What Is Prepayment?

Sometimes, mortgage lenders give their clients the choice of making their mortgage payments before they are actually due. They call this prepayment and it applies when people pay a portion of the loan early or they could be paying the entire amount. People like to do this because over the length of a loan, the lender is charging a lot of interest.

For example, suppose it is a 30-year loan. The lender would have looked at the borrowers’ financial situation, how much they owe in debt, how much they earn, what their credit scores are and their work history. If after they have thoroughly examined these people’s finances they discover that these people have a risk of defaulting on the loan, they offer these people a higher interest rate.

If the interest rate is a fixed rate, then it will remain at that amount throughout the entire term. If the interest rate is at six percent, these people will be paying this amount in interest every month. It can also be an adjustable rate. The borrowers, in these cases, are given a low introductory interest rate that, generally, lasts for five years. After this period is over, their rates will be adjusted to a higher rate.

Ways to Prepay a Mortgage Loan

People can prepay their mortgages in two different ways. In the beginning of a mortgage loan, most of the monthly payment goes toward interest. People can choose to designate more money toward the principle by paying above the amount that is due. They can do this every month if their lenders allow it.

The other way to prepay a mortgage is to refinance. Refinancing would mean that people are obtaining a loan that will completely pay the first mortgage in full. People like to refinance so that they can obtain a lower interest rate that lowers the amount they pay each month and it also helps them pay these loans off at a faster rate.

Why People Think of Prepaying Their Mortgages

Whether it is a fixed rate or an adjusted rate, people are paying a lot of money in interest over the life of their loans. If they discover that they have a little extra money, they may decide that they would like to put it toward paying down their mortgage principle. The lenders aren’t always in favor of this idea. They like people to have long terms, like 30 years, where they will be paying interest for a long time on their mortgage loans. It reduces the money they will make if their clients are prepaying their mortgages and to discourage this practice, they will charge a prepayment penalty.

The Prepayment Penalty

When lenders write mortgage contracts, they guard against the risk of prepayment by writing into the contract that there will be a prepayment penalty if the borrower decides to pay the loan early. Some lenders charge a percentage on the remaining principle as the penalty for paying early. Other lenders will charge several interest payments that the borrower would have paid if the loan were left in place.

Adjustable rate mortgages are typical loans that will have prepayment penalties a lot of the time. People have a huge incentive to refinance these types of mortgages after they have adjusted to a much higher rate and to ensure this doesn’t happen too often, lenders write prepayment penalties into their contracts.

They may also discourage people from selling their houses, which would cause them to pay their mortgages in full earlier. Generally, the contract will state that a prepayment penalty will apply if the house is sold before five years have passed. This way, they can keep people from wanting to sell their houses too quickly.

Ways to Avoid the Prepayment Penalty

1. Accept a Higher Interest Rate. When people are accepting an adjustable rate mortgage or they are being offered a very low interest rate, they have reason to suspect that the lenders will write a prepayment penalty into the contract. Make sure to ask this question before accepting the interest rate. If the prepayment penalty is motivating them to offer the lower rate, offer to pay a higher rate to have the prepayment penalty left out of the contract.

2. Shop Around. People don’t have to accept the terms that lenders are offering them. They can go to another lender who will be willing to give them a loan without a prepayment penalty.

3. Hire a Real Estate Attorney. Attorneys will be able to give their clients the best advice on how to prevent a prepayment penalty from being written into a contract based on their personal situations.

4. Ask for a Waiver. Lenders aren’t usually insistent on a prepayment penalty for selling the house, but they aren’t necessarily going to tell their clients about it. People must make sure to ask them to remove this clause from the contract and they will, most likely, do so.

5. Ask to Have the Prepayment Penalty Removed. If the loan’s contract has already been written, it’s not too late to avoid the prepayment penalty. Good paying customers are in the best position to be able to have their prepayment penalties removed from their contracts. All they have to do is ask.

Know the Facts

You will want to compile a few different sets of statistics before asking for a raise. First, know the industry standard salary range for you position. Second, gather as much financial data about your employer as possible, including who has the authority to negotiate a higher pay rate. Also write up a detailed analysis of how your contributions added to the bottom line. How did you save the company money? How did you make the company money? If you have data concerning the rising costs of living including housing costs, fuel, utilities, groceries, and other necessities, that couldn’t hurt to include. Cover all your bases, not only should you be able to prove what others with your education, experience, and job title are making, you should be able to prove you both need and deserve additional compensation.

The reason all of these factors are important is that hard facts will overcome all of your employer’s objections. The old stand-by excuse of poor profits will be hard for the supervisor to say when you’re politely confronting him with last quarter’s earnings report. The cop-out that you have hit a salary cap is impossible to argue when you’ve compiled an accurate report of industry standards for your position. You want to remove the possibility of such waffling before you face off across a desk in a conference room. Know the facts, as they will be indisputable.

Timing Your Request

Do yourself a favor and do not ask for a raise if you have spotty attendance, your company has just posted huge losses, or your CEO was just replaced by a new one. You will only make yourself look bad. You want to ask for a raise when the company is doing well, stable, and nothing is amiss. If your company is consistently under-performing, you should be looking for a new job, not asking for a raise.

If at all possible, take advantage of your yearly or quarterly review to ask for a raise. Often, salaries are renegotiated during such reviews and you are already speaking to the person who holds the power to grant your request. Your preparation for your review will also show initiative to your superior and shows that you value his or her time.

Should you work for a company that does not have regularly-scheduled reviews, you will need to make a formal request for a meeting. Mince no words in your polite, concise email or written request. It’s far better to be honest and simply state you would like to hold a private meeting concerning your compensation. Do not apologize or backpedal. Remember, you already have your proof lined up. You’re not going to go in groveling.

Confidence and Clear Communication

On the day of the meeting, wear your version of a ‘power suit.’ If you work in a stuffy, corporate job, wear a suit, literally. If the environment is more relaxed, wear something that makes you feel confident and capable. Men might want to get a new haircut and a straight shave the morning of the meeting, while women might like to go in after a before-work massage or facial.

During the meeting, present your facts. Share your findings. Make your case. Remain calm and professional. Also, always ask for a little more than you wanted. This gives you room to negotiate while still acquiring the salary you deserve. For example, if you want $42,000 a year and free parking, ask for $44,500 and work the parking stipend in as the number comes down. Your superior will probably try to wheedle. If you begin to feel backed into a corner, pause for three whole seconds after he or she stops talking. This will allow you to answer in a thoughtful, controlled way. Take your time, don’t get flustered.

Consequences

As the meeting progresses, your manager may try several different tactics to make you accept your current wage. Think ahead as to what you will accept in lieu of additional compensation. How about 100% employer-paid benefits? Would you consider accepting more paid time off instead? Can the company interest you in a lighter work load or a different position with better hours? Often, managers try these tactics because they are cheaper for the company than outright handing you more cash. If you’re not sure if it’s in your best interest to accept a counter-offer, ask for time to conduct more research. Your superior should not try to bully you into accepting on the spot.

If you feel you are getting nowhere or are met with outright hostility for asking for a raise, you may want to simply end the meeting. Ask your supervisor if the issue could be re-visited in six months or a year. Then, start applying for other positions. While the inability to grant your request is understandable, rudeness or brushing you off is not. Always be the bigger person and thank your superior for meeting with you. You still have to work for the company, and bridges are always better left unburned.

While asking for a raise during tight economic times can be tricky, it can be navigated successfully. If you’ve been at your company a while and made yourself into a valuable employee, chances are they will not want to spend the necessary time to train somebody new and get them caught up to speed. By doing your research ahead of time, timing your request correctly, and conducting yourself well in negotiations, a higher salary may just be one meeting away.

What is a Credit Union

The definition of a credit union is clearly laid out by the World Council of Credit Unions or WOCCU. According to the WOCCU website, a credit union is any non-profit “financial cooperative” that is owned by the members of the credit union and which offers financial services. Numerous credit unions are available around the world and might have different names depending on the location and country.

In simple terms, a credit union is a type of financial institution that the members own and operate in a similar manner as a bank. Unlike a bank, members of the credit union are able to cast a vote in the decision making process regardless of the size of their personal account with the credit union and are part owners of the credit union.

Credit unions also have restrictions on who is able to join, which will vary by credit union and the niche that the specific union serves. For example, it might require that you live in a specific local area or work in a specific company before allowing you to join.

How Credit Unions Differ From Banks

In general, a credit union and a bank offer similar financial services. For example, both a credit union and a bank might offer loans for various personal needs. As a result, many individuals might start wondering why it is not considered a bank and how it differs from the bank. Some of the reasons that it is classified differently are obvious, such as the member ownership, while other reasons are less obvious like the high interest payments on savings accounts.

The biggest difference between a bank and credit union is who is served by the company. A bank is owned by stockholders and strives to make high profits to please those stock holders. That means that a bank actually serves the stockholders rather than the customers putting their money into various bank accounts. As a result, customers of the bank might end up facing a myriad of problems like poor customer service or high interest on credit cards despite a flawless credit score.

A credit union does not serve stockholders because it is a private, member-owned institution and is considered a non-profit institution. The way a credit union works is that the various members pool their money together to provide loans and other financial services as needed by members. The result is that the members receive a higher interest rate on savings and are able to obtain lower interest loans if they have a flawless credit history.

Another difference between a credit union and a bank is the type of clients who put money into the institution. In general, a bank has no restrictions on clientele and most clients are middle to high income families. A credit union, on the other hand, has specific limitations such as belonging to the same church or living in the same area, so it provides services to a wider range of income groups.

The way in which the board of directors is selected also differs between banks and credit unions. In general, a bank will choose the board of directors from stockholder votes with the highest stockholders having a weightier vote. In a credit union, every member has one vote and the weight of the vote is the same, giving it a democratic election process instead.

While banks and credit unions make profits in similar ways, such as through interest paid on loans taken out by customers or members of the institution, the way that the profits are distributed differs. In a bank, profits are primarily given to the stockholders based on the number of shares owned. Credit unions differ because the profit is given to the members in the form of lower interest rates on loans, credit cards and higher interest paid into savings accounts within the credit union.

Banks and credit unions both provide all or most financial services. While this is true, credit unions will primarily focus on savings, credit and insurance. Banks will have the same focus on credit, but also encourage investment and might not put much focus on savings or insurance.

These primary differences make it clear that credit unions are often a great option for members who are interested. While the differences show many benefits of joining a credit union, people often have various reasons for joining a credit union that differs based on personal preferences.

Reasons to Select a Credit Union Over a Bank

The reasons members prefer to work with a credit union vary by situation and individual. While individual reasons might differ, some common reasons for choosing to work with a credit union are obvious.

One main reason many individuals choose a credit union over a bank is the customer service. In a bank, customer service is not always friendly and clients might face several hassles before anything is done. In a credit union, the environment is friendlier and customer service addresses concerns quickly and efficiently.

For some, the cozy environment is not enough draw to bring their accounts to a credit union. Instead, the offer of lower credit card and loan interest rates brings in members. Credit unions are able to offer a lower interest rate for good credit because it is not profit driven and does not need to answer to stockholders. Another financial feature that many members enjoy is higher interest earned on savings accounts.

For those interested in community service, credit unions are the place to look for helping the community. Many credit unions are involved in community projects due to their member orientation. Since the credit unions are often locally owned and operated, they are able to put more efforts into the needs of the community.

For others, the selective quality of the credit union is appealing. A bank does not put any limitations on who is a client and customers have no bonds. A credit union requires a common factor like belonging to the same church or community, which gives all members something in common.

Conclusion

When considering whether to join a credit union or put your money in the bank, it is important to remember the differences between banks and credit unions. In most situations, a credit union is the best option if you want low interest loans and credit cards, great customer service and high interest savings accounts. Credit unions look after your interests and that makes them more personal, cozy and friendly than any bank whose interest is the stockholder’s profits. A credit union is better than a bank for almost any potential customer or member who is eligible to join.

Impulse buys

Cut impulse purchases. If you stumbled upon an item that you suddenly want to buy, stop. Let the feeling subside. If it did, then be grateful that you saved your money. If it didn’t, then consider other factors, such as your financial goals and stability before doing that purchase.

Keep the ad man at bay

Unsubscribe to product catalogs and filter pop-out ads. You simply can’t help but to continue emotionally spending if you’re constantly surrounded by ads that tell you otherwise.

Limit temptation

After avoiding being swarmed by ads, the next step is to pull yourself away from situations that tempt you to spend. If it’s the mall, try going to other places that can be equally entertaining. Why not choose to spend time with family and friends at the park?

Make yourself accountable

It helps if you have friends and family constantly reminding you of your goal to quit emotional spending. Ask them to call you out on your purchases. You’ll be more conscious of your spending habits.

Find alternative activities

If shopping is your idea of entertainment or your means to distract yourself from stress, then start identifying the feeling that you draw out from it and seek alternate activities. If you’re stressed, for example, instead of shopping, you can try working out. In this way, you’ll reap physical benefits as well.

The point is not to deprive you from the things that keep you sane and happy. But when spending becomes damaging to your financial goals and stability, then it has to stop – or at the very least, controlled until you can stop doing it.

http://www.investopedia.com/articles/pf/08/emotional-spending.asp

Dropping vices. You might not realize it but that pack of cigarette or two that you smoke on a daily basis actually amounts to something substantial in a month. Try to look at your other daily guilty pleasures at well. Could be that daily Chinese take out or that extra can of soda.

Buy in bulk. Buying in bulk definitely is cheaper. However, keep in mind to focus only on items that do not have a shelf life, for example, paper towels. Some items containing chemicals have active ingredients that might stale.

Unplug all unused appliances and turn off lights. Often overlooked but appliances when plugged even if not in use, still leeches off a few a bit of juice. Light, even if you’re using energy saving fluorescent ones still consume watts of electricity. Turning them off prevents waste.

Drop unnecessary subscriptions. How many of your existing subscriptions do you actually get to maximize. How about your phone? Your cable TV? Your magazines? Your newspaper? How many of them do you actually use or read half the time in a month. You might just be able to drop one or even all of them.

Avoid flooring your car’s throttle. Some driver drive as if there’s no tomorrow. Heavy right-foot driving actually just wastes gas. You don’t need to tap your car’s ponies when driving. Besides, even if you build up speed and only brake shortly afterwards, you’re just converting all the force into heat. Get more mileage by tempering how you speed up.