower monthly payments or a better length of term.

Keep in mind when you refinance you are getting a new loan. You can explain refinancing a mortgage the same as you would a new loan. You will have to go through the same process as you did when you got your first loan. You will need to fill out an application, get together income documentation, submit to a credit check, get an appraisal on the current value of your home and more. Sometimes if you refinance through the same lender, you may not have to do everything all over.

The refinance rule of thumb that many use to determine if it's worth it to refinance is when the new interest rate will be 2% or lower than your current rate. If your current rate has an ARM (adjustable rate mortgage) then you may want to refinance even if the rate isn't 2% lower. Have a professional explain refinancing a mortgage and how all the aspects of it might affect you. Everyone has different situations and needs to consider the process based on their situation.

Besides getting a stable interest rate, people may refinance to take advantage of better terms. If your credit has improved, you may be able to get better terms on your loan which could lower your monthly payments. Make sure you consider prepayment penalties, closing costs and points.

We can explain refinancing a mortgage at Real Estate - Get In The Know. Get In The Know now about refinancing, buying and selling homes, different mortgage types and other real estate information at Real Estate - Get In The Know

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