Posts Tagged line of credit
What is a Secured Line of Credit? How Can you Optimize your Secured Line of Credit?
Posted by Top Home Loans in Credit Information, Economy, General Banking, Mortgage Advice, Mortgage News on January 11th, 2009
When analyzing your finances with a financial professional, they may bring up the option of a line of credit to help with your financial needs. Most people, with no previous knowledge of a line of credit, have never learned how to use one or how to get the maximum value out of a line of credit. The line of credit, secured or unsecured, will provide you with many financial options to help you to minimize on your interest paid, and maximize on your borrowing ability.
What is a Line of Credit
A line of credit is similar to a bank account; however, instead of depositing money into the account, you can ‘borrow’ money from the account. A lender will discuss with you the terms of this account including a credit limit, an interest rate, and a repayment schedule. A line of credit is usual a revolving lending facility. This means that you can borrow from it over and over again without having to renegotiate the terms. If you have enough equity available in your house, then you can use the equity to have to get a lower interest rate, a higher credit limit, and lower debt repayments. If you have the ability to get a secured line of credit, then it is always a good idea to get one. Even if you do not plan on using it ever, there are still some advantages to having one. In Canada, you must have at least 20% of your house paid off in order to apply for a secured line of credit.
Maximizing the Leverage on your Secured Line of Credit
Once you have made arrangements with your bank to get a secured line of credit, then they will conduct an appraisal on your property. The lender will need to determine what the value is of your property in order for the bank to set a certain limit to what they can lend to you. If house prices are going down, then you should get a secured line of credit as soon as you can to make sure that you ‘lock in’ the equity of your property. By locking in the equity of your property, it confirms that if your property goes down in value, then you will still be able to get the money out of your property that you could of when you originally made a secured line of credit.
The second major detail of having a secured line of credit is that it puts a lien on your property. Once you have a lien on your property, then it is much more difficult for someone to attempt to conduct identity fraud in regards to the property, and cause you a serious headache if anything happens.
Once you have a secured line of credit in place, you can use it for many of the following things:
- Home Renovations
- Down payment on a new or additional property
- Debt Consolidation
- Income Subsidy
- Retirement Security
- Reverse Mortgage
- Day to day use
- Business Investing
- Direct Investing
- Retirement Savings
The list of activities that you can use the line of credit to help you to enrich your life is endless. Also, in many districts, if you use your line of credit to invest, then the interest may tax deductible. By using your property to invest, it allows you to leverage your property to be able to invest more and achieve a much higher return on your investment then with your own savings alone. The reverse mortgage and retirement savings is also a great way to live your retirement sensibly.
An excellent strategy used by many financial professionals involves leveraging your property for living comfortably in retirement, and purchasing sufficient life insurance, so that when you pass away, your property and estate will be paid in full for your heirs.
In the process of owning a house, it is not uncommon that you will have to do major repairs and purchase new furniture. It may not happen this year or not for a few years; however, the truth is that you will have to make major repairs sometime while in a property. You may not always have the thousands of dollars to replace a roof or to fix a damaged foundation; however, by keeping a secured line of credit at your disposal, then you will have the funds required when you need them.
You may not need a secured line of credit at this moment in time; however, it is always a good idea to have one available. You never know when something is going to happen and you will need the funds to be available to pay for the emergency. You do not know when things will change in the banking industry that could potentially limit your ability to even get a secured line of credit. The best time to get a secured line of credit is today, even if you do not need it.
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Debt and Money Management
Posted by Top Home Loans in Credit Information, General Banking on October 22nd, 2008
There are a few ways to make money in this world. The one major way that people look at gaining more money is by making more money; however, there are two other ways that you can make more money that most people do not think about when it comes down to your daily finances. The first way is by multiplying your money in the form of investments using your savings, then this can help your money to grow. The other alternative is to reduce expenses, and this is going to be the area that we will focus on.
Monthly Debt Repayment
In today’s cashless society, it is almost necessary to pay with credit cards. There are also tons of benefits that can be obtained by using this method of payment. For example, you can increase insurances, get buyers protection, reward points, cash back, roadside assistance, and other great perks; however, a lot of people use credit cards and end up accumulating a huge amount of debt, at a high interest rate, on the cards. If this happens to you, then the first thing you need to realize is that it is fine that you made a bill; however, you cannot leave that balance on the credit card and get charged interest. At the end of each month, you must pay off the balance of the credit card in full. If you do not have the money to do so, then pay off the credit card with a low interest line of credit. This will reduce the amount of money you are losing substantially if you do this every month.
Debt Consolidation
The second most important thing that you must do is consolidate all your debts into one monthly payment. This is crucial because once the monthly payments are consolidated on the lowest possible interest rate product, then you will be able to have lower monthly payments; however, you will also be able to pay more money towards your principle to pay off your balance owing quicker. The act of consolidating debt will also give you less things to worry about because you will have less different bills to pay at the end of the month.
Hierarchy of Consolidation
With so many different types of lending products available, what lending product should you use to consolidate your debt? It is important to understand that the goal is to get the lowest rate possible. This is because the less interest that you will be paying, then the more principle that you will pay and the quicker you will be able to payoff your debts. The order of the products that you should use is as follows, and based on availability:
- Mortgage Refinance: Payoff all your debts with your monthly mortgage payment, this offers usually the lowest interest rate and lowest monthly payments.
- Secured Line of Credit: If you have the available equity in your house, then you can use it to have a revolving line of credit at a very low interest rate. This is effective if you want to use it multiple times.
- Unsecured Line of Credit: If you do not have the equity in your house, or you do not own a house, then this is best option for you, because it will offer the lowest interest rate, and allow you to reuse it if needed.
- Loan: Highest interest rate product, other than a credit card, offers fixed repayment terms and a predetermined time frame to pay the debt in full.
- Low Interest Credit Cards: Sometimes, banks offer promotions where they will give you an extremely low interest rate for a certain duration of time. Make sure you are well aware of when the promotion expires, and move the money before the interest rate goes to a very high rate.
By investigating which option is best for you, then this could save you thousands of dollars in interest a year. Also, this is something that you should not wait on because the interest is accumulating daily, and the longer that you wait, then the more you will have to pay. This should be part of everyones financial strategy, so take advantage of the tools you have available before it is too late.
Getting a Perfect Credit Score
Posted by Top Home Loans in Credit Information on October 9th, 2008
A very high credit score is essential for getting essential products like loans, lines of credit, mortgages, and investment accounts. It is even an important factor in getting employment, relationships, finding housing, and other important social aspects; however, for many people getting there start in the credit world is tough because no one will approve them for a simple credit card.
You might of never had a need for credit or have had bad credit experiences in the past; however, you are not out of luck.
Going from 0 to 500
The first step to getting or rebuilding your credit is to get a few credt cards, but how will you get one if you get declined for every credit card application you make? Banks view you as very risky; however, many banks offer programs where you put $500 down on a secured credit card, that way when you shop with your credit card, you are using your own money. The fees on this card is limited; however, you have to come up with the initial $500 to start building your credit.
Once you have the secured credit cards, make sure that you are making all of your monthly payments on time, every month. Once you have been using this credit card to build your credit rating over the first year, then your credit report should be established enough to apply for unsecured credit cards.
From 500 to 800
Once you can begin getting unsecured lending products, you must follow these key rules in order to ensure that you maintain and build your credit rating:
- Pay your bills on time every month – This is extremely important, because the banks want to know that if they lend you money, then you are going to consistently make the monthly payments to pay off the loan. If you fall behind on your payments, then make sure you pay them as soon as possible. If you have anything go to collections, then this will have severe negative effects on your credit report. Do not let this happen.
- Keep revolving balances low – If you have credit cards, then try to pay off the balance at the end of each month. Many banks can setup your account so it will automatically withdrawal the funds from your bank account. High balances will negatively affect your credit report. Do not close old credit cards, the age of the account will keep your credit report strong. Old credit cards have a higher benefit to your credit report then new cards.
- Applying for Products – The credit bureau understands that people shop for loans, lines of credits, etc. to try and get the best possible rates. If credit reports are checked within days of each other, then this will not have much of a negative impact on your credit score; however, if you are completing credit checks on a monthly basis, then this will have a largely negative impact on your credit report.
- Limit Your Credit Cards – The average age of your credit products affects what your credit rating is. It is better to keep old cards and refrain from getting new credit products. It is always better to use an old product, then applying for a new credit product.
- Managing Your Credit – Do not apply for every offer that comes your way. When you get pre-approved applications in the mail, throw them away if you don’t need them. Only keep what credit you need and don’t carry too many unused credit cards; however, don’t cancel cards if you are not using them.
What’s in it for me?
When you have an extremely high credit report, there are many things that you can get that you wouldn’t be able to get with no score. The following is just a few of the examples:
- Employment – Some companies require a minimum required credit score for new employees.
- Housing – Most mortgages require a minimum credit score for you to be approved. Also, you can get better interest rates with a better score on your mortgage. Many landlords require a minimum credit score to rent a property to an individual.
- Credit Cards – Most cases you are required to have a minimum score to get approved. Higher benefits are on credit cards that require a higher credit score to be approved. Also, the rates can become lower if you have a better credit score.
- Lines of Credit/Loans – These require a higher credit score to get approved. Usually, these products have lower interest rates then credit cards.
- Mortgage – The higher your credit score, the bigger house you can get, the lower the mortgage interest rate you can get.
- Saving Money – With a better credit score, you can usually get a much lower rate on many lending products. This, in turn, will be able to save you a lot of money on interest rates over the years by keeping a good credit score.
- Relationships – When seeking a spouse, most people will not want to be with someone who cannot handle money, get approved for credit, or get a mortgage. This even applies if the person is making a six figure income because you will still require a good credit rating to get many of the better things in life.
By following these steps, you can go from a horrible credit rating to an extremely good credit rating. This will be able to open many doors in your life, and make your life that much better.