“I had an advisor that told me to refinance with a HELOC rather than a standard mortgage. What is the difference and why might one be better then another?”
HELOC is short for Home Equity Line Of Credit. That loan is set up as a line of credit rather than for a fixed amount of cash.
Example:
If you have a standard mortgage you might borrow $150 000 which would be paid out in its enterity when finished. Using a HELOC instead, you are promised to advance up to $150 000, in an amount you need. You can draw on the line by writing a check or some other ways, such as a special credit card.
Most HELOCs are what called “second mortgages”, although an increasing number are first mortgages, as yours would be if you would use it refinancing your first mortgage. Using a HELOC loan INSTEAD of a first mortgage is pretty risky, for reasons following:
HELOCs have a draw period in which the borrower can use the line and a repayment period wich it must be repaid. A draw period can be 5 to 10 years and at that time the borrower only have to pay the interest. Repayment periods are usually 10 to 20 years and at that time the borrower must make payments to equal the balance at the end of the draw period divided by the number of months in the repayment period. That basically mean that you have to pay back the money you have loaned during the payment period.
HELOC interest
Since the balance of a HELOC loan change from day to day depending on draws and repayments the interest is calculated daily rather than monthly or yearly. Example:
If you have a standard 6% mortgage, the interest for the month is 0.06 divided by 12 which equals 0.005. This is then multiplied by the balance at the end of the preceeding month. If the balance is $100,000 the interest payment would be $500.
In a 6% HELOC loan, the interest for a day would be 0.06 divided by 365 which equals 0.000164, which is then multiplied by the avarage daily balance during the period of a month. If this would be $100,000, the daily interest would be $16.44 and that would make it to be $493 or $510 per month depending on if its a 30-day or 31-day month.
HELOC advantages
HELOCs are good loans for funding intermittent needs, such as paying of a credit card or paying collage tuition. The upfront costs are relitively low. On a $150,000 standard loan, settlement costs may range for $2-5000 unless the borrower pays an interest rate high enough for the lender to pay some or all of it. On a HELOC with the same amount, costs would seldom exceed $1000 and in many cases this is paid by the lender without a rate adjustment.
“Financial Management” is a field that is primarily concerned with the managing of funds. Proficient use of capital funds can be termed as “Financial Management”.
Phillippatus famously stated, “Financial management is concerned with the managerial decisions that results in the acquisition and financing of short term and long term credits for the firm”. It can be concluded from the above statement that the two main areas concerning financial management are:
· Procurement of funds
· Effectual usage of funds to fulfill the business goals
Procurement of funds is mainly concerned with obtaining finance from various sources which can be the first step towards starting a business. There are three major factors that come into the picture while obtaining finance namely, risk, cost and control. Funds procured from the equity shares are ideal from a company’s perspective since repayment of equity capital can arise only when the company is under liquidation. The most expensive source to procure funds is equity capital since the shareholders expect greater dividend as compared to the current interest rates. To keep risk and control balanced the cost of the funds must be at a minimum. Both domestic markets and markets of abroad can be prospective sources for raising funds.
Raising the funds is one thing but if the raised funds are either kept idle or are used in a wrong manner, then the business is going to procure losses. So effective usage of the funds raised is also a major area of concern. Thus it becomes of extreme importance to make sure that funds raised are employed properly and profitably. If there is money, there will always be an urgent need to manage it and so financial management is a field which will never face a downfall. It is essential for both profiting and non-profiting firms. There are instances where organizations have been liquidated for sheer mismanagement of finances.
The two main objectives of finance management are not two of the most difficult to guess every firm wants the same:
1) Maximizing Profit- is to be attempted only after realizing the probability if the risks involved. So it is necessary to balance both of them. One more thing is that it never takes in to account the social aspects.
2) Maximizing Wealth- Wealth of a firm is the market price of the firm’s common stock. This market price can be the progress chart to a firm’s progress. This price is a function of two values:
· Expected rate of earnings per share(EPS)
· Capitalization rate
Funds can be procured from long term sources like owners that are shareholders, financial institutions like banks etc. while short term sources are commercial banks, public deposits etc. Performance of a firm is evaluated on the basis of a technique called Ratio analysis which enables an investor to take the various ratios into account which helps him to decide whether to invest in a firm or not.
The above mentioned aspects make “Financial Management” extremely important for a firm’s progress, more so for developing nations for the scarcity of resources and greater demand of funds.
Do you have bad credit ? Bad credit is the number one thing that will turn a potential lender into a non-existing one. A loan can be very hard to find when you have a bad credit history. However there are a few out there that might get lucky or have a bank that is willing to take a chance on person with suspect credit.
This may be for a personal loan or a mortgage to buy or refinance a house.
The hardest thing to do when you are in this situation is to get a bank that will actually listen and hear you upfront, a lot of the time a bank or lender will not even give you the time of day and pass up such application.
Many people are discouraged when attempting to apply for a loan, usually a person is highly embarrassed to go in and sit down and talk to someone on getting them selves approved. The result to this maybe a potential applicant goes online and fills out the first offer they see, is immediately declined and runs back and buries themselves in a hole for the winter.
Usually with online credit checks this is the way they work, online applications are usually bad from the start because once the credit check indicates a default or a less than perfect history; the decline is activated and without further chance to explain your circumstances you are rejected.
There is many ways around this problem.
There is a special area of expertise for your type of problem and there is a common solution.
There is professional finance brokers that are trained to work with people with these problems and set themselves apart from the average mortgage broker who is just looking to wheel and deal and make a quick buck of your situation and going to leave you high and dry running with your money, as these mortgage get paid on a very much higher scale commission.
These professional finance brokers will not only help you in your time in need but will specialize in helpful information about resources you can access to improve your chances of successfully applying for a loan.
Just for your information when searching for a mortgage broker that non conforming lenders offer a much higher commission for there brokers, up to three times the amount of average lenders.
This is why they are so “EAGER†to “HELP YOU†as it seems, but they are only looking to better themselves.
Make sure to ask plenty of questions when going into this process as you would not want to be scammed.
Some questions you may want to ask would be, are you a specialist in non conforming loans? How long have you been dealing with bad credit applications? What special services do you offer people with bad credit problems?
These questions should better help you in your pick of plenty of options.
Always remember that a good broker will take every thing into account and go through the full process asking you a array of questions, some personal ones too.
Do not be alarmed , if asked to provide further documentation be of use and gather all the past documents you can as this will help your application to the full extent.
In conclusion , refinancing with bad credit can seem to help you in the biggest potential way possible.
In many more ways then you have realized.
One you are in control and working with the right broker you will on your way to refinancing, even with your prior bad credit history.
Project Finance deals with gathering of funds for financing an economically separable capital investment project. Here, the people who provide funds, basically keep their eyes on the cash flow from the project which for them is the source of fund to service their loans. This method of financing is more intricate and more costly as compared to the other financing methods. The fields where such a method of financing is used are mining, telecommunications, other public utility services all of which are constantly under a various number of risks. Therefore, it always requires a set of companies which work under a deal in a network.
Such financing is primarily used for long-term infrastructure and is a complicated financial structure. In such a finance structure, the debts of the project and equity used for financing it are all paid back from the cash flow obtained from the project instead of general assets which is normally the case under other financing methods.
With such high risk factors involved, even the financing is done in a typical manner involving more than one or several parties that invest simultaneously on the same project. This is to divide the risks associated with the project, while ensuring profits for all the financers, if the project is a success. Generally, in a project finance scheme a large number of equity investors are involved, called the sponsors. Also involved are a number of banks that provide loads for the project operations. The kinds of loans provided are primarily of two kinds:
1) Non-recourse loans
2) Limited recourse loans
Non-recourse loans are those that are protected by the project itself and are compensated entirely from the cash flow of the project. On the other hand, the limited recourse loans are protected by the sponsor’s guarantee. If the complexity of the project is more, then various other factors come in for security like insurance or even corporate finance.
There are many factors that complicate matters in such financing scheme. The minority owners of the project might desire to use the “off-balance sheet”. In this sheet, they reveal their partaking in the project as a venture and leave out the liability from financial statements by claiming it as an annotation related to the venture. One other factor that is concerned only with the developing countries is the war risk insurance or terrorism insurance. Such insurance does not come under the standard policies. But with such forces involved it will increasingly become difficult to complete the project on time. Also many a times a third party insurer might issue a performance bond to make sure that the project is completed on time by the contractor.
Thus, from the above talks it is quite clear that project financing is by far the most intricate of all the financing methods. And it needs certain requirements to be met before venturing into such a financing scheme. But it is the best suited scheme for huge projects where long term investments are expected with magnanimous infrastructure and large amounts of money at stake both for losses and for profits.
The chief goal of any company is to have a rise in the shareholder’s value taking into consideration the application of responsibilities and laws. Corporate Finance deals with the issues and strategies of finance which are aimed at achieving the business goals is coined as “Corporate Finance”.
In order to have a higher value of share holders, it is important for the managers to know the effect of the decisions they take, which can allow them to make better decisions. For this, one needs to evaluate the equity value of the organization at regular intervals of time. The simplest way for making this happen is by evaluating the balance sheet and having an assessment of the same by subtraction of liabilities from the assets. But, there are several setbacks about using this method since assets recorded are have historical costs that bear no resemblance to real value also many patents fail to find place in the financial statements which have a greater impact. Thus, though simple, this method is not accurate.
Apart from this, a firm’s equity can be evaluated by predicting the cash flow patterns in future. A model of valuation that works on flow of cash in the business can be of great help to corporate finance since it provides the actual impact of the financial decisions.
Many people have known to mix up cash and equity but there is a distinction between the two. Equity means the total of shares at par value, paid-in-finances and ploughed back profit in terms of retained earnings. Retained earnings lie on the Liabilities side in the balance sheet as opposed to cash. Equity changes with changes in net income and loss, dividend payments, issue and repurchase of shares while cash changes depends on the statement of cash flows.
The cycle of cash is an important term for corporate finance since it determines the company’s requirement of finance. The cash cycle can be calculated as below:
Inventory days + receivables days – Payables days
If sales increase whereas cycle of cash remains same in duration, then the need for finance requirements increases. Same is the case if there is increase in duration of cash cycle and no rise in sales. Financially, it is a better decision to have a reduction in the duration of cash cycle, but it needs to take the impact on the operations into consideration
Various financial ratios can be used as criteria to evaluate the performance of any firm. Such a ratio is used to gather information regarding the leverage, margins, turnovers, return of liquidity as well as equity. And comparing these ratios with those of the prevailing firms in market can give important information about our position in the market, financially.
Bank loans also come under corporate finance. It is possible to segregate loans on the basis of their duration, long term and short term loans. Revolving loans are a separate kind where one can take a certain credit level anytime over the period of the loan; such loans are termed as “evergreen loans”. One more aspect is the sources of cash for a firm. Two sources are available for this i.e. either reduction of assets or rise in equity or liabilities. In a similar manner, a firm can use cash by having an increase in assets or decrease in equity or liabilities.
The above factors regarding corporate finance are seemingly helpful in fulfilling the goals of raising capital, investments the firm should make, the percent of profit to be returned to the shareholders in dividend.
So it has finally happened, you are buried up to your neck in credit card debt and you have no cash to bail you out, let alone know how.
There are many people in the same exact boat you are in, do not feel as if you are all alone!
Is it usually around the middle of the month were you begin to drag your feet to get the mail knowing those evil credit card statements have arrived?
One of the first things to help you get out of your credit card debt is to admitting that you have it. Once you can fully come out and say that you have a debt problem and spend just a little bit too much every month, you have taken the first step.
If for any reason you are in denial and have not admitted to a debt problem, sit back down re-look and think your situation.
It is very easy for people with such busy lives as our selves to over look the problem, or better yet push it aside and refuse to accept it.
Another great thing to do after this step is to sit down and look for ways to rearrange your budget to start to pay off these hefty wallet weights. When doing this take all expenses into account and determine how much is it that you have every month to set aside to start knocking these bills down. Write down how much bring in vs. how much you have to pay out, the goal here would be to have more coming in then going out.
Think about this, use your savings account to get ahead ,if you have one this can be a great idea, as your savings draws a little small percentage of interest compared to you credit card interest for borrowing there money. Think once your credit card debt is paid down and your monthly payments are lower, you can now use this money that you were applying to your debt back into your savings and start to build a interest of savings and you can continue to do this all the way until your credit card debt is paid off and beyond.
Another means for paying off some of this existing debt is to pick up a second part time job. I know many people will say they do not have the time, BUT , this can be a key asset to knocking away your existing debt. To think that only a couple more hours a day at a second job over a short period of time can eliminate your financial headaches.
I mean it would be a lot better that way then to become unbreakable in credit card debt.
One last thing you can do is call your credit card lender and ask if there is any chance in having your current interest rate lowered, this can help you when paying your monthly payments and pay more towards principal then interest.
Last but not least there is always personal help, this ranging from a debt counselor to a debt consolidation program.
What ever the solution to the problem you choose stick with it and really make a effect to get out of debt, credit is every thing and it cant afford to be ruined.
Are you stuck in a rut , lost your job or having troubles making your monthly payments?
Then debt consolidation should be something to think about. A debt consolidation loan is a loan desired to help one lower there monthly payments on various loans as well as a lowered interest rate. These loans are designed to help those who are buried and cannot afford to make there minimums on all of their outstanding bills they have acquired.
If you personal debt seems to keep on getting bigger and bigger and wont stop or go away, the best action step to take would be to set up a finance management strategy to help you overcome these heartaches. The first way to start would be to consolidate all of your bills into one. This will create a lower monthly payment and interest rate on your balance.
By doing this you are making a strong effort attempt to pay of your debt in a fraction of the time and price then if you have not consolidated.
When looking for a debt consolidation loan you want to make sure you are looking at a loan that will come at a much lower rate of interest then your existing store or credit card loans.
Then you can consolidate the debt by paying off the high interest borrowing into a single debt.
When doing all of this you are reducing the number of payments you have and making your monthly budgeting a lot easier task to handle.
Some examples follow:
Debt consolidation loans : This maybe either secured or non-secured. Secured debt consolidation loans require you to use your property as collateral. Secured debt consolidation loans, generally allow you to borrow a larger amount at lower interest rates and to pay back the loan over a longer period
Notice I would like every one to take into account when doing these types of loans your home is subject to collateral for security of the loan.
Unsecured consolidation loan : a unsecured loan, more flexible and are available to people who don’t own their own property. Unsecured debt consolidation loans are generally quick to get because they don’t require the time consuming valuation process associated with secured loans.
So for what ever the purpose or your case maybe, consolidation loans can prove to be the right move for you and eliminating your debt problems.
British banks increased willingness to take risks when it comes to lending sets the health of the economy at danger.according to the Bank of England’s twice-yearly report, the banks growing hunger for risk-loans is beginning to threaten the whole countries economy stability. The report also tells us that the stock wobbles that have been felt twice had no impact on the banks behaviour.
Quoting from the report:
“Anchored expectations of macroeconomic stability and competitive pressures in the financial sector appear to have encouraged a further increase in risk-taking,”
John Gieve, the deupty governor of the Bank, claimed that the financial markets have continued to be vibrant and core institutions are highli profitable. The economic outlook have been to favourable.
“But risk-taking is increasing, including through higher leverage, lower margin requirements and relaxation of covenants,” he added.
Lending is have already reached the limit in the UK, with consumer borrowing thought to be in the region of £1.3 trillion.