Mark Martin asked:


Texas usury laws say that interest rates cannot exceed 18% …which would be the max rate a buyer would pay if they were crazy enough to agree to an 18% interest rate.

As a seller of hundreds of seller-financed notes in the Houston real estate market, I have charged anywhere from 8% to 12%. The rate will vary depending on annual salary, credit history, employment history and how much down payment. Typically, the more favorable the credit factors means the lower the interest rate, and/or the larger the down payment usually means a lower interest rate.

Bear in mind, if you choose to seller-finance your property you are passing on the option to cash-out and put that money to work in a CD, T-bill, stock market, etc. And, instead, you are choosing to create an asset backed note receivable (the mortgage you accept backed by the house as collateral) with a better rate of return than you may get in the money market or stock market. Also, you are taking on the responsibility of managing / collecting a mortage and enforcing it if the mortgagee (buyer) starts to miss payments. Because of these factors, you should be compensated with a higher interest rate than on a traditional mortgage.

You could also think of this as “what return on investment am I willing to accept by having this buyer as a credit risk?” Bad credit, low down payment and poor employment history would likely mean you would want a higher return; verus, good credit, strong down payment and stable employment would likely mean you would accept a lower rate of return.

If you think 8% – 12% seems high compared to standard mortgage rates ….I usually tell my customers that if they want a better interest rate than I am offering they should consider getting a traditional mortgage and paying me off.

In my opinion, the interest rates on seller-financed homes for sale in Houston usually run between 8% – 12% when considering the above information.



GLEN

John Mazzara asked:


For many seniors, home equity is roughly 30-40 percent of their net worth. They are house poor often times and don’t have the available funds to make repairs. If you and your spouse are both at least 62 years of age and have significant equity in your home, a reverse mortgage can turn that equity into tax-free cash without forcing you to move or make a monthly payment. YOU DON’T NEED A JOB AND YOU DON’T NEED CREDIT! Age and equity are the only qualifying factors.

A reverse mortgage can be a worthwhile financial tool if used correctly. At the same time, you could make some serious mistakes with your financial future. For example, you don’t want to take your equity and run down to the casino.

A reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a number of forms:

A lump sum cash payment;

A monthly cash payment;

A line of credit

Some combination of the above. When the owner dies or moves away, the house can be sold, the loan paid off and any leftover equity value can go to the living owner or the designated heirs. Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within six months with the option of two 90-day extensions that must be applied for. Unfortunately, heirs often discourage people from getting a reverse mortgage because they are afraid of losing their inheritance.

There are three basic types of reverse mortgages:

Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;

Home Equity Conversion Mortgages (HECMs) are federally insured reversed mortgages backed by the U. S. Department of Housing and Urban Development (HUD);

Proprietary reverse mortgages are private loans that cover home values usually over $600,000. Some loans are conventional loans, some are proprietary loans held by certain lenders and some are insured by FHA. The size of a reverse mortgage is determined by the borrower’s age, the interest rate and the home’s value. The older a borrower, the more they can borrow, but the amounts are capped by the maximum FHA loan limit for each city and county. The amounts vary from $200,160 in rural areas to $362,790 in many major metropolitan areas. In Alaska, Guam, Hawaii and the U.S. Virgin Islands, the FHA mortgage limits can be adjusted up to 150 percent of the ceiling based on the area. If the FHA modernization Act is passed, it is possible that the FHA loan limit will be raised. This would be great, since it seems that FHA is the mortgage loan that generally gives more equity to the senior.

Reverse mortgages have traditionally been chosen by older Americans who can’t cover everyday living expenses or who otherwise need cash for such things as long-term care premiums, home health care services, home improvements or to pay off their current mortgage or credit cards greater than their income can support. More recently, though, they’ve become popular with individuals who see them as a better alternative to home equity lines. Some use the proceeds to supplement monthly income, buy a car, fund travel and second homes. Evaluate with the help of a financial adviser if reverse mortgage funds can be used to restructure estate taxes.

You will have to consult with a financial planner before you’re granted this loan – that’s one of the requirements. This step can be completed within the first few days of the process. The basic loan closing now takes place in about 30-40 days from the date of application. Generally the only out-of-pocket cost is an appraisal fee ranging from $300- $500. There is required counseling to make sure that you are making the right decision for you.

Here are other things to consider-some of these are risks:

Cost: Reverse mortgages are generally more expensive than traditional mortgages in terms of origination fees, closing costs and other charges. The basic FHA-backed HECM loan finances these fees into the initial loan balance, and they can run between $12,000 and $18,000. The loans are based on anticipated home value appreciation of four percent a year, so if the housing market is healthy, those costs are generally recovered in a short period of time. But if the housing market sours, it will definitely take longer to recoup those fees.

You’ll need to make sure you’re not endangering your federal retirement benefits: The basic FHA HECM is designed as tax-free income to the senior receiving their Social Security income. However, if your total liquid assets exceed allowable limits under federal guidelines, you might endanger your benefits. This is another critical reason to work with a financial planner on this decision.

Rates: Reverse mortgages have rates that are typically higher than those charged on conventional mortgages. Interest is charged on the outstanding balance and added to the amount you owe each month. Again, check the total annual loan cost.

Your mortgage can be called due and payable: The homeowner or estate always retains title to the home, but if you fail to pay your property taxes, adequately maintain your home, pay your insurance premiums, or change your primary residence, the lender can declare the mortgage due or reduce the amount of monthly cash advances to pay those overdue amounts.

Did you know that you can actually use a reverse mortage to buy a house? How do you do it? Let’s take an example: maybe you sell you are a senior that sells their home and nets 300K. Next they can go buy a new home for about 500K, by putting down 300K, and financing the other 200K with a reverse mortgage. Maybe a senior would like to move from their older house of many years to a new condo or loft. This would be a great way to do it.

Talk to your kids as their ignorance of this product may cause them to give you bad advice. If your house is your major asset, getting involved in a reverse mortgage may not leave much to the next generation – if it appreciates, there may be some difference that the kids can have. That’s why that in addition to discussing a reverse mortgage with a financial adviser, seniors need to talk with their family.



MOHAMMAD

Ravi Verma asked:


plained in the previous post,many bonds contain a provision that allows the issuer to retire,or “call all or part of the issued before the maturity date”.This issuer usually retains this right to refinance the bond in the future if market interest rates decline below the coupon rate.

From the investor’s perspective,there are three disadvantages of the call provision.





The cash flow pattern of the callable bond is not known with certainty.





The issuer will call the bonds when interest rates have dropped.





The capital appreciation potential of a bond will reduced because the price of a callable bond may not rise much above the price at which the issuer may call the bond.





Many long treasury and agency bonds,most corporate and muncipal bonds,and almost all mortgage-backed securities have embedded in them the option on the part of the borrower to call,or terminate the bond before the ststed muturity date.Even though the invester is usually compensated for talking the risk of call means of a lower price or a higher yield,it is not eacy to determine of this compensation is sufficient.In any case,the returns from a bond with call risk can be dramatically different from those obtained from a nonmalleable bond.

The magnitude of this risk depends upon the various parameters of the call as well as on market conditions.Timing risk is so pervasive in fixed income portfolio management that many market participants concider it second only to interest arte risk in importance.

In the case of mortgage-backed securities,the cash flow depends or prepayments of principal made by the homeowners in the pool of mortgages that serves as collatevral for the security. The timing risk in this case is called prepayment risk.It includes cantraction risk-therisk that homeowners will prepay all or part of therir mortgages when mortages interest rates decline.If interest rates rise,however investors would benifit from perpayments.The risk that prepayments will fall down when mortage interest rate is called extension risk.Thus,timing risk in the case of motage backed securities is called prepayment risk,which included contraction risk and extension risk.



JOHNATHAN

Chester Tugwell asked:


1. Mortgage repayment calculations are possible is Excel using the PMT function.  The PMT function has the following arguments:

Rate – this is interest rate on the mortgage loan divided by 12

Nper – this is the term of the mortgage or the number of monthly repayments you will make. For example with a 25 year mortgage you would make 12 multipled by 25 monthly repayments.

PV (present value) – is the mortage amount – the amount you have borrowed, expressed as a negative value.

FV - you can leave blank. FV stands for future value.  As the future of the loan when it has be repaid will be zero and zero is the default for this argument it can be left empty.

Type – here you state whether you will make the payment at the beginning or at the end of each month, type 1 if at the beginning or 0 if at the end.  Sorry no option for halfway through the month.

2. An example.  John takes out a £250,000 mortgage over 25 years with an annual interest rate of 4.5%.  He will make his mortgage payment on the 1st of each month.

Rate would be 4.5%/12

Nper would be 25*12

PV would be -250000

Type would be 1

3. To practice this example in Excel, in a blank spreadsheet enter the following data starting in A1.

i) Rate goes in A1, 4.5% goes in B1 and so on for each row.

Rate                 4.5%

Term                25

Mortgage         250000

Repayment

ii) Click into cell B4 – this is where we will calculate the monthly repayment

iii) Now click on the fx button on the Excel formula bar just above the spreadsheet’s column headers. This will open the Insert Function dialogue box. In the search box type PMT and then click Go. Select PMT from the results list below and then click OK

In the Rate box type B1/12

In the Nper box type B2*12

In the Pv box type –B3

Leave the FV box empty

In the Type box type 1

iv) Click OK Your answer should be 1384.39



MARION

amilu stewart asked:


One of the major goals in planning your reitrement is to have enough income so that you don’t  outlive your retirement income. However, it makes no sense to literally kill yourself during your working years so that you end up with compromised health in reitrement. Or perhaps your have spent all of your time working and not developing outside intierests from work so that you reach reitrement very discontent and bored with a very narrowly based future. Many never learn that no matter how much money you have it will not buy excellent health, great friends or the interest in enjoying leisurely activities.

There have been many studies that show that retirees need only 40 to 60 percent of their preretirement income to live comfortably  in reitrement. In other words a retiree with a preretirement income of $75,000 will need only 45 percent of that income to be comfortable. There are many reasons why the financial requirements are less in reitrement. One is that most retirees have their mortages paid off and thus no longer have the responsibility of a monthly mortgage. Their children’s educational  expenses are over and they no longer have to set aside money for their retirement. They also can take advantage of senior discounts and because their inome is in a lower income bracket , their taxes are lower.

The irony of this information is that many retirees even with a lower income will find that they have more discretionary money to spend as the demands on their money have decreased. They will find that they will be able to live in a better lifestyle than they were in their working years.

Everyone’s financial needs are different, but most of us will find that we can live happy successful retirement lives on less than we anticipated. Of course, if you are an individual that has to have the latest in fashions, a new expensive car each year and stay at expensive resorts, you may never have enough money to retire. If you are one of these indidviduas, you will probaly never find happiness in retirement, as you will find that you will always have an emotional and spiritual need that no matter how much money you have you will never be content.

To achieve a successful retirement, look to achieve not only adequate financial resources, but more importantly mental physical and spiritual health through your friends, family and creative pursuits.

http://www.sites.google.com/site/astewart37 

Why do we use this expression?  What is the reason the”right side” of the ship is called “starboard”? In old English the word steor-bord meant the steering side of a ship. Early sailing ships had the steering oar placed on the right side of the ship. Today the old word stoer=bord has been replaced by starboard.



CLAIR