Archive for the Balance Transfers Plus category.

What Is A Heloc?

Posted on February 17th, 2008 by admin in Balance Transfers Plus

What Is A Heloc?
What exactly is a HELOC? Let’s first define what those letters stand for: Home Equity Line of Credit or Home Equity Line. This type of loan allows the borrower to write checks or pull cash out against their home equity up to a certain, predetermined amount.

By comparison, a conventional loan is paid back over the loan term, while the borrowed money is either given to the borrower or used to payoff a previous mortgage, credit cards, student loans, etc. A HELOC allows the borrower to withdraw funds up to a predetermined amount and the monthly payments will be based on the actual money withdrawn. For example, if you acquired a $50,000 HELOC on your home, you would be able to write checks against that credit line up to $50,000, at which point your HELOC would cease to allow you to draw against it. Your monthly payments would be based on the amount withdrawn from the credit line. If you only borrowed $20,000, then your monthly payment would be based on that amount.

A HELOC is often likened to a giant credit card with your home used as collateral. They are most often a second mortgage on a home, and are best used for temporary needs such as short-term financial help for your small business, paying for college, paying off credit cards, or even for home remodeling. A HELOC is also nice to have for a “reserve fund” in case of unforeseen emergencies.

Most HELOC’s have what is called a “draw period”. This time frame – which is usually from 4 to 10 years, is when you can get cash against the credit line. During the draw period, the borrower typically only has to make interest-only payments on the loan. After the draw period ends, the loan goes into a “repayment period”. This time-frame can last 10 to 20 years. The monthly payment during the repayment period will reflect the balance at the end of the draw period along with the current interest rate. However, some HELOC’s require the borrower to pay the entire loan in full at the end of the draw period. If you are considering a HELOC, I highly recommend you speak with your loan broker and have him or her clearly define the draw period and the repayment period for the loan you are applying for.

Lending fees are typically much lower on a HELOC than a conventional loan. A HELOC will cost anywhere from .5% to 1% of the credit line, and sometimes those fees will be waived altogether by your lender. On the other hand, a conventional loan will typically cost anywhere from 2% to 5% of the total loan amount.

A Home Equity Line of Credit is an ARM, or an Adjustable Rate Mortgage. This means your HELOC interest rate will be subject to the rise and fall of the current prime rate. Any changes in the prime rate can adversely affect your HELOC the very next month. And most HELOCs (but not all) do not have a fixed introductory rate, meaning the initial interest rate is not guaranteed (locked in) for a specific number of months. If your HELOC does not have a guaranteed, fixed initial interest rate and the prime rate moves 2% against you, then your HELOC’s interest rate will go up 2% the very next month. HELOCs – unlike conventional mortgages, do not have rate-increase caps. Essentially, they could increase to their maximum interest rate in a very short period of time, which is 18% for most states. This high interest rate is why most loan brokers refer to them as giant credit cards.

If you are considering a Home Equity Line of Credit, make sure you determine the following before you sign loan documents:

Draw period – find out exactly how long you will be able to draw against the loan.

Repayment period – find out exactly when the repayment period begins and how long it will last.

Guaranteed Introductory Rate – do you have a guaranteed interest rate? If so, how long will this rate last?

A Home Equity Line of Credit is much riskier than a conventional loan. However, for the right situation, HELOCs do have their uses.

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Balance Transfers Plus

Posted on February 17th, 2008 by admin in Balance Transfers Plus

Balance Transfers Plus A Savings Account Equals Easy Cash
Most people are well aware of the old credit card game of exploiting 0% balance transfer deals to avoid paying interest on their debt, shifting the balance from card to card, always moving the debt along before the end of the introductory period to avoid interest charges almost indefinitely.

While this still works well enough, the introduction of balance transfer fees has somewhat cooled many people’s enthusiasm for this activity. Although you can still save money by doing this, it is no longer completely free, and in any case the tightening of the credit market means that it can be more difficult to get a credit card these days, especially if you have debts or a less than perfect credit rating. It is fast approaching the time for a lot of people that serious thought needs to be put into finally trying to clear those debts rather than moving them onto yet another card.

There is a more subtle approach to making 0% deals work in your favour though, and as it only applies to people with no debts and good credit ratings, the introduction of the balance transfer fee, although still unwelcome, has not had as profound an impact. We are talking about the activity informally known as ’stoozing’.

This practice requires a balance transfer credit card that allows the facility to be used to pay off bank account overdrafts, as well as debts held on other cards. Not all cards will allow this, so check the small print before applying.

The basic technique is to acquire a suitable credit card with a high credit limit (hence the need for a good credit rating) and use it to pay off an ‘overdraft’ in your current account. In reality, this overdraft doesn’t exist, but your credit card issuer is not to know this so long as you don’t choose a card issued by your own bank!

If you transfer your entire credit limit into your current account, you can then transfer the funds into a high interest savings account where it can sit for the length of the introductory period, steadily earning you money in interest payments, before transferring it back on to the credit card to clear the debt before interest begins to be charged. But how effective can this really be? Let’s look at some figures.

For a simple example, suppose a credit limit of $10,000 was transferred for a period of 12 months. This would earn you $600 over the year if you put it into one of the best buy accounts earning 6% or more in interest. Of course, these days a balance transfer fee will probably apply, which at a rate of 3% would cost you $300, leaving you $300 in profit.

This equates to a 3% return on the deposit of $10,000 which isn’t perhaps that impressive - until you remember that the original investment wasn’t made from your own money, but from the credit card issuer’s funds, so it really is money for nothing.

Of course, the amount you can make with this technique will vary according to the various rates and charges of the individual credit cards and savings accounts you use, and in most cases tax will also be due, but the maths is simple to see if you will come out ahead. And, even if the actual profit involved isn’t huge now that balance transfer fees are here to stay, there’s at least a little satisfaction to be gained from profiting at the expense of huge financial corporations!

Article Source: http://articles-galore.com

Michael writes for the credit cards site Card Sense, where you can compare 0% balance transfer offers, low rate cards, cash back deals and more.

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