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Mortgage Basics: Hybrid ARM (Fixed-Period ARM)

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Hybrid Arm BasicsMortgage terminology is often confusing to people and the hybrid ARM, or fixed period ARM (adjustable rate mortgage,) is a good example. In fact, it would be fair to say that most people do not understand many of the terms used by mortgage lenders, and tend to blanche when the term ‘hybrid’ is used in any financial context.

Here is an explanation of some mortgage terminology that can be confusing. We try to explain what a hybrid AM is in easily understood terms.  Use our comments box to indicate whether or not we are succeeding, and also to suggest clarification on any other form of mortgage terminology you have come across.

Mortgage Terminology in General

Mortgage terminology has developed over a period of time, and tends to run in line with the terminology used generally in the financial sector. Many of the financial terms used by mortgage companies are common to lenders in general, such as banks, building societies and even in some cases the financial departments of large multi-national retail stores.

When discussing the word ‘rate’ in the mortgage sector we are specifically discussing the interest rate applied to a mortgage loan by the lender.

Fixed Rate Mortgages

We shall first discuss fixed rate mortgages so a comparison can be drawn. With a fixed rate mortgage you pay the same interest rate for the entire term of the mortgage, whether that is 15 or 30 years. You pay exactly the same monthly payment to cover interest and principal for the full 15 or 30 years. The longer the period, the more interest you pay.

You know exactly where you are with fixed rate mortgages. As natural inflation reduces the value of money, and incomes are increased in line, the amount you pay relative to the cost of living drops continuously until the loan period is up. So $500 per month in the year 2020, say, is less of a proportion of your income than in 2000 when your 30 year term began. That is one reason for many people liking fixed rate mortgage loans.

Fixed-Period Adjustable Rate Mortgages (Hybrid ARM)

This is an option whereby the interest rate is fixed at a certain level for a number of years. These periods are usually 3, 5, 7 or 10 year periods. Once the set period expires, the mortgage interest rate becomes variable.  The way it varies depends on variations in the Financial Index. It can go up or come down, although you are strongly advised to be ready for an increase.

Mortgage interest rates tend to start low with fixed-period adjustable rate mortgages. That is a major reason for their popularity. Homeowners pay less for the first few years and then, when they are earning more, they pay more. For some, this is the only way they can afford to buy their home shortly after starting work.

The terminology used to describe a Hybrid ARM describes the fixed interest term and the number of rate adjustments that may occur each year once the fixed period has been reached. For example, in a 7/1 ARM, the fixed interest mortgage period is 7 years, and only one change in the rate will be made each year after the first 7.

Mortgage terminology: Hybrid ARM Caps

The magnitude of interest rate changes is limited with Fixed-Period Adjustable Rate Mortgages. These limits are known as ARM caps.  There are two forms of such caps:

Lifetime ARM Caps: Lifetime caps set a maximum and minimum mortgage interest rate that cannot be breached during the lifetime of your mortgage agreement. This does not necessarily mean that the changes will be slight since the caps can be wide.  This can results in a substantial increase in your mortgage interest rate and consequently significantly higher repayment levels.

Adjustment ARM Caps:  Adjustment caps control the amount by which any individual adjustment can change your interest rate. Generally, this will enable the Lifetime cap to be applied over the term of the mortgage loan but not necessarily all at once from one year to the next.

So if you started at 3% with a lifetime cap of 10%, say, the Adjustment cap could be set at 1% or even 2%. With a 5-year fixed interest period you could be paying anything from 5% – 7% after year 7 with a maximum of 10%.

The Effect of Inflation on Adjustable Rate Mortgages

It is important with such hybrid ARM mortgage agreements that you are sure you will be able to meet the higher repayment.  The potential level of these rates will be known to you from your two Hybrid ARM caps. The maximum might never be attained, but if we enter an inflationary period such as in the latter quarter of the 20th century, interest rates can increase and you may well be paying the maximum rate.

Pros and Cons of Hybrid ARMs

The main benefit of an adjustable rate mortgage of this type is that you will be paying less when you are earning least. You may be able to purchase your home at a time when house purchase would be impossible with a regular fixed interest mortgage.

The major disadvantage is that inflation could result in a hike in your interest rate to the maximum allowed by the cap. This could lead to severe financial problems – perhaps even to you defaulting on your repayments. Be sure you will be able to afford the mortgage at the higher interest rate, and if not then seriously consider saving until you can afford a fixed interest mortgage.

However, Hybrid ARM fixed period adjustable rate mortgages have their usefulness, and many people believe it to be the ideal solution for them. Many such potential problems can become hidden in mortgage terminology.  It is our purpose here to explain the pitfalls and also the advantages of options such as those above.

Mortgage Questions: Mortgage Terminology Explained

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Mortgage BasicsThe mortgage questions we are asked are often based upon mortgage terminology. We shall start with some that relate to simple terms that are often misunderstood, and then progress to those that can really be confusing.

Mortgage Questions:  What is Pre-approval?

When you are looking for a new home, it makes sense to know how much of a mortgage you can raise.  You can then make an offer knowing that the funds are available should your offer be accepted.  Many mortgage questions we receive relate to the benefit of knowing the mortgage you are likely to receive before making an offer on a home.

Pre-approval, sometimes referred to as prequalification, involves a mortgage company checking your personal details before making a mortgage offer. These details will be your employment, income, banking details and your credit score (FICO score.) Fundamentally, your mortgage company will carry out all the checks they would have if you had already chosen your new home.

Rather than this happening after house hunting, you get it done in advance.  You can then avoid checking out real estate priced higher than the mortgage you will be allowed – plus your deposit of course.  You know the maximum mortgage you will get and know the deposit you can afford to pay – so you know exactly the maximum you can offer for the property.

Don’t offer this maximum immediately, because then you have no haggling ammunition. Offer a realistic sum, but maybe 75% – 80% of what can pay. You might be lucky or you might have to bump up to 100%, but at least you know the situation and won’t be disappointed by a mortgage refusal.

Question:  How do I Find my FICO Score?

Your FICO score (Fair Isaac Corporation), also known as your credit score, is a numerical indication of your credit worthiness at a specific time. It takes many factors into account. Lenders will check your FICO score before offering you a loan. A mortgage is a loan to buy real estate.

There are three major credit reference agencies, each of which holds their own credit records.  Each also calculates its own credit score, and each must provide you with at least one free copy of your credit report each year on demand. Credit scores are different – they are based upon your credit report, but not exclusively so.

A FICO score is not the same as a credit score.  The three credit agencies are Equifax, Experian and TransUnion. And each will calculate its own credit score. You must pay to receive these – they are not included in your credit report.

The only true FICO scores are sold to consumers by myFICO.com and Equifax.com and these are what are used by most mortgage companies in their decision. You must approach one of these sites and pay to see your true FICO score.  Your Experian or TransUnion score will be useful. However, Experian has severed connections with MyFICO, and TransUnion uses its own calculations now. Most lenders seek FICO scores rather than ‘credit scores’ – it might be a historical thing or habit, but that’s the fact of the matter.

Question:  What Does my Free Credit Report Tell Me?

Some mortgage questions relate to the difference between mortgage reports and FICO scores. You are allowed one free credit report each year from the credit reference agencies Equifax, Experian and TransUnion. This is not your credit score which must be paid for separately.  Of these three, only Equifax can provide you with a genuine FICO Score.

Your credit report will detail how much credit you have and with whom.  It will detail whether or not your payments are up to date, and if not, how much you are behind on each. Details of the type of loan or credit will be revealed – credit cards, store cards, car loans, rolling credit, secured loans, and so on.  It will also state what credit searches have been carried out in your name – the more of these, the lower your credit rating. Included can be all credit from your postal address – partners, children and tenants.

Mortgage Basics: Prepaid Interest and Escrow Accounts

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Prepaid Interest BasicsMany find it difficult to understand the concept of ‘escrow’ in general. We shall try to make that clearer here. First, however, the question of prepaid interest.

Mortgage Questions: What is Prepaid Interest?

In mortgage terminology, prepaid interest relates to an advance payment made to cover the interest due for the remaining days of the month in which the mortgage is closed. As an example, let’s say you closed your mortgage loan on 16th April. On that date you would prepay the interest due on your loan for the rest of April.

Whether mortgage closure was on the 1st April or the 29th, the prepaid interest would cover the interest due for April. 30 days interest on the loan in one case and 2 days in the second. Future interest would be paid in arrears.  Thus, you would pay May’s interest on June 1st and so on.

The reason for this lies in the way that mortgage loans are amortized. If there are more than 31 days interest due when the first mortgage payment is made, problems can arise in amortization calculations.

The  ‘ The Real Estate Settlement and Procedures Act’ brought with it ‘Truth in Lending’ and ‘Good Faith Estimate’ – it could not be met with the possibility of variable interest owing. To cut a long calculation short, the solution was prepaid interest, so that no mortgage interest due could be more than 31 days in arrears.

Question: What is an Escrow Account?

We get many mortgage questions about escrow accounts. When you take a mortgage you have payments to make in addition to your principal and interest commitments. You also have insurance and taxes to pay. Rather than relying on you to make the lump sum payments when they become due, the lender adds 1/12 of these payments to your monthly mortgage repayment. This is deposited into an escrow account.

An escrow account is one administered by a third party, and that cannot be used until certain contractual obligations have been satisfied by each of the original two parties. It is a way for the lender to make sure that the insurances and taxes are paid by the mortgagee. It is a common agreement in the USA and is usually written into the mortgage agreement. The escrow account is established by your lender, who pays into it the tax and insurance portion of your monthly payment.

How Much Money Can the Lender Deposit into an Escrow Account?

Many mortgage questions also relate to the sum  of money that lenders can deposit into an escrow account.  Your mortgage lender should total the annual sum of taxes and insurance premiums.  A sum no greater than one-twelfth of that can then be deposited into an escrow account – PLUS a contingency cushion. This cushion should be no more than is needed to avoid overdrawing the escrow account should taxes or insurance premiums be increased.

These conditions will be detailed in the mortgage agreement document. Conventional mortgages, not administered by FHA or VA, can waive the requirement for an escrow account if the equity on the property is at least 20% of its value.

Home Inspections: Reasons for Attending a Home Inspection

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Home Inspection BasicsHome inspections are important to home buyers, and it is worthwhile for you to attend a home inspection when buying a home. It’s also important that you understand the difference between a home appraisal and an inspection. Here is a brief explanation of that difference:

Home Appraisal

The appraisal is carried out by an appraiser or surveyor, and is an evaluation of the property prior to you making an offer.  Fundamentally, a home appraisal involves an evaluation of the structure, size and condition of a property to enable you to make a realistic purchase offer. Home inspections are carried out after this stage, once the appraisal has been carried out and an offer made – but before final contract signing.

Home Inspections

A home inspection is carried out immediately after going to contract. While an appraisal is generally mandatory before you are offered a mortgage, an inspection is not. However, it is advisable. The process is carried out by licensed home inspectors, who will check out aspects of the property such as its electrical wiring, plumbing, insulation and waterproofing.

While not mandatory, it is generally best to attend home inspections yourself. By doing so, you will have a far better idea of the infrastructure of your home than had you not been present. Here are some specific benefits of doing so:

Learn Where Things Are

You will find out where the power meters are, where the hot water heater is situated, and everything else connected with the home.  This is an ideal opportunity to ask the inspector about water and gas valves, and where any cables and coming are coming into the house. You can ask how your central heating works, and how each of the systems should be maintained.

Check the Appliances

If any equipment and appliances are included in the sale, such as cookers, ovens or even fountains and pond pumps, home inspections give you  the chance to make sure that these are operating as they should be. If not, then you have an experienced guy with you who can advise on your options.

Make Purchasing Decisions

This is your final chance before contract signing to see your new home without the seller tagging along. You can check basements, attics and the ‘cupboard under the stairs’ to make sure nothing has been hidden from you during the viewing. This is the best chance you have of seeing your potential new home in the raw before you sign the papers. You can cancel the purchase at this point if everything is not as claimed.

Understand the Report

A home inspection report is easier to understand if you have been present during the inspection. You should not take part in the inspection, but look at what the inspector is looking at, listen to the comments made and ask pertinent questions when there is something that confuses or troubles you.

By attending home inspections, you get to know your new home better than if you had not attended. You learn where the hidden things are – water taps, gas valves, electrical switches. You learn which is in your attic, your garage, and basement or even underneath the patio!  You might be surprised by how many people pave over a main valve controlling the water supply into their home!

Home inspections are worth attending, and most realtors and mortgage lenders would recommend you do so. The home inspection can be very revealing and very educational.

Mortgage Term Options: 15 or 30 Year Mortgage?

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15 vs 30 Year MortgagesOf the two mortgage term options, is the 15 or 30 year mortgage period better? These are the two common periods over which people choose to pay their mortgages in, so what is the difference? Obviously, the longer you take to pay, the less your monthly repayments will be, but what are the pros and cons of repaying a loan over a shorter or longer period?

Irrespective of the words used to describe it, a home loan is a loan just like any other. However, mortgages usually have the advantage of lower interest rates and the interest payments are usually tax-deductible for a normal family home. Here are some pros and cons of each.

The 30 Year Mortgage Period

The vast majority of mortgage terms are 30 years. This generally means that it will take 30 years to repay the loan. It does not mean that you pay the same interest rate for these 30 years, because 30-year adjustable-rate mortgages can be arranged with a lower rate for the first 5, 7 or 10 years, say. The rate is then adjusted to the standard at the time the fixed rate period ends – that could be a higher or lower rate.

However, that is all irrelevant to the discussion between 15 and 30 year mortgages.  If you intend to stay in your home and pay the mortgage off in 30 years then a fixed rate gives you more stability. Your repayments are lower than with a 15-year mortgage, and you can:

•    Be offered a mortgage that you would not be given over 15 years
•    Afford a home you could not repay over 15 years
•    Have more spare cash each month for improvements to increase its resale value
•    Sell your home at a profit to use as a deposit on a larger home with the same monthly repayment over what is left on the initial 30 years

The negative aspects of this longer mortgage term are that you are tied into 30 years of repayments, and may have potentially high early settlement costs. Check the cost of early settlement of your outstanding mortgage so you are aware of the situation should you sell up and want to clear your mortgage loan.

The 15 Year Mortgage Term

Some people prefer to take a mortgage over 15 years. By doing this they will make higher monthly repayments, but will pay less interest over the period of the loan. They will also own their home outright in half the time. You also build equity in your home faster, so you will find it easier to refinance if you wish to, or make more when you sell it to upgrade.

Depending on their statutory retirement date, elderly buyers may be restricted to a 15 year mortgage term. Few lenders will offer a mortgage running past retirement date unless there are specific reasons for doing so.

With a 15 year term, the mortgage will be amortized over the entire 25 years with a fixed rate of interest. You will know exactly what you are paying without the worry of rates increasing above an affordable level. Among the advantages of a fixed rate 15 year mortgage are:

•    Same payment every month for the entire 15 year mortgage period
•    Your home paid for sooner
•    Quicker increase in equity
•    Same mortgage available to 50 year olds as for 20 year olds depending upon your type of job
•    Less overall interest paid

Which is Best for You?

The above mortgage term options may or may not fits your needs, depending upon your personal financial situation. A 30 year term might enable you to buy a larger home – or might even be necessary to buy a home at all!

The main differences between a 15 or 30 year mortgage are that a) You can buy a larger home or pay less each month over 30 years, but b) you can own your home 15 years sooner over a 15 year mortgage term. There are alternative mortgage term options but these are the most common.

Interest only Mortgages and Deferred Interest Loans

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Interest Only BasicsInterest only mortgages and deferred interest loans are options to the normal way of paying mortgages and loans.  They can be a powerful loan option when appropriate for your specific scenario. Here is a brief explanation of each.

Interest Only Mortgages and Loans

Interest only mortgages and loans enable you to pay only the interest for a specified period of time.  You pay nothing towards the principal. There are options, however, that allow you to pay as much of the principal as you choose.

By taking this option, your monthly mortgage payments will be less than a normal repayment mortgage. Often significantly less, although the principal must be paid eventually. In the USA, interest only mortgages usually run for 5 or 10 years. You pay only the interest on the total mortgage or loan.

After these 5 or 10 years, your mortgage is amortized over the remaining period: 25 or 20 years in the case of a 30-year mortgage. It is obvious then, that with interest only mortgages you pay less in the first period and more in the second. The longer the interest-free period runs, the higher the payment for the final period.

Deferred Interest Loans

Deferred interest loans offer an alternative to interest only mortgages. With these, you pay an agreed minimum payment towards the interest each month – nothing towards the principal. You could therefore pay less than with the deferred interest mortgage.

However, if you pay just the minimum, the balance of the interest due for that month is added to the principal sum. So you pay less when you have less to pay, and more when you can afford it. If you pay the full interest, it is fundamentally the same as an interest only loan. The benefit is you can pay as much as you like when you have extra income.

If your income fluctuates monthly, such as if you have your own business, or depend on commissions for your income, then this is a better option that an interest only agreement. You pay what you can afford each month. The disadvantage is that you can end up owing more than you borrowed because your unpaid interest is added to the principal.

Who Benefits from Deferred Interest and Interest Free Mortgages?

If you can afford the total repayment – interest + principal – then do that. Try to choose a home that you can afford on that basis. Many people overestimate their future earnings, and find they cannot afford the final payment period.

However, if you know you will be earning more later, then an interest free mortgage or even a deferred interest loan may be of advantage to you. If are an ambitious newly-qualified professional, for example, and know you will be earning more in 5-10 years time, then these options are worth considering.

Here are some other situations where one or other of these options might benefit you:

You can use the money you save on your mortgage payment on an investment that offers a higher return than your mortgage interest rate. Since mortgage rates are generally lower than personal loan rates, interest free or deferred interest mortgages are more beneficial than the same arrangement with other types of loan.

If you intend selling within the 5 or 10 years. The principal sum paid in the time with a regular mortgage would be fairly low, so it would not make much difference to the balance you receive from the proceeds. This is particularly the case if you expect house prices to rise significantly over the next 10 years or so. Your equity will rise way beyond the significance of your principal repayments.

If you have a pressing credit card debt then the interest rate will be higher than that of your mortgage.  Your cash is better spent reducing that debt than your mortgage loan. Why pay $200 each month to reduce a 5% debt when you can use it to reduce a 15% debt?

Summary

Interest only mortgages are beneficial if you expect to earn more a few years down the line. You also gain if you have higher interest debts to pay off and in some other circumstances. Deferred interest loans and mortgages offer you even more flexibility in your repayments.  However they are not good for everybody, so check with your mortgage professional before making a decision.

Storm Cleanup Tips: Cleaning Your Home After a Storm

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Storm Cleanup TipsThe following storm cleanup tips are not only about cleaning your home after a storm for cosmetic reasons, but also making sure that there is no long-term damage such as rot or other forms of fungal damage. A storm can cause a lot more damage to the infrastructure of your home than might be immediately visible, so you must know how to do the job properly.

The recent Hurricane Sandy brought this home to many people who suffered the first genuine storm damage they have experienced, let alone the specific problems that a hurricane can bring with it.  Around 50 million people with homes on the north-east coast of the USA and islands close by were affected, and a lot was also learned from Hurricane Katrina in the southern states.

Here are some tips on cleaning your home after a storm or hurricane, and how to minimize the longer term damage as well as clean up the immediate effects.

1. Storm Cleanup Tips: Save Evidence

Before doing anything get some evidence of the damage done to your home.  Insurance companies will be looking for some proof to support your claims, so get out your camera and take photographs.  If your camera has been damaged in the storm, it will be worth your while buying a new one – you are likely to be claiming a lot more than just the cost of a new camera!

2. Dry Out Your Home

Before cleaning your home you will have to dry it out to reduce the potential for further damage down the line. Dampness leads to rot, bacteria, flies and many other problems. Start with the basement by pumping out the water – get a sump pump if you don’t already have one. Make sure any drains in your basement are clear, and that faucets and water pipes are closed and undamaged.

Mop up any pools of water from the bottom of your home upwards. A wet vacuum cleaner or even a carpet cleaner that sucks up water will be useful until a dehumidifier is able to do its work.  Keep doors and windows open to allow free circulation of air.

3.  Beware of Infection

Storms and hurricanes can cause raw sewage to seep up into your home from the sewage system, or even for contaminated floodwater to enter your home. Get a good disinfectant, or a strong bleach solution, and clean all the walls, floors and crevices.

Your furniture might be ruined, but if not give it a good clean with disinfectant solution. Make sure you wear gloves and protective clothing where there are obvious signs of contamination, such as visible sewage or foul odors.

4.  Repair Your Roofing

Repair any damage in your roof that could lead to leaks in the event of further bad weather. It is important to get your home as dried out as possible, and leaking roofs will not help. Dampness not only leads to mildew and other fungal growth but also to longer term structural problems such as corroding wall ties, metal fixings and crumbling bricks and plaster.

5. External Work

Storm cleanup is not restricted to just the interior of your home. Your yard will also need cleaned up, and you are advised to hire a professional for this if you have the cash.  Trees and shrubs may have to be cleared, but check first with your local authority and insurance company. Much of this cleanup work might be provided for you.

In general, when cleaning your home after a storm, you should make yourself aware of what the local authority and your home insurance will cover. Once you understand your personal responsibilities, do not hesitate but get you as dry as you can as quickly as possible. Only then will you be able to progress from storm cleanup to getting back to some form of normality in your life.

How Mortgage Rates Are Affected by Mortgage Backed Securities

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Mortgage Backed Securities BasicsMortgage rates are affected by mortgage backed securities, usually when the money supply significantly increases or reduces. It is important to distinguish between mortgage rates and the Federal Reserve interest rate, also known as the Discount Rate.  While the two tend to go hand in hand over the longer term, short-term variations can occur.

We shall ignore the Fed here and discuss only mortgage rates and how they are affected by investment in mortgage backed securities.

What are Mortgage Backed Securities?

When you invest in a mortgage backed security (MBS), you are fundamentally lending money to people who are buying their homes.  However, your investment is made to an institution responsible for passing the cash onto a mortgagee. That institution is then responsible for collecting the mortgage repayments, and paying you your interest.

In practice, you invest your money through an investment company who has a pool of cash to offer to banks to finance their mortgages. Your investment is backed by the mortgages that all of these banks offer their clients.

You receive your interest payments from the interest paid as part of the mortgage repayments and also from interest accrued on the pool of cash not yet loaned. The effect of a default in mortgage repayments in then minimized, and split between all investors.

Mortgage Rates and Mortgage Backed Securities

The one problem with mortgage backed securities is that this method of offering mortgages relies on its attraction to investors. In times of low employment, interest rates tend to be low in order to attract home buyers.  There is less cash available from the fewer employed to pay mortgages, so fewer homes are sold.

Lower interest rates are offered to make home ownership more affordable.  Because of this, investors receive less return, so they switch to the regular stock exchange for investment. In order to counter this, mortgage backed securities could increase mortgage rates to attract investors.  To do that, however, they need investors to provide the cash so it is a Catch 22 situation.

Why Mortgage Rates Increase with Higher Employment Rates

In addition to decreasing interest rates, less available cash means fewer mortgages.  This leads to less ROI for investors. The investors then still switch to the regular stock exchange that offers a higher return. When employment begins to rise, the greater demand for home loans results in a higher interest rate to attract investors in MBS in order to generate the cash to meet the demand.

Fundamentally, mortgage backed securities can cause mortgage rates to increase because of the need to attract investors to offer the cash to enable the purchase to take place. Going back to the bank Discount Rate, this also increases in order to prevent inflation. The higher the price of borrowing, the less likely people are to purchase on credit, but the more likely investors are to be willing to offer cash to buy homes.

Three Tips to Help Reduce Credit Card Debt

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credit-card-debtMany find it difficult to reduce credit card debt yet it need not be. When used properly, credit cards can be an extremely useful service, but never forget that this is a business, not a free service. Credit card companies rely on the interest you pay in addition to the charges applied to those that accept them, in order to make money.

If you pay only the minimum amount each month, you will likely never clear your balance. You eventually should theoretically, but you will likely be tempted to use the card again before clearing what you still owe. Having credit cards will improve your credit score, but your credit to utilization ratio should be low in order for it not to eventually affect your FICO score.

To reduce credit card debt, it is important that you first understand exactly what that is. Check all your cards and establish your current balance with each of them. Having done that, here are some tips to reduce what you owe:

1. Improve Your Interest Rates and Debt to Credit Ratio

Depending on your card, you can be paying from 15% – 30% interest each year. Check out the interest rate you are paying on each of your cards, and transfer as much of the balance in these accounts to lower rate cards. If you want to reduce your FICO score, then do that without taking out any new cards.

Call your current card providers and ask them for a reduced rate. Most want to keep you as a customer, so you might be successful. Also, redistribute your debt between your various cards. It is better to owe smaller amounts to multiple card companies than a large sum to only one or two. Your credit utilization ratio, or debt to credit ratio, is better that way, and your FICO score will not be adversely affected. Try to keep your debt on any individual card to below 25% of your credit limit for that card.

Many financial advisers will recommend you cancel the cards you have paid off, but think carefully about that. Get a second opinion, because many also believe that you would be better to keep old cards active in order to reduce your overall credit to utilization ratio. What you should not do is open up a new card: the credit search carried out will be recorded on your credit records, and additionally, cards without an established history of repayment will count against you.

2. Establish a Sensible Repayment Strategy

The most effective way to pay off your debt is to clear those cards with the highest interest rate first. Some people may prefer to pay off one or two cards with the lowest balance to get quick success and boost their confidence. While doing this might be a good incentive to keep going, it is not the best option financially. However, if you have seven cards, say, and two have only a few hundred dollars due between them, then it might help you psychologically to pay these off first while paying the minimum on the others.

Whichever course you take, you should write down your repayment plan and stick to it. Understand the minimum payments for each account, and also how much in total you can repay each month. Deduct the total minimums from what you can afford, and the balance will be the extra you should be able to pay to the highest interest cards. Either focus on the one that charges most interest, or initially pay that sum to those cards with the lowest balances as explained above.

3. Minimize Your Credit Usage

Not only should you maintain your repayment policy, but you should also put your cards into cold storage. Studies have shown that people who purchase by card will generally spend a lot more when they shop than those that pay cash. Work out how much you afford for your Christmas shop, and take that cash sum with you.

If you need the security, take only your lowest interest card with you and pay the entire debt when the bill comes in. It doesn’t make sense to work out a repayment policy to reduce your credit card debt while you are still routinely using the cards! There is also a fourth tip if you want to consider it:

Reduce Credit Card Debt: The Refinance Option

Another option is to remortgage your home for sufficient to either reduce your credit debt to below 25% of your combine credit limit or even repay it all and start with a clean sheet. Your refinance interest rate will be way below your credit card interest rates. For example, your credit card could charge an APR of 23% while you can likely get a remortgage deal for below 6%.

Yes, you could lose your home if you fail to maintain repayments, but you should find it easier to do so than repay a credit card at 3-4 times the interest rate. If in doubt, take the advice of a mortgage advisor as to the best way for you to reduce credit card debt.

Getting a Planning Permit for Home Improvement Projects

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Planning PermitsGetting a planning permit for home improvement projects is not always a simple process. It can take a lot of time, and cost a lot of money, so it is imperative that you follow the required procedures to the letter. Here are some tips on how to make your planning application go through as painlessly as possible.

A. Do You Need a Planning Permit?

Not all home improvement projects need a planning permit, although this can vary between states. Some recommend approaching an architect or building contractor and asking their advice. While some contractors will make the planning application for you this can be costly, since contractors are generally not as interested in your options as you would be yourself.

B. Approach the Local Authority

Many recommend that you do not immediately go to an architect or designer, but approach your local authority and ask exactly what they are looking for in the planning application for your home improvement project. Get it from the lion’s mouth and not second hand.

Explain what you have in mind, and ask what options are open to you. Make sure you have drawings of what you intend doing, and also any information needed on your property boundaries – photographs, deeds, drawings of fence lines and so on. A Google map showing an aerial view of your property would offer useful information.

Your local authority planning department will let you know what permits are required with your planning application, if any.  These could include planning permits, building permits, zoning issues and also keep you informed of any factors relating to public safety.

Also ask about combined permits, and whether or not you have the option to encompass the entire home improvement project under one planning permit. This could save you a lot of money in paying for an individual home improvement permit for each type of work to be carried out.

C.  Existing Planning Permits

Before making your application you should first make sure that any work already completed has the relevant permit. You will likely be asked for the permits of any other work already completed on your property. Your local authority planning department should have this information available.  If no planning permits are available it can be very costly for you to get them after the event!

D. The Planning Application and Your HOA

You might need permission from your Homeowners Association to carry out any exterior home improvement projects – even if your local authority has cleared the work to go ahead. Even if your contractor has arranged your planning permit, you still have to contact the HOA yourself. There may be restrictions on exterior colors, design or even on the sizes of conservatories, garages or sheds.

E.  Using an Architect or Designer

If your local authority or municipality has requested designs or plans for the proposed home improvement project, you should employ a designer or architect to provide these.  Make sure you select one who has a good record of successful applications and request references if possible. Make sure you are involved throughout the entire process, so you can be sure that the procedures are being followed correctly.

Finally. . .

Getting a planning permit for home improvement projects can be a confusing and time-consuming process, but you can make it easier by personally getting involved. Many people leave it to the contractor, although that could cost them more money and success is not guaranteed.

Having the proper planning permits not only keeps you within the law, but also adds to the resale value of your home. Doing much of the initial planning application work yourself speeds up the process, and also gives you the opportunity to cut your costs by cutting down on the number of permit applications you must make.

When applying for planning permits for your home improvement projects you should cooperate with the relevant municipal departments, with your architect or designer and with the contractor carrying out the work, and you will find it easier to achieve your desired results on time and at least cost to yourself.

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