|
Author: Andrew Baker Article source: http://refinancinghomemortgageloan.blogspot.com/. Used with author's permission.
How good would it have been had there been no obligation to repay the loan or mortgage? This is what most people think when required to make the monthly repayments. But try as much as they can, they are never able to change the situation.
The borrower has to cut his monthly expenses to provide for the repayment. The amount to be repaid includes the principal amount of the loan and the interest calculated based on the rate of interest prevailing in the market. This is the traditional method of repayment.
The loan amount is broken into a number of small parts for an easy repayment. The number of parts corresponds with the term of repayment. Thus, if the loan or mortgage is to be repaid in a period of five years, the number of equal parts of the loan will be 60. The repayments are to be made on a monthly or quarterly basis.
An improvement in the method above was made to reduce the burden of a borrower. The borrower is required to pay regular monthly installments as in the earlier method. After a certain number of installments the borrower can pay the remaining balance of the loan with a single balloon payment.
An alternative of the traditional method of repayment is an interest only repayment. In this type of repayment, the borrower is required to pay only the interest. At the end of the term of repayment or any particular time period desired by the borrower, the balance on the loan is repaid in full.
The monthly repayment in the interest only method is far lesser than in the former method. This is because the monthly repayment in case of the former includes both principal and interest. It is on this count that people prefer to repay through the interest only method. However, this method of repayment increases the cost of the loan.
A Repayment vehicle is created to repay the loan or mortgage at the end of the term of repayment. The borrower is required to pay a monthly figure into the repayment vehicle.
Pensions, endowment policies, and individual savings account are the most important repayment vehicles. Pensions are widely used for repayment of the loan or mortgage amount. An added advantage in case of the pension policy is that the employer pays half of the amount of pensions. Thus effectively speaking, the borrower spends only half the amount in the repayment. Being tax free, these repayment vehicles offer a cheap means of repayment.
Another method of repayment which is not very popular but can be used for short term loans is the payment of principal and interest in one installment. This is helpful for people who need funds during contingencies. They can pay off the loan when the situation improves. An advantage of this type of loan is that the interest cost is lesser.
If you find that the methods discussed above are rigid as to the amount of monthly installments and the mode of repayment, then the equal principal payments will be helpful. The interest in this method is calculated in declining balance method. Thus, it means that the repayments change every month according to the reduced balance.
Early or premature repayment of the loan or mortgage (if permitted by the lender) is another repayment method. Before signing any documents for loans and mortgages, one must see properly if the lender does not prohibit early repayment with a penalty clause. Refinancing a loan or remortgaging a mortgage can help customers get rebate for early repayment. These transfer the loan or mortgage to another lender. So the borrowers can benefit from a lower rate of interest and a rebate for early repayment.
Whatever be the method chosen, the ultimate end of it would be the repayment of the loan or mortgage in full. All forms of repayment have their respective pros and cons. A perfect match between the pros and cons of the repayment methods and the individual financial condition must be established in order to derive the best method of repayment. There is not always an easy return from a particular method of repayment. A wrong repayment method can be precarious to ones financial health. Andrew baker has done his masters in finance from CPIT. He is engaged in providing free, professional, and independent advice to the residents of the UK.He works for the personal loan web site http://www.ukfinanceworld.co.uk for any type of uk secured and unsecured loan please visit http://www.ukfinanceworld.co.uk
Free Markets, Farmers, and GM Crops
Many are condemning the latest GM Terminator seeds. Yet there is not need to cause a raucous because the free market will decide which seeds farmers buy? When a...
When Should You Hire or Fire a Life Coach?
Life coaching is a tool that has helped many people change or improve their lives through effective coaching sessions with a competent life coach. The following...
Expecting Too Much from Women
Due to our current social dynamics, too many men are acting traditional and 'courting' a woman. This is often just too much pressure and obligation for a woman...
Lack Of Business Isnt Always The Problem
When you're just starting out in business, it's a safe bet that you need more clients. But what if you have been up and running for a while, and you're still n...
How To Get Rid of Dog Odor
7 Tips to Help You Rid Your Dog of Unpleasant Doggy Odors.
Protection for Your PC - Painless and Free!
Viruses, Bugs, Worms, Dataminers, Spybots, and Trojan horses. The Internet is a veritable minefield of things that can invade your PC and affect it's Security a...
Five Simple Steps to Your First eBay Sale!
How to get your first sale onto eBay in five easy steps.
What Should I Do If I’ve Become a Victim of Identity Theft?
Discover the steps to recovery from being a victim of identity theft...
All You Really Want Is Feeling Good
We all strive for certain things, success, money, wealth or loving relationships. Yet, whatever we strive for are almost all the time means to an end. What we r...
Fade Stretch Marks
Stretch marks are one of the most common skin conditions. Most treatment methods for stretch marks attempt to eliminate the condition altogether. In most cases,...
Fail to plan... or Plan to FAIL??
One of the key factors which cause many businesses to flop, relates to inadequate planning.
QSR Quick Service - Fast Food Restaurants Labor Situation in United States
Are you having problems with quaility labor in your business? You are not alone.
Minimum Credit Card Payments to Rise
Several major credit card companies are preparing to raise the minimum payment amounts. Borrowers should be aware of these changes.
Protect the Barrier Function of Your Skin!
The skin barrier has a tremendous role in protection against dehydration and variable environmental changes. Any modification in the skin barrier's equilibrium ...
Home Mortgages: Should You Apply Now?
Thinking about a new mortgage or refinancing your current one? Then you need to know what's happening with interest rates and what's likely to happen in the fut...
Cant Rent a Work Zone
Don't throw good money after bad by trying to rent out an apartment before the renovations are complete. Terence P Ward can show you the importance of curb app...
Life Insurance No Medical Exam - Is It Really Possible?
Not everyone qualifies for life insurance no medical exam.
Keep Exercise Journals For Real Results
By keeping an exercise journal, you will have access to a wealth of information and be able to detect specific areas in your current training routine which can ...
Keeping Worms Out of Your Network...
No auntie Sookie, not earth worms, computer virus worms that
can get to you computer and slowly dig deep into your files
and eat them away. Put that fishing p...
If You Want to Get Cum Increase, This is for You!
Since long time ago, it seems that men have been worried about the power of the penis. A symbol of manhood, strength, dominance and success, the penis and all i...
Fear No Evil - How To Avoid Worry And Fear
Many people go through life in worry and fear. "Is that project I'm working on gonna fail?" "Where's Johnny? He's late!" This article discusses fear, it's c...
A Look at Metal Gazebos
If you're looking for the strength, stability, sturdiness, and longevity of a metal gazebo, you have plenty of options to fit your needs. They come as 4-sided s...
A Review of Automated Forex Brokers
Several companies offer automated forex broker services. In the following articles, you'll find brief reviews of each.
Prepare for Winter Before It Arrives
Even though we are still enjoying warm weather and winter seems far away, now is a great time to begin preparing. If you do a bit at a time before winter hits t...
|
Print this page