•    Are you qualified for a private student loan?  The web site or paperwork for the loan application process should include some details about any credit checks or minimum requirements of income, debt levels or other assets that you will need before you make application for the loan.  Keep in mind that even if you get the loan, if your credit score is low, your interest rate may be quite high.

•    How will the lender calculate the interest rate on the loan?  Private student loans are almost always variable rate loans based on the current market interest rates.  So you usually will pay a certain percentage over prime.  An example is your loan interest might be 5% over prime.  If prime is 5%, then your interest rate is 10%.  Then your interest rate would only change when the fed changes the prime rate, which is not that often.  However, your credit report and score may determine whether you will pay 1% over prime or 10%.  And that will have a big impact on the affordability of the loan.

•    Is there an up-front fee?  This is a fee that you pay to help the lender with the costs of setting up the loan.  It is also called an origination fee.  Be sure you know how much that fee is before you authorize the loan so you don’t have a big surprise.

•    Can the payments be deferred until graduation?  Most students are not prepared to make loan payments.  If they could generate revenue, they would not need the loan.  Find out if the private loan you are looking at requires that payments begin right away.  That one thing could make private students loans not a valid option for you.

•    Is there a late fee if I miss a payment?  If so, what is it?  And will paying late on the loan cause your interest rate to change or affect the loan relationship in any other way?

•    If I am paying on the loan and I lose my job or get sick, is there a deferral program?  With federal students loans, deferrals or forbearance can be worked out.  With a private loan, you will have to make sure that is part of the loan agreement.  Sometimes you can add deference insurance but it might be at an additional cost.

•    Will my school work with the private student loan program?  Discuss it with your financial counselor so you don’t find out too late that the private loan hurt your ability to get other forms of student assistance.

By keeping your wits about you when you are researching private student loans, you ask the right questions and you can get out of a bad loan situation or negotiate for the terms you want.  There are always other lenders so use your flexibility to get the kind of loan that will do the best job of financing your education or the education of your loved one.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

The first thing to be aware of is that private education loans are not part of the federal student loan system.  The federal program is set up so everyone who qualifies gets a low interest loan that is a fixed rate and the terms are set up to the advantage of the student or borrower.

Private student loans are often variable rate loans and you must have a good credit rating to get this kind of loan.  That means that a student just starting out might need to get mom or dad to co-sign to get the rate they see on the web page.  It also means that, like conventional credit, if your credit score isn’t very good, you could end up paying a very high interest rate on a private student loan.

Private student loans are also susceptible to changes in the credit market, which means your interest rate is not set in stone.  Another difference from the federal programs is the repayment options are set by the lender.  While you might get a lender who allows you to defer payments until graduation, be sure you ask questions so you don’t face big loan payments while still in school.

Know If You are Protected

The federal student loan program is set up in such a way that protects for you, the borrower.  These same protections are not in place with private student loans.  A good example is in the ways that a borrower can seek a payment deferment or forbearance in the event of a financial setback such as losing your job.  There are protections in place so you can get that lenience under the federal program until you get back on your feet.

When you are negotiating your private student loan, forbearance and deferment should be part of your evaluation.  Don’t close on the loan until you know if you have a way to delay payments in the event of a financial emergency.  It is not required that private lenders give you that help.

For these reasons always explore federal student loans first.  Only turn to private student loans if the federal system is not an option for you.  Don’t bail out on the FAFSA system just because it’s a pain in the neck to do the application and it takes a while to get the loan.  But if you cannot use the federal system, be sure you have your wits about you with the right questions when you go after a private student loan.

Click here to see Part 2: Keeping Your Wits About You When it Comes to Private Student Loans Part 2

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

Its about the bucks!

Be careful when you are considering offers for a refinancing deal that talks in terms of percentages.  An offer to lower your month payments “by 5%” is too vague.  You need hard figures in terms of dollars saved by the lower interest rate and by that interest rate only to know for certain if the refinancing deal is wroth the effort in light of the costs.  Costs, after all, are hard dollar figures so to do a good job evaluating a new deal, you need savings expressed in dollars as well.

When you know in real dollar values what the new interest rate can do for you, there is another approach that could be the smartest way to leverage a newly refinanced mortgage.  Instead of taking out another 30 year loan with the new interest rate, consider using your calculation tools to find how to keep your current payment the same while reducing the term of the loan.  If before the refinancing, you still had 25 years left on the loan and you refinance into a 15 year loan at a lower rate, you save 10 years of payments and a lot of interest along the way.  And if the end results of that change is your monthly mortgage payment has not changed significantly, your budget is unharmed.  But you have taken a big step forward in long range financial planning.

After you have run your own numbers to determine if considering a new mortgage makes sense, be sure you connect with a loan officer you can trust to compute the real numbers you will see when the refinancing is done.  Make sure you are not only working with lending institution that you trust and with a loan officer who has some credibility.  That means that he is looking after your welfare and that he knows what he is talking about when you get into the nitty-gritty of refinancing a loan.

Your loan officer should not talk in the language of accountants using terminology that you cannot relate to.  If he seems to get a big kick out of confusing you and impressing you with fancy accounting terms, get out of there and get with someone who understands those terms but can also speak English to you.  That combination of expertise and customer concern is what you want in an agent you are entrusting with the biggest contract you may ever be involved with which is your mortgage.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

When you set up your original mortgage, part of all that legal mumbo jumbo was a clause that gave you the right to end the current mortgage and pay it all back if you want which is what you do when you refinance with another lender.  If there was any stipulation that you would pay a prepayment penalty in that original loan, that’s different but that kind of stipulation is rare.  But be aware of any prepayment penalty you agree to is put there for the good of the lender.  If the loan officer can get you to agree to one, they make a bigger commission.

The great thing about most mortgage contracts is you have the right to pay them off early but the lender cannot suddenly call for full payment of the loan and end the mortgage.  It is really unfortunate how many myths fly around about how to refinance a loan and how little is really understood.  The outcome is few people use refinancing in a smart way or at least not as smart as they could and they miss many of the benefits.

Know Your Loan.

Before you even make the first phone call about refinancing your loan, make sure you know all about your current loan.  Many people don’t even know the basics such as the interest rate they are paying on the loan they have now.   It only stands to reason that you have to have at least a basic understanding of the loan arrangements you have now to decide if the new loan offer is a good one or not.  So bite the bullet and pull your original mortgage finance papers out of storage and sit down with a cup of coffee and read them.

As you are reviewing the loan you are currently paying on, think through if this refinancing plan fits your financial goals and where it fits in your financial situation over all.  Things like your age, how much you make, how strong your asset picture is and what you want to achieve financially short and long term all must be factored in so the mortgage refinancing step you are considering fits perfectly with who you are financially and where you want to go with your money.

What’s In It for You!

Don’t be like too many mortgage holders and let potential refinancing partners intimidate you.  It’s a good idea to keep your eye on the prize which is how refinancing your mortgage can be a good thing for your family finances.  You do need to understand the costs but put the costs of the refinance into perspective of the long term pay back of refinancing your loan.  This is called a “cost benefit analysis” and it is an important part of any business decision.

A good rule of thumb is to evaluate the savings you will harvest when you refinance.  Understand that on an annual basis.  Then get a solid estimate of the costs of the refinancing.  Now do the math on how long this step will pay for itself.  If that payback is within a time frame you can live with, refinancing is a good idea for you.

Counting the Costs

There is an illustration in, of all places, the Bible that talks about how nobody who wants to build a tower would do so without knowing the costs.  So before you even consider signing any papers, you should know what refinancing your home loan is going to cost you.  There are a lot of online calculators that can help you do the comparison of the savings to the average costs of a mortgage refinancing deal to let you know if it is a good idea for you to consider the deal right now.

Generally the costs of a mortgage refinancing process are pretty cut and dried.  You will pay points which amounts of about one percent of the amount you are refinancing.  There will be an appraisal of your home which costs about $350 and the cost for the lender to get your credit report which is in the ball park of $20.  Costs you will pay at the time of closing are lender costs, closing costs and insurance for the title.  Those costs together will probably come in at around $1500.

Now there are some refinancing “deals” being advertised that say you can get your loan refinanced for no costs.  But you and I both know that those costs don’t go away and that lender is going to find a way to get them paid by you.  Many of these deals have a provision for the interest rate you pay to shoot up after you are stuck in the loan and that adjustment more than pays the lender back for eating the costs up front. You are far better off to just pay the costs when they are incurred and lock in that interest rate.

Click here to see Part 2: Navigating the Tricky World of Mortgage Refinancing Part 2

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.