Are You Paying Too much For Your Mortgage?

An amortization schedule, though one of the most important documents in a mortgage process, is still the most overlooked. Rarely do home loan or mortgage applicants take the time to speak with their bankers or their loan advisors to understand what an amortization schedule is and how it helps.

The word ‘Amortization’ is an accounting term that refers to the amount of principal and interest paid during the loan term.  The amortization schedule gives information about the number of installments paid, the breakup of the principal and interest paid, the principal paid and the balance outstanding. 

The Example

In order to understand this better let us take up an example.

Suppose you took a home where

Loan Amount - $10,00,000

Interest Rate – 12%

Term Period – 1 Year

And let’s say the banker tells you that this is how you are supposed to repay your loan

Number of Installments – 12

Monthly Installment - $88,849

The banker also gives you an amortization schedule that would look like this. 

The Amortization Schedule

No of Installments Paid	Installment Paid (A+B)	Principal Paid (A)	Interest Paid (B)	Principal Outstanding	% Principal Outstanding
1	$88,849	$78,849	$10,000	$9,21,151	7.88%
2	$88,849	$79,637	$9,212	$8,41,514	15.85%
3	$88,849	$80,434	$8,415	$7,61,080	23.89%
4	$88,849	$81,238	$7,611	$6,79,842	32.02%
5	$88,849	$82,050	$6,798	$5,97,792	40.22%
6	$88,849	$82,871	$5,978	$5,14,921	48.51%
7	$88,849	$83,700	$5,149	$4,31,221	56.88%
8	$88,849	$84,537	$4,312	$3,46,685	65.33%
9	$88,849	$85,382	$3,467	$2,61,303	73.87%
10	$88,849	$86,236	$2,613	$1,75,067	82.49%
11	$88,849	$87,098	$1,751	$87,969	91.20%
12	$88,849	$87,969	$880	$0	100

Understanding the Amortization Schedule 

After looking at this self-explanatory amortization schedule a question that might come up in your mind is that how is the Principal Paid(A) and the Interest(B) calculated.

To calculate the Interest we need to apply the following formula

Interest = (Principal*Rate*Time)/100

Principal = Principal Outstanding after paying last one’s installment

Rate = 12% (on an yearly basis)

Time = 1 month = 1/12 year

You will see that the rate and time will remain the same whereas the principal will change month on month 

1^st Installment

Interest = 10,00,000*12*(1/12)/100 = 10,000

Principal Paid = = $88,849 - $10,000 = $78,849

Principal Outstanding = $10,00,000 - $78,849 = $9,21,151

*Remember: This month’s outstanding principal will be next month’s principal

2^nd Installment

Interest = $9,21,151*12*(1/12)/100 = $9211.51

**For the sake of simplicity let us round it off and now the Interest is $9212

Principal Paid = Installment Paid – Interest Paid = $88,849 - $9212 = $79637

Principal Outstanding = $9,21,151 - $79637 = $841514

This is how you would go on calculating the interest paid for each month and also the principal outstanding.

At the end of 12 months you would see that Principal outstanding becomes 0 and you may then add up all the interest amounts paid to get the exact value of the total interest paid.

In this case the total interest paid comes out to $66,186

Word of advice

Whenever you take a mortgage loan do ask the lender to provide you the amortization schedule. This will not only tell you the exact interest amount you are paying on your loan but it would also help you to know the exact principal outstanding at any point in time during the loan period, in case you are planning to pre-close your loan.

USDA Home Loans-A Comprehensive Overview

You recently got a job in rural areas of Texas and are planning to get a home for yourself. You need a mortgage with reasonable rate of interest as your credit score is around 600. In that case USDA loans is the go to solution for you as you will be offered loan in the rural area of Texas, with your credit score and does not need a down payment. USDA aims at increasing home ownership across US, with the upper limit of $417,000 and no down payment, USDA loans are the go to means of getting loans for many. The eligibility rules are also relaxed as compared to other loans. Here are some basic factors about USDA home loans.

Basics of the Loan
USDA loans started in 1991 with an aim of boosting rural population and home ownership among rural residents. It is given for primary residence and the applicant should have the capability of being able to repay the loan, however, should not be able to take a second loan. Credit score of 640 is the minimum requirement for the application, however, frequent exceptions are made for the applicants based on their income.

Though USDA loans are given for rural area, they are not given to buy a second home, buy agricultural land and for speculation purposes, they are strictly for financing primary residence.

Eligibility for the loan
A USDA loan is for the applicants from rural area and small towns. The definition of small town in given in USDA that is modified as per Census report every few years. Hence, you might have to check whether USDA rules cover your town. Once you have checked about the availability of the rules, here are certain financial checks that you need to go through to get a loan.

Debt to Income Ratio
The combined percentage of PITI (mortgage Principal, Interest, Taxes and Insurance) should not exceed 29 percent of your total monthly income and total mortgage should be less than 41 percent of the monthly income.

Credit Score
You need a minimum score of 640. In case your score is less than 640 because you do not have a FICO recent history; exception can be made. Exceptions are based on your salary, present mortgage and your capability to pay the loan in the future.

Overall Income
While total income is calculated factors such as size of the family, future earnings prospect, disabilities and dependents are taken into consideration along with other factors.

Age and Other Qualification
You need to be minimum 18 years of age and a US citizen or a US national or a qualified alien.

Types of Loans
There are two kinds of loans given by USDA. First is direct loan, that is given directly by USDA and second is the guaranteed loan that is issued by the bank and guaranteed by USDA home loans. The requirement for both varies. Here is a quick reference for both.

Direct loan
Given directly by USDA to low income applicants, whose income is less than 80% of the area median income.

Guaranteed Loan
Given by the banks to applicants with broader income and the income has to be less than 115% of the area median income.

Conclusion
When you are moving to rural Texas and looking for a house USDA home loans can help you in getting the house that you need and help you with the down payment and even with the closure.

VA Home Loans-Ensuring Homes for Veterans in the US

VA loans are home loans available to the veterans of US army. These loans were first approved in 1944, under the guidance of President Roosevelt. Since then, they have benefitted millions of veterans and given them a chance at homeownership and a secure family life.

VA Home Loans: Making Home Ownership a Possibility for Veterans
Every state in the US accommodates the veterans by offering various benefits like easy home loans and special rehabilitation programs including the state of Texas. VA home loans are easily available for them through government as well as VA approved private lenders.

Taking note of the various problems that veterans face such as bankruptcy and poor credit scores, the department of Veteran Affairs designed the rules and regulations for VA loans in such a manner  that it is very easy to qualify for them as compared to other types of loans.

What  makes VA Loans Easier than Others?
1. Zero down payment
2. Easy repayment plans
3. Loan amount upto 100 percent of property value
4. Penalty Free Prepay System
5. Flexible interest rates

As mentioned before, the government policies are very lenient about the VA home loans and there are just a few pointers that decide the qualification of a veteran.

Honorable Discharge
VA home loans’ primary criteria is that a veteran applying for it must be  honorably discharged from the armed forces. Rest all the qualifying criteria such as credit scores, down payment and EMI, are flexible and have easy clause attached to them that makes almost every veteran eligible for a VA loan and also for refinance  of VA loan.

Time Service Record
A veteran who has served before 1980, has to show a war time service record of 90 days to qualify for the loan whereas those  who joined and served post  1981 have to show the service record of 2 years. Anyone below this time limit also qualifies, if the reason behind their discharge is service related disability.

Conclusion
So, this is how easy it is for veterans to qualify for a zero down payment in the state of Texas. VA home loan is definitely the reform that has benefited millions of veterans in the US since 1944.

A Brief Guide on VA Loan Refinancing

VA loans have several advantages over the conventional loans such as lower interest rate, no down payment hassle and lenient credit score terms. Besides these, VA loans are easier to refinance.

Only a few veterans default on their VA mortgage due to which the Department of Veterans Affairs offers a guarantee of 25 percent of the property's value price to the lender in event of a foreclosure. So, for lenders too, a VA loan has lesser risk involved.

VA Loan Makes Home Refinance Easier

Refinancing is the replacement of existing debt obligation with another debt obligation in different terms. There could be several reasons behind debt refinancing such as:

● To take advantage of better interest rate
● To consolidate other debts into one
● To reduce monthly repayment amount (may be for a longer term)
● To free up cash

Refinancing a loan multiple times can negatively impact the financial benefit of the borrower. Nevertheless, if we talk about home refinance for VA loan, the long-term impact might not be that bad. An individual can borrow more of the value of the home (100 percent in some cases) without VA backing. Whether a borrower wants to take another VA loan to reduce the monthly payment amount, wants some cash back from the refinance or has been delinquent on VA loan, there could be different reasons behind filing for a VA loan refinance.

There's no lower or higher limit for refinance with VA loans. In some cases, one can refinance up to 100 percent of the home's appraised value

VA Refinancing Options

Streamline Loan
For those who want to take advantage of low interest rate, streamline loan is the right option. Veterans with a history of timely payments, who want to refinance the existing VA home loan are eligible for the loan. VA doesn't ask the borrower for any certificate of eligibility, income documents or credit report.

If the area where you live or interested in buying a property has a low real estate value, streamline loan might be the only refinancing option suited for you. The reason being, the borrower doesn't need an appraisal for the property. The purpose of streamline loan is to reduce monthly payments, so borrowers can't ask for cash back or consolidate their other loans in any circumstances.

Cash-out Loan
Borrowers who have equity in home and need cash to pay off debts, improve their home or buy a car can opt for cash-out refinance. But, they should be living in their home and obtain a certificate of eligibility to get the loan. Unlike the streamline loan, it might take more time to get the cash-out loan approved and the borrower should also requalify and have the home appraised for the process.

Refinancing Delinquent Mortgage
The borrowers who are finding it difficult to keep up with the mortgage payments and other bills can ask for reduction of interest rate. They need to submit the application for prior approval, go through credit approval and underwriting for the refinancing of loan payment that has been delayed by 30 days or more. If the borrower doesn't have a financial mismanagement history, he might get the refinance loan approved.

Summarizing It Up!
VA wants to benefit the borrowers with the refinancing option. Lenders have to show the interest rate and monthly payments for the new and old loan as well as how much time it will take a borrower to recoup the closing cost with the lower monthly payment on the new low. This is something that other traditional loans lack in; therefore exploring other options won't be of great help if you are already eligible for a VA refinance.