Month : August 2014

Debt Management

Advice on Secured Loans

When you are searching for options to fund a new purchase, you have to make a choice between unsecured and secured loans. There are advantages to each of these, and it ultimately depends on the financial condition of the borrower, as to which alternative becomes preferable.

Unsecured Loans versus Secured loans

Unsecured loans are a recent innovation in finance, unlike secured loans which have been around for centuries. Even in the older days, people used to borrow money after keeping their land as security. This was the way most farmers were able to get money to finance buying of seeds and fertilizers for their activities. Unsecured loans have led to larger risks being taken by lenders and this has led to rates and terms for such loans being far more costly and stricter. Mortgages are a form of secured loan, because the property being acquired itself is offered as collateral, to guard against default in payment.

Secured Loans and Credit Ratings

Financial institutions always prefer to have clients that have good credit ratings. Even so, where collateral is offered as security for the loan, they may not give this credit rating too much of importance, as their risks are covered by the asset value of the pledged security. A good credit rating and a loan that is covered by collateral can lead the lender to offer much more generous terms. So, interest rates will be lower, conditions will be easier and payment concessions will figure in the final contract. A poor credit rating along with collateral will still allow you to get the required loan, but because of the poor history, terms are likely to be stiffer and more demanding.

Business Secured Loans

Most banks offer businesses secured loans that require some sort of collateral. This can be in the form of any property that the business has rights over. While property is the most preferred, banks will even offer such loans against equipment, vehicles and any other asset that the business has.  Before such loans are granted, the lender will insist on an independent valuation of the assets, so that they cover the full value of the loan being considered. In some cases, banks may even offer to give such loans against shares or stock, as long as the company has a history of being well traded in exchanges. Businesses even in case of secured loans, are expected to provide complete financial details and history, so that the lender can ensure that they have the necessary business acumen to run the business profitably. A well-run company can even further negotiate to get very advantageous terms, that ultimately lower the cost of such financing.

Secured loans must always be preferred by both individuals and businesses as the interest rates in them are much lower. It also enables an idle asset like a home or other property or collateral to realize its potential value, which otherwise lies dormant. Loans are normally offered that can go as high as a hundred percent of the value of the security offered, though eighty percent is more the norm. Click here if you need to get more information on secured loans.

Home Ownership

How Can You Use a Second Mortgage to Finance Your Home Improvements?

Do you have any plans of getting your house renovated?  Do you plan to remodel your home or want to work on your basement? Are you thinking of ways for arranging money for remodeling your kitchen? You have a number of home improvement options that can help you with your finance improvements.

The financing schemes for home improvement are generally preferred as it is one of the ways of increasing the property value. Whether you want to work on the master bedroom or living room or fix those leakages in the pipes of your bathroom the home improvement finance will do the needful for you.

What do you mean by a second mortgage?

Compared to a first mortgage which already exists, a second mortgage is considered junior. Replacing an existing mortgage with a higher one it will be more cost effective for a borrower if he considers a second mortgage. Take for an example, your house is worth about $200,000 and you have already taken $120,000 as your first mortgage amount. You will be only considered eligible by the bank to take a first mortgage if the credit scores that you have are good enough for financing 80% of the total of $200,000 or $160,000.

You can only borrow $40,000 for your second mortgage when you have subtracted the sum of $120,000 taken for your first mortgage. The amount taken for the second mortgage is taken in public records and it almost becomes a kind of lien against the house.

In case you opt for a second mortgage you have to make a monthly payment additionally. So before you choose a second mortgage option it’s better to analyze the monthly expenses as well as obligations so that you can be sure of handling a new payment. Along with this, the risk involved should also be kept in mind. You have risked your home, so if you think you would be able to repay the mortgage amount then only go for the loan.

Benefits of a second mortgage:

A second mortgage comes along with a few innate benefits. Since it is based on the home equity, it is quite beneficial for a home owner as the funds are readily available. It is also considered a more secured loan and one can obtain it more easily compared to other loans. The interest that you pay on any second mortgage is even tax deductible. It happens to be one of the biggest benefits that do not usually come with other loans. You can easily deduct interest payable on your second mortgage from the taxes.

So when it comes to home improvements a second mortgage is always the best option to finance it. Since the interest rate is  a bit low you can be very confident of repaying your loan. Moreover renovating your house may not call for a huge sum of money compared to what it goes in purchasing a new one. But it is not that less that you can pay it with the amount that you have in your savings account.

The option left to you is that of a second mortgage which is more secured and thus preferred. There are even many buy to let mortgages options that allows the investor to borrow a sum of money for purchasing private rented sector’s property that they further give it on rent to tenants. Since late 1990s this has been a very popular practice in UK.

Financing your home improvements have become easier with the second mortgage option. You can be rest assured of getting a secured loan and thus concentrate on giving your home a new look.

Author Bio:

Jonny Pean is a finance expert by profession. He finds immense pleasure in writing financial blogs with a special mention to buy to let mortgage option and  Mortgage calculator from emortgagecalculator.co.uk.

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