Student Loan Consolidation - How does it Work?
Student loans are a great source of financial aid for students who need help paying for their education. Unfortunately, students often leave college with burdensome debt. In addition, they often have multiple loans from different lenders, meaning they are writing more than one loan repayment check each month. The solution to this problem is loan consolidation.
What is loan consolidation?
Loan consolidation means bundling all your student loans into a single loan with one lender and one repayment plan. You can think of loan consolidation as akin to refinancing a home mortgage. When you consolidate your student loans, the balances of your existing student loans are paid off, with the total balance rolling over into one consolidated loan. The end result is that you have only one student loan to pay on.
Both students and their parents can consolidate loans.
Should I consolidate my loans?
Loan consolidation offers many benefits:
* Locks in a fixed, usually lower, interest rate for the term of your loan, potentially saving you thousands of dollars (depending on the interest rates of your original loans)
* Lowers your monthly payment
* Combines your student loan payments into one monthly bill
In addition, consolidated loans have flexible repayment options and no fees, charges, or prepayment penalties. There are also no credit checks or co-signers required.
You should consider consolidating your loans if the consolidation loan would have a lower interest rate than your current loans, particularly if you are having trouble making you monthly payments. However, if you are close to paying off your existing loans, consolidation may not be worth it.
How will the interest rate for the consolidated loan be?
The interest rate for your consolidated loan is calculated by averaging the interest rate of all the loans being consolidated and then rounding up to the next one-eighth of one percent. The maximum interest rate is 8.25 percent.
To figure your interest rate, visit loanconsolidation.ed.gov for an online calculator that will do the math for you.
How much can I save?
How much you save by consolidating loans depends on what interest rate you get and whether you choose to extend your repayment plan. According to Sallie Mae, the leading provider of student loans in the United States, consolidating student loans can reduce monthly payments by up to 54 percent. However, the only way to reduce your payment this much is to extend your repayment plan. You typically have 10 years to repay student loans, but, depending on the amount you're consolidating, you can extend your repayment plan all the way up to 30 years. Remember that if you choose to extend your repayment term, it will take longer to pay off your overall debt and you'll pay more in interest. There are no preypayment penalties, so you can always choose to pay off the loan early.
Am I eligible to consolidate my loans?
In order to consolidate your loans, you must meet the following criteria:
* You are in your six-month grace period following graduation or you have started repaying your loans
* You have eligible loans totaling over $7,500
* You have more than one lender
* You have not already consolidated your student loans, or since consolidation you have gone back to school and acquired new student loans
The following types of loans can be consolidated:
* Direct Subsidized and Unsubsidized Loans
* Federal Subsidized and Unsubsidized Federal Stafford Loans
* Direct PLUS Loans and Federal PLUS Loans
* Direct Consolidation Loans and Federal Consolidation Loans
* Guaranteed Student Loans
* Federal Insured Student Loans
* Federal Supplemental Loans for Students
* Auxiliary Loans to Assist Students
* Federal Perkins Loans
* National Direct Student Loans
* National Defense Student Loans
* Health Education Assistance Loans
* Health Professions Student Loans
* Loans for Disadvantaged Students
* Nursing Student Loans
Where can I get a consolidation loan?
You can consolidate your loans through any bank or credit union that participates in the Federal Family Education Loan Program, or directly from the U.S. Department of Education. The loan terms and conditions are generally the same, regardless of where you consolidate. You may want to check first with the lenders that hold your current loans.
If all your loans are with one lender, you must consolidate with that lender.
If you decide to consolidate your student loans, remember that you can only do so once unless you go back to school and take out more loans. Therefore, you will want to make sure you get the best deal the first time. The interest rate will be the same from all lenders, but some lenders may offer future rate discounts for prompt payment and a discount for having monthly payments directly debited from your account.
Can my spouse and I consolidate our loans together?
You can consolidate your loans together, but it is not a good idea for a couple reasons:
* Both of you will always be responsible to repay the loan, even if you later separate or divorce
* If you need to defer payment on the loan, both of you will have to meet the deferment criteria
When should I consolidate my loans?
You can consolidate your loans any time during your six-month grace period or after you have started repaying your loans. If you consolidate during your grace period, you may be able to get a lower interest rate. However, since you will lose the rest of the grace period, it is a good idea to wait until the fifth month of the grace period before consolidating. The consolidation process usually takes 30-45 days.
Friday, May 14, 2010
How to Shop For Low, Interest Only Mortgages
Where do you find low interest, interest only mortgages? Almost every store on the street offers these types of mortgage products, but who is the best, and who is the lowest? That's going to take some work on your part, and maybe just a little luck.
What kind of information will you need in order to shop for and secure a great interest only mortgage, with a great low interest? Well, you're definitely going to need a good credit rating, proof of income, an appraisal on the property, and a little bit of luck. There are several products out there in the interest only mortgage segment of the market, and a few are actually going to have a pretty low interest rate tied to them.
For example, the 3/1 ARM, or the 5/1 ARM, these mortgages should have great interest rates, and if you have great credit, you should be able to find financing to suit your budget, your desire for a low interest rate, and an interest only mortgage that you can live with. These types of adjustable rate mortgages offer the interest only feature for a very limited time, and this is what the average consumer should discipline him or herself to use for financing. Extending the interest only option out past these years, could put the consumer in a dire position, should the real estate market take a downward turn, they're going to be left with a huge mortgage, and property that is no longer worth the original mortgage amount. Now, that's not likely to happen since the value of the average home in America has seen a steady 5 to 6% growth for the last 10 years. But, it could happen. Take a look at the stock market after the tremendous growth spurt of the late nineties.
Other variables in your quest for a low interest rate will be determined by the type of lending institution you choose, the determination of any government program eligibility, and your geographical location.
Banks are traditionally a little higher with their down payment requirements, but their interest rates are usually lower than those of a mortgage company. The exception: online mortgage lending. Thanks to the fact that this is an area of growth that everyone and every company are promoting, they're striving to compete with even the lowest interest rate lenders, in order to grow their market.
What kinds of government approved mortgage loan programs are available for the low interest-only mortgage shopper today? There are actually more programs available today than any other time in recorded mortgage history; and the ability to qualify for these programs is at an all-time high. Fannie Mae, or the Federal National Mortgage Association and Freddie Mac set guidelines and product availability for homeowners and residents that quality for low- to moderate income based mortgages. They also offer low-interest only mortgages in order to accommodate an ever broadening market. The graduated payment mortgage is an option for FHA homeowners who currently have low to moderate incomes but expect them to increase substantially over the next few years; this can be compared to a balloon note or the interest only products in use today.
Your location will play a key role in your ability to obtain the lowest interest rate using the interest-only mortgage option, also. Prospective homeowners looking to purchase a home in a high end, resort area will, of course, have more choices available, as there are more buyers and sellers competing, as well as lenders for business. The other geographical contributing factor is the real estate market in your area. If the market is great, prices are not suppressed, and there is moderate movement in the buy and sell market, it increases your chances of obtaining the low interest rate you're seeking.
The interest only mortgage product and a low interest rate are not mutually exclusive. They can be paired, and under the right circumstances produce a winning mortgage product for the right consumers. The route to achieving this goal will take education on the part of the consumer, hard work, and a little luck in locating the right mortgage lender.
What kind of information will you need in order to shop for and secure a great interest only mortgage, with a great low interest? Well, you're definitely going to need a good credit rating, proof of income, an appraisal on the property, and a little bit of luck. There are several products out there in the interest only mortgage segment of the market, and a few are actually going to have a pretty low interest rate tied to them.
For example, the 3/1 ARM, or the 5/1 ARM, these mortgages should have great interest rates, and if you have great credit, you should be able to find financing to suit your budget, your desire for a low interest rate, and an interest only mortgage that you can live with. These types of adjustable rate mortgages offer the interest only feature for a very limited time, and this is what the average consumer should discipline him or herself to use for financing. Extending the interest only option out past these years, could put the consumer in a dire position, should the real estate market take a downward turn, they're going to be left with a huge mortgage, and property that is no longer worth the original mortgage amount. Now, that's not likely to happen since the value of the average home in America has seen a steady 5 to 6% growth for the last 10 years. But, it could happen. Take a look at the stock market after the tremendous growth spurt of the late nineties.
Other variables in your quest for a low interest rate will be determined by the type of lending institution you choose, the determination of any government program eligibility, and your geographical location.
Banks are traditionally a little higher with their down payment requirements, but their interest rates are usually lower than those of a mortgage company. The exception: online mortgage lending. Thanks to the fact that this is an area of growth that everyone and every company are promoting, they're striving to compete with even the lowest interest rate lenders, in order to grow their market.
What kinds of government approved mortgage loan programs are available for the low interest-only mortgage shopper today? There are actually more programs available today than any other time in recorded mortgage history; and the ability to qualify for these programs is at an all-time high. Fannie Mae, or the Federal National Mortgage Association and Freddie Mac set guidelines and product availability for homeowners and residents that quality for low- to moderate income based mortgages. They also offer low-interest only mortgages in order to accommodate an ever broadening market. The graduated payment mortgage is an option for FHA homeowners who currently have low to moderate incomes but expect them to increase substantially over the next few years; this can be compared to a balloon note or the interest only products in use today.
Your location will play a key role in your ability to obtain the lowest interest rate using the interest-only mortgage option, also. Prospective homeowners looking to purchase a home in a high end, resort area will, of course, have more choices available, as there are more buyers and sellers competing, as well as lenders for business. The other geographical contributing factor is the real estate market in your area. If the market is great, prices are not suppressed, and there is moderate movement in the buy and sell market, it increases your chances of obtaining the low interest rate you're seeking.
The interest only mortgage product and a low interest rate are not mutually exclusive. They can be paired, and under the right circumstances produce a winning mortgage product for the right consumers. The route to achieving this goal will take education on the part of the consumer, hard work, and a little luck in locating the right mortgage lender.
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