Wednesday, December 16, 2015

Bankruptcy Lawyer Dirty Secrets

The field of bankruptcy law has exploded in recent years, even though the process of filing for bankruptcy really only involves filling out a few forms. Misconceptions, frightening news articles, and misleading advertisements put out by many of the firms now specializing solely in bankruptcy law have convinced the average consumer that they absolutely must hire an expensive attorney in order to get rid of the money they owe.

Even if the client has an above-average number of questions or a combination of income, debt, and assets that are more complicated than most, an experienced lawyer should be able to handle a bankruptcy claim from start to finish in a matter of hours. Some honest legal professionals only bill their clients for this small amount of work, but the majority charges a minimum of $2,000 for a basic filing. In fact, in some areas, rates can skyrocket as high as $10,000 for a single case! 

These inflated prices have actually driven many of the honest attorneys out of bankruptcy altogether, because once a client has been convinced that bankruptcy should cost them thousands of dollars, they are naturally wary of hiring anyone who charges much less.

Filling out bankruptcy paperwork is so simple in many cases that attorneys have their secretaries fill it out. Yet the field has created so much money for certain greedy lawyers that instead of letting their clients know this, they instead pocket the cash and stand back and watch while bankruptcy filings needlessly get out of control.

No matter what circumstances brought you into your current financial situation, declaring bankruptcy should never be a first choice when trying to deal with high levels of debt. Especially after taking into account high attorney fees and new credit-card-friendly laws, it would be much better for you in both the short-and long-term if your financial difficulties are handled out of court.

Bankruptcy Law: Some Important Facts

As applying for loans, credit cards and other forms of credit are easier to come by, so are the bankruptcy rates in the United States. In a ten year period, between 1994 and 2004, bankruptcy rates in the United States nearly doubled. The government’s reaction was to take a closer look at reasons parties were filing for bankruptcy, new laws were instated to ensure that individuals and businesses had valid reasons for applying for bankruptcy. 

One of the primary laws regarding bankruptcy that was passed in the United States in 2004 is the Bankruptcy Abuse Prevention and Consumer Protection Act. This law just went into effect in October 2005, but has already caused quite a stir in the financial and bankruptcy law arenas.  Besides making it more difficult to qualify for Chapter 7 bankruptcy, or complete bankruptcy, the law imposes stricter rules and budgets on Chapter 13 debtors. 

A major change the law makes throughout the United States is the need for debtors to have filed tax returns for four years in a row before qualifying for bankruptcy.  As well, dischargeable debts, or those debts where personal liability is taken away by the court system, is more difficult to come by. The Act requires that debtors prove good reason for dischargeable debt and is even requiring more debtors to take responsibility with non-dischargeable debt budgets.

As far as the two major types of bankruptcy laws are concerned, Chapter 13 bankruptcy is that which allows the debtor to keep some assets upon proving only limited debt and a steady income. This bankruptcy is excellent for those debtors who have gotten themselves into major financial difficulty but still have means of paying for some assets. The court will set up a repayment schedule and budget that allows for full repayment of mortgages or cars within three to five years. 

If repayment is simply not an option, the bankruptcy law requires that a debtor will file for Chapter 7 bankruptcy. This is often referred to as complete liquidation of assets, except for exempt items. Exempt items in a bankruptcy hearing are determined by the court and are usually items that are a necessity, such as a car or work related items. As well, the courts will distribute debts into two categories: non-dischargeable and dischargeable debt. 

Non-dischargeable debts also fall into two categories: non-dischargeable due to wrongful conduct on the debtor and non-dischargeable due to public policy. Wrongful misconduct by the debtor could mean theft or laundering money while public policy could include child support payment or court related judgments. 

Keep in mind that in either type of bankruptcy, an individual is almost always required to still pay for taxes, student loans, alimony, child support or court related fees. This is the place where many bankrupt parties are misled in the Chapter 7 bankruptcy, as it is often referred to as "a fresh start". While the court can set up payment plans to help the debtor repay public policy debts, even Chapter 7 debtors will still be required to make payments. 

Another major point regarding bankruptcy law is that a bankruptcy will stay on a credit report for approximately ten years. This will make it extremely difficult to become eligible for any type of credit, even a credit card, but especially for a car loan or a house mortgage. While some creditors will still offer limited credit to bankrupt individuals, the interest rates and finance charges are usually through the roof. This makes it even more difficult for debtors to get back on their feet. 

Last but not least, keep in mind that bankruptcy law will require any co-signers to be responsible for debt payments. If mom or dad signed for a car loan when you were young and you still owe on that car, they are liable for payments. These friends or family members who were once doing you a favor may be brought into the bankruptcy law court proceedings, which can put a strain on friendships and family relations. 

For specific bankruptcy law questions it is best to contact a bankruptcy attorney or legal aide in your county or state. Bankruptcy laws and proceedings may vary slightly from state to state, so be sure to make contacts in the state where you plan to file for bankruptcy.

Bankruptcy Forms: Having The Right Ones

Filling out bankruptcy forms can be one of the most difficult parts about filing for bankruptcy, although these forms are a necessary evil to complete the legal process. Unfortunately these legalities can add major emotional stress to an already difficult situation. Especially if you have decided to go about filing on your own, without the help of a lawyer or financial service company, you may find yourself overwhelmed with trying to understand which bankruptcy forms are right for which chapter.

If you are an individual who is filing for bankruptcy, most likely you will be filling out bankruptcy forms specifically dealing with either Chapter 7 or Chapter 13. Even as a business you may be filing for Chapter 7 or Chapter 13, although you may be filing for Chapter 11 as well. In any case, there are separate forms that need to be filled out with each particular chapter stating the intention to file bankruptcy under that chapter. 

The individual or business may also have other special bankruptcy forms that go along with a particular chapter. For instance, Chapter 13 and Chapter 11 are reorganization chapters and will require a form that discusses how and when creditors will gather to meet and discuss the finances of the individual or business for repayment plans. If the individual is filing for a complete liquidation, Chapter 7, forms for possible exemption of assets will need to be filled out if the debtor plans to keep any of their personal belongings. 

In all cases, the debtor will be required to file bankruptcy forms regarding a statement of petition, a list of creditors, personal income, personal property, and Declaration of penalty under perjury. These forms will simple let the courts know of the individual or business’ plan to file, the assets the debtor has available, the current available income, and the debtor’s knowledge that lying about finances will have legal consequences.

With the new age of technology, all bankruptcy forms are available through the United States court system at Of course the availability of the forms does not necessarily mean that all individuals or businesses will clearly understand which forms apply to them. If you are confused about which forms to fill out, don’t be afraid to ask the court system for help.

Unfortunately the court system may be overwhelmed with other cases they feel are more important making it difficult to find answers to bankruptcy form questions. In this case, you can always consult with a legal aide, a bankruptcy attorney or even a financial service organization that can help you understand the paperwork better.

Even if you don’t plan on hiring an attorney to handle the case for you, it may be worth the time and energy to consult them regarding the paperwork that goes along with the process. You may also want to consider a bankruptcy service organizations online, which can help answer questions and guide debtors through the process. 

Keep in mind that each state court system has secretaries available who can type up the forms for you, although there will be an additional charge for this service. Most law firm or legal aide organizations have similar services that may be beneficial in helping debtors get through the process of filing bankruptcy forms.

Bankruptcy Attorney: Questions To Ask

If you have tried every way imaginable to avoid bankruptcy but find that you have no other way out of the situation, the first step you should take before filing is to consult with a bankruptcy attorney. A bankruptcy attorney can be hired or appointed by the court systems to help you through the court proceedings. If you decide to select your own attorney, make sure to select someone with previous experience in bankruptcy law, preferably someone who works specifically with bankruptcy. 

No matter which bankruptcy attorney you select, you should always be prepared to ask the attorney questions regarding your own case. Here is a list of questions you should always ask your attorney to make yourself more aware of your bankruptcy proceedings:

* What type of bankruptcy is right for me?

Keep in mind that the Federal court system in the United States has eight different types of bankruptcy filing available. Of course the two most popular are Chapter 13 and Chapter 7, but there are a variety of different details and rules that apply to each type of filing. A good bankruptcy attorney will be able to sift through your financial difficulties and recommend the best type of bankruptcy for you.

* How do I file for bankruptcy?

Filing for bankruptcy will need to be done in the state where you currently live. If you plan to remain represented by a bankruptcy attorney, their legal staff can help to prepare all of the paperwork that is necessary to present to the court system. If you simply want to use the bankruptcy attorney for a consultation, make sure you don’t leave the attorney’s office without the necessary paperwork to begin the bankruptcy process.

* What type of fees will I owe?

This is important to ask in regards to your bankruptcy attorney as well as the court system. Most bankruptcy attorneys will give a free consultation but any remaining time on the proceeding or in court will cost a fee. Some attorneys charge by the hour while others charge a flat fee for bankruptcy services. As well, the court systems usually charge a court fee connected with filing the case, administrative charges and extra Chapter 7 fees to pay a trustee in charge of the bankrupt account. 

* Where do I go to file my bankruptcy claim?

Bankruptcy cases are handled by the federal court systems in every state. This usually means that the bankrupt party will need to give the bankruptcy paperwork to the state courthouse, usually in a state’s capitol city. Your bankruptcy attorney should know the address and rules regarding whether or not paperwork can be sent by mail or if paperwork needs to be given in person.

* What happens after filing for bankruptcy?

Immediately after filing for bankruptcy, the court system will send out notification to creditors of the pending bankruptcy case. From this point on, creditors are considered to have a "restraining order" by the debtor and are not allowed to contact the debtor requesting payment. Depending on the type of bankruptcy, a hearing will be scheduled and deadlines will be set for creditors to file a claim and attend the hearing. Of course, all of the proceedings from here are dependent on the type of bankruptcy filed, so it is important to be in contact with your bankruptcy attorney who can more readily answer these questions.

Balance Transfers

As another way to get your business, many card issuers offer balance transfers. This can give you some leverage as a consumer and a opportunity to save some interest. Most credit cards offer a 0% APR for 6 to 12 months with no transfer fees. This is sometimes referred to as the teaser rate.

A balance transfer can be a good way for a you to consolidate debt. You can take your outstanding balance on one or two or more cards and transfer it to a card with a lower rate. Once approved, you would have all your payables on one credit card and essentially had taken two or more interest rates and transformed them into one lower rate.

If you want to carry on a balance, look for the credit card that offers the best interest rate or the annual fee offer. However, if you intend to pay for the credit every month, then look on the one that offers the lowest interest rate. Take note of the new rate after the introductory offer is over. Is it going to higher than what your have now? Are there any other fees involved? Make sure. Also does the introductory offer apply to balance transfers and purchases?

You can choose the credit card that offers the lowest annual percentage rate (APR). APR's could either be a "fixed" or a "variable" rate. Fixed rates do not change as the name implies but is higher. Variable rates changes depending on the economic trends. I usually avoid anything that's variable but you should explore your own options carefully. This is to be taken into consideration if you're deciding on carrying a balance and for how long.

Other factors involved in your decision for a balance transfer might be the rewards (reward points)or cash back a card offers. You may want to look into something you purchase often, like airline miles or gas rebates if you drive more than usual. Other cards even offer cash back for paying home utilities and mortgage, like the Citi® Home Rebate Platinum Select® MasterCard®. There is much competition for your money and if you take time to explore your options, you can turn some disadvantages on your present credit card balance back your way.

Are You Faced With Out-Of-Control Expenses

Perhaps you can relate to this scenario: The moment you thought you were back in the financial game of life, something else came along that smacked you back down into the land of money woes again. Was that an accurate scenario? For many people it is. Perhaps a tragic emergency or a once-in-a-lifetime opportunity came by and you had to pay more money than you expected to pay.

Whatever the situation, you were just clawing your way back to having control of your expenses when you pushed back down. Of course, the end result is debt!

How do you deal with that mounting debt? What can you do to solve it? There are many solutions and one of them is loans. We are going to show you the different kind of loan options you have to help you make the decision wisely.

A Secured UK secured loan is one option that many people just might want to choose because it gives them a variety of potential loan amounts and interest rates. If that’s you, the choice is yours! You can choose the loan amount that is right for your situation. And, the rate of interest on the principle is usually determined by several things. For example, the prevailing interest rates, the risk the lender faces from the recipient, the amount of money you want to borrow, and the repayment period. Also, a Secured UK secured loan comes with several flexible repayment terms, including the repayment frequency and the loan period (which is the amount of time you expect to pay the loan back). That way, you can manage the loan over a period of time and suit it to your income.

Be sure to shop around. If you look around at the many options available, you’ll probably find a Secured UK secured loan that provides you with a good amount to borrow, competitive rates, an attractive repayment period, and a repayment frequency that meets your needs. Consider this example:

If you have a large amount of utility bill outstanding debts (such as credit cards, loans, or bills owing), a Secured UK secured loan might be a good option in order to help you consolidate those utility bills into one manageable payment. That way, you can keep the lights on and the water running! Get a loan for a little more than your current accumulated bill so that you can put a small credit on each outstanding amount. That way, you’ll gain back your good name from the utility companies, and you’ll have a month or two of reprieve before you have to start paying back both the loan and the new utility bills you incur. It just might be a period of time where you tighten your belt, but it will allow you to live comfortably.

A Secured UK secured loan has many options. One of those is to consolidate your utility bills and let you begin the fight to win back your good name while keeping the lights on in your house. Many people are choosing to add a secured loan to their financial management plan. Is it the right thing for your out-of-control utility bills?

An Overview Of The Direct Deposit System

Direct deposit is an excellent feature offered by many banks all around your area. Banking is supposed to be convenient and easy, it has been made that much easier and more convenient with the offering of direct deposits. When thinking about direct deposit, consider many of the things that could apply to you. Have you found yourself hurrying off to make the cutoff point for bank deposits? Do you travel to your banking institution on a weekly basis to deposit a paycheck? Have you found yourself losing a check you intend to take to the bank to deposit or cash? If you have answered any of these questions with a yes, it may be time to consider direct deposit.

Direct deposits are the action of your employer depositing your paycheck directly into your bank account by electronic means. This is extremely safe and easy for you to do, all you simply have to do is first, ensure that your employer offers direct deposits (many employers now days ONLY offer direct deposits to their employees). The next thing you will have to do is fill out a form that supplies your employer with your bank routing number, account number, and bank information. 

By choosing direct deposits, you are ensuring easy and safe transfer of your funds to your bank account. It is reliable and your paycheck is deposited into your bank account on time, you no longer have to keep track of the banking hours or hurry to meet the deposit deadline. You also decrease the risk of losing your paycheck by using direct deposits. There are other benefits to direct deposits including, when your funds are deposited directly the funds are available to you immediately upon completion of the transfer. Occasionally, some banks require you to wait a specified number of days before the funds will become available, to wait for check clearance. 

Another excellent benefit, is if you are away from your home on business or on a vacation, you will not have to worry about your paycheck coming in the mail or being stolen, your money will be in your account safely. They are also extremely secure, stolen, misplaced, or lost checks will become a thing of the past. Direct deposits leave such a trail behind it that tracking these are much easier than tracking a paper check. 

As you can see direct deposits can make your life much easier and reduce the number of trips you will need to make to your banking institution.

Advanced Prepaid Credit Card Features

Technological advances have been made in <b>prepaid credit cards</b> which give them features not seen in traditional credit cards or ATM cards. In this article we will go over these advances, and how they make using prepaid credit cards easy and convenient.

Because prepaid credit cards do not come with a line of credit, customers can load money onto the card via ATMs or at online websites. From here money can be transferred to a paypal or checking account. Some services still allow people to write a check in order to have the funds loaded onto their cards.

More recent advances in this technology have allowed people with cell phones, laptops, or other wireless devices to receive payment alerts about transactions which have been completed. You can also keep track of your credit line using these devices.

When using a prepaid credit card you don't have to balance it the way you would balance a checkbook. The balancing is done in real time and can be viewed via the internet or phone. This technology is allowing people to change the way they spend and manage money.

Many people are becoming aware of this technology since many employers are starting to use prepaid credit cards as an alternative to sending out standard checks. Once employers begin using prepaid credit cards to pay their employees they will save large amounts of money on check printing costs and other expenses.

People are beginning to see the benefits of electronically transferring and receiving funds. People will be able to avoid the high check cashing fees that for too long have been charged just to cash your own checks. Prepaid credit cards are changing the way that people conduct business.

Our society beginning advance closer to being cashless. There are both pros and cons to this that people need to be aware of. While using prepaid credit cards to make purchases and transfer money is convenient, cyber thieves are also anxious to begin defrauding and stealing money from people.

It is always best to use your prepaid debit card in safe locations, and keep track of all you transactions. If you see something on your account that looks strange or out of place, immediately report it. If your card is ever lost or stolen, cancel it as soon as possible.

No one wants to become the victim of fraud. Keep track of your expenses and if something looks suspicious, it probably is.

About Dormant Bank Accounts

Banking experts estimate that up to £5bn may be sitting unclaimed in UK bank accounts that have gone 'dormant'. What does this mean, and could you be entitled to a share in this huge amount of idle money?

A bank account goes dormant when, in the words of the British Bankers' Association, a bank and a customer 'lose touch with each other'. What this usually means in practice is that a customer has either passed away or moved house, and the bank haven't been told and are unable to locate the account holder some time later.

If there are no transactions on an account over a period of around 12 months, the bank will write to the account holder at the last known address to ask them if they wish to keep the account open. If no reply is received, then the bank will change the status of the account to 'dormant'. This means that from now on, no statements, chequebooks or other correspondance will be sent out to the customer.

The money in the account will still earn interest at whatever the normal rate of that account is, and the bank will still keep track of the account balance and keep a record of the last known address of the holder.

There are two main reasons for an account being made dormant. The first and most obvious one is to save the banks the administration costs of sending out statements and the like when there is no activity on the account from month to month (other than that initiated by the bank itself, such as interest payments).

The more important reason however is to guard against identity fraud. If a bank continues to send statements to an address when the account holder is no longer there to receive them, it is all too easy for these documents to end up in the hands of fraudsters, who could use the sensitive information they contain to begin a campaign of ID theft.

Most dormant accounts will have very small balances, but some will inevitably contain a substantial sum, often those belonging to someone who has passed away. If you think you may be entitled to money held in a dormant account, you can make a claim by filling in a form available from the bank in question.

You will need to give your reasons for making a claim, such as that the account belonged to a close relative whose estate was passed to you. You will also need to prove your own identity, and your connection to the original account holder if applicable.

If the bank don't agree that you're entitled to take over the account, you have the right to pursue an appeal, where your claim is re-examined. If the appeal fails, you can take your claim to the Financial Ombudsman Service, whose decision is final and binding.

Forecasting the Future Value of Your Roth-IRA or Roth-401

Curious about how much money you'll accumulate in your Roth retirement account? 

If you’ve got Microsoft Excel (or just about any other popular spreadsheet program) running on your computer, you can use its FV function to forecast the future value of your Roth IRA or Roth 401(k).

The FV function calculates the future value of an investment given its interest rate, the number of payments, the payment, the present value of the investment, and, optionally, the type-of-annuity switch.  (More about the type-of-annuity switch a little later.)

The function uses the following syntax:


This little pretty complicated, I grant you. But suppose you want to calculate the future value of an individual retirement account that’s already got $20,000 in it and to which you are contributing $400-a-month. Further suppose that you want to know the account balance—its future value—in 25 years and that you expect to earn 10% annual interest.

To calculate the future value of the individual retirement account in this case using the FV function, you enter the following into a worksheet cell:


The function returns the value 771872.26—roughly $772,000 dollars.

A handful of things to note: To convert the 10% annual interest to a monthly interest rate, the formula divides the annual interest rate by 12. Similarly, to convert the 25-year term to a term in months, the formula multiplies 25 by 12. 

Also, notice that the monthly payment and initial present values show as negative amounts because they represent cash outflows. And the function returns the future value amount as a positive value because it reflects a cash inflow you ultimately receive. 

That 0 at the end of the function is the type-of-annuity switch. If you set the type-of-annuity switch to 1, Excel assumes payments occur at the beginning of the period (month in this case), following the annuity due convention. If you set the annuity switch to 0 or you omit the argument, Excel assumes payments occur at the end of the period following the ordinary annuity convention.

SIP - Systematic Investment Plan

There are very few points that everybody in this world agrees upon. And the stock market unpredictability is undoubtedly one of them. Even people with several years of experience are not always able to track the stock market dynamics, thus falling prey to faulty decisions. Watertight stock market investing strategy is something that people consider to be elusive. It is something that can be chased, but probably can never be achieved. 

But is it a correct notion? Are things like fate, luck, chance, etc., are the only deciding factors in the stock market investments? Or is there any way to approach the stock market in a speculative manner? 

The answer to the above question probably lies in the Systematic Investment Plan or SIP (a.k.a. "Periodic Payment Plan" or "Contractual Plan"). 

Systematic Investment Plan (SIP) Unlike the one-time investment plans, SIP entails regular payments for a fixed period. It allows investors to garner shares of a mutual fund by contributing a fixed (which is often small) amount of money on a regular basis. And it offers the following advantages readily attractive to any investor. 

Reduced pressure on your purse – Through SIP you can enter the stock market even with a paltry investment. Your inability to invest a more-or-less fat amount might have kept you away from investing in the stock market. SIP is an ideal solution for your problem. 

Building for the future – We have certain needs that can be addressed only through long-term investments. Such needs include children’s education, buying a house of your own, post-retirement emergencies, etc. And SIP offers precious help in this regard. It helps you to save a small amount on a regular basis. And in due time it turns into a substantial amount. 

Compounds returns – SIP not only helps you reach a substantial amount after a certain period of time. Rather it helps you to reach that amount at an early age, depending when you start investing. You can amass a notable amount at 70 if you start investing at 35. An earlier start at 25 can enable you achieve the same amount by 60. 

Lowering the average cost – In SIP you experience low average cost, courtesy dollar-cost average. You invest the same fixed dollar amount in the same investment at regular intervals over an extended period of time. You are buying more shares of an investment when the share price is low. And you are buying fewer shares when the share price is high. And it may result in you paying a lower average price per share. 

The dollar-cost averaging strategy does not try to time the market. Rather it reduces the risk of investing a larger amount in an investment at a wrong time. And it does the same by spreading your investments out over a period of months, years, or even decades. 

Market timing irrelevance – The previous two paragraphs tell you that SIP makes the market timing irrelevant for you. The stock market unpredictability and volatility often play a deterrent for wannabe investors like you. In SIP, you are completely free from this problem of wrong timing. 

The SIP’s mode of function

A typical SIP entails monthly investments over a period of 10, 15 or 25 years. You are generally allowed to start your investment with a modest sum. 

You do not have direct ownership of the funds. Rather you own an interest in the plan trust. The plan trust invests the investor's regular payments, after deducting applicable fees, in shares of a mutual fund. 

Things that you should make clear before investing in an SIP

You should make certain things clear to yourself before going for an SIP investment. They include the following –
a. You should be confident about continuing to make payments for the term of the plan. Withdrawal in the mid way will almost certainly make you lose your money unless you are eligible for a full refund.

b. Check the fees charged by the plan. Also check the circumstances under which the plan waives or reduces certain fees.
c. Study the plan’s investment objectives. Take a note of the risks of investing in the plan. And check whether you are comfortable with them.
d. Check your statutory rights to a refund in case you cancel your plan.

Why You Should Buy No-Load Funds

Load is defined as the fee or the commission that an investor pays to a mutual fund at the time of purchasing or redeeming the shares of the mutual fund.

If the commission is charged when the investor buys the shares, it is known as a front-end load. On the other hand if the commission is charged when the investors redeems his shares, it is known as a back-end load.

Certain funds apply back-end loads only if the shares are redeemed within a specific time period after being bought.

The argument for applying loads on mutual fund transactions is that these loads will discourage investors from trading frequently in mutual funds. If the investors quickly move in and out of mutual funds, the funds have to maintain a high cash position to meet these redemptions, which in turn decreases the returns of the funds.  
Also frequent trading means the expenses of the mutual funds go up.

There are various arguments against load funds: 

-The fees that the mutual funds collect as loads are passed on to the fund brokers. The loads do not provide any incentive for the fund manager for better performance of the funds. In other words, a load fund has no reason why its managers should perform better than those of no-load funds.

-In the last few decades, no difference has been seen in the returns of load and no-load funds (if the loads are not considered.) When the loads are considered, the investors of load funds have actually gained less than the investors of no-load funds.

-When a sales person knows that he is going to get a commission from a load fund, he tends to push the load fund more - even when the load funds are performing poorly as compared to no-load funds.

-Loads are understated by mutual funds. If an investor invests $1000 in a fund with 5% front-end load, the actual investment is only $950. Thus his actual load is $50 in $950 investment - a 5.26% load.

If an investor is already invested in a load fund, it doesn’t make sense to exit now. The load has already been paid for. The hold or sell decision should now only be based on what the investor thinks about the future performance of the fund. In a few funds, the exit load depends on the period for which the fund was held. Check the details of the fund prospectus for more information.

In most cases it is better to avoid load funds; however, investors should keep one thing in mind. Sometimes load funds can be a better choice than no-load funds. For example, an investor has a choice of two classes in a fund - class A and class B. Class A has 3% front-end load and Class B has no load. The investor however misses the fine print, which states that Class B has 1% 12b-1 annual fees.

If the fund will make 10% gains each year, its return in Class A (starting with actual amount invested $970) will be 

($970) X (1.10) X (1.10) X (1.10) X (1.10) X (1.10) = $1562

For Class B, the returns will be

($1000) X (1.10) X (0.99) X (1.10) X (0.99) X (1.10) X (0.99) X (1.10) X (0.99) X (1.10) X (0.99) = $1532.

Thus the above example is an exception, where in the long run, the load fund will perform better than the no-load fund (with 12b-1 fees).

The fact is that a no-load fund cannot be considered a true no-load fund, if it charges fees from it's investors in the form of 12b-1 and other fees.

Why you should avoid load Mutual Funds

Paying a load is akin to throwing away most or all of the supposed advantage you get from having a salesman choose a fund for you. If it's true that asset allocation accounts for 95 percent of investment results over long periods of time, then only 5 percent is left over as a reward for having the "right" fund and the "right" manager. But even if a salesman could help you pick that "right" fund, paying him a commission of 5 percent wipes out the benefit.

When you pay a 5 percent load you lose the opportunity to invest 5 percent of your money forever. When you buy a load fund, the money that goes to the salesman goes to work for him, not for you. When you invest in a no-load fund, all your money goes to work for you.

And load percentages are always higher than the quoted figures. For example in a $10,000 investment if $500 goes to the sales organization then $9,500 is invested on your behalf. Funds are allowed to call this a 5 percent commission. In fact, you invested only $9,500, and the $500 load amounts to a commission not of 5 percent but of 5.26 percent on your real investment.

Load amounts are higher than they look. The effect of your commission grows over time. If you avoided a $1,000 commission by investing in a no-load fund, over 25 years you would wind up with nearly $11,000 more if your money compounded at 10 percent. In other words, the $1,000 load would, in effect, be an $11,000 load.

The broker who chooses a fund for you may have a reason to prefer that you buy a poorer-performing fund instead of a top-performing one. Studies show that funds operated by brokerage houses (naturally, they are almost exclusively load funds) have poorer average performance than independent load funds. Yet a broker often earns exotic trips and other perks, in addition to a higher percentage of the commission, for selling house funds. So if you buy a load fund from a broker, at least insist on getting one that is not managed by that brokerage house. You'll then get more objective guidance-and hopefully better performance.

On average, load funds charge higher expenses than no-load funds. These are the expenses that all funds take out of their assets, whether their investors pay loads or not. In a study that covered thousands of funds, Morningstar found that the average load fund charges its investors significantly more than the average no-load fund. Expense ratios among equity funds averaged 1.1 percent for no-loads and 1.6 percent for load funds. Among bond funds, the average was 0.6 percent for no-load funds and 1.1 percent for load funds. Those differences may seem small. But unlike a load, a fund's expense charge hits you year after year after year. The longer you own a high-expense fund, the deeper it reaches into your pockets.

What should you do if you already have a load fund?

You shouldn’t necessarily sell that fund. The reasons for avoiding load funds cease to apply once you already own one. The reason is simple: Once you pay the load, your money is gone. Getting out of the fund won't get it back. Therefore, if you are already in that position, there is no particular advantage to sell that fund just because of the load.

You shouldn’t necessarily keep the fund, either. If the fund has a back-end load, that provision may give you an incentive to leave your money in that fund. Sometimes, back-end loads are structured so that the longer you leave your money in the fund, the lower the load. You should study the prospectus to find this out, or have somebody help you with it. Or call the fund and ask about your options.

Don't keep a fund just because of its back-end load. Even if you keep a back-end-load fund long enough to avoid most or all of the load, the salesperson still got paid the commission. The fund found some way to extract that money from you to cover its commission cost. This could account for some of the higher expenses that load funds levy on their shareholders. And, of course, you may be hit with annual 12b1 fees to cover marketing costs. If this is the case, then you may be paying those fees again and again, every year you own the fund.

In summary, the presence of a load is not reason enough to sell or keep a fund. The decision depends on the details of the load, your own circumstances and needs, and the quality of the fund itself.

Stocks Or Mutual Funds?

If you happen to have some money left over at the end of all the bill payments and you have no need for anymore toys, or even if you are beginning a prudent and fiscally responsible gamble on some wealth that incorporates investment opportunities, you may find yourself wondering whether investing in stocks or purchasing mutual funds will offer the best returns. You might also consider this question when considering how to set up a retirement fund.

In order to help make the decision, it is important to understand what stocks and mutual funds are.

Stocks: Most people believe they have a basic understanding of what stocks are, simply because of their exposure to the term in every day usages. Stocks are individual bits of companies that are available to be purchased by the public in open trading on the stock exchange. Stocks are often sold in bundles, and thus to purchase a stock in a specific company often entails some kind of minimum purchase. Stockholders have a vested interest in the company’s well-being, as the price of their stocks are directly related to a company’s performance. Stocks are divided according to the kind of business they represent, which is known as a sector.

Mutual Funds: Mutual funds are collective investments that pools the money from a lot of investors and puts the money in stocks, bonds, and other investments. Mutual funds are usually managed by a certified professional, as opposed to the individual management of stocks. In essence, mutual funds incorporate many different types of stocks.

The question of whether or not to invest in stocks or mutual funds will primarily come down to the personal expertise and wealth of the individual. Many people will be tempted by the “game” aspect of buying stock, as well as the chance to invest singularly in a company that is well-known or can be easily researched. The fact is, however, that by the time stocks become available on the market they are generally already highly priced, and investing in individual stocks is a highly risky maneuver as your entire process hangs on the well-being of just one company. Even wealthy investors diversify their portfolios by investing in several different types of stock, and this can simply be unaffordable for the average person.

The better bet for the beginning investor is to purchase mutual funds. Mutual funds will pool the costs of many different stocks, lessening the risk of losing your money and raising the chances of gain. Mutual funds may not provide quite the excitement of investing in a lucky stock, but they are good investments for a long-term financial opportunity. In addition, mutual funds are managed by professionals that are well acquainted with the pitfalls and opportunities of the investment sector, which will cut down on both risk and the time it would take to pick individual stocks through research and appointments. Mutual funds will also distribute the risks among several investors, and it is all managed by someone who likely has contacts within the financial world.

For the individual with some extra money, who does not have the time or the expertise to properly “play” the stock market, mutual funds will prove the better option.

Secure Your Retirement with a Rollover IRA

Switching your job? Retiring? Congratulations! A window of opportunity opens for you with the Rollover Individual Retirement Account or Rollover IRA.

In an era of corporate restructuring and outsourcing, Rollover IRA is among the most powerful means available for securing one’s retirement. Yet, its potential to enlarge one’s assets for the sunset years commonly remains under-appreciated.

The Rollover IRA dramatically increases the range of choices available to you for investing your retirement savings. By offering investment choices hitherto unavailable in employer-sponsored plans such as 401k, 403b, or Section 457 plans, Rollover IRA provides you the means to have direct control of and more aggressively grow your nest egg.

This article discusses the advantages of Rollover IRA over employer-sponsored retirement plans.

So, if you are leaving your job and have accumulated assets in the employer-sponsored retirement plan, continue reading this article to learn about your options and more.

Four Options

You have four options on what you can do with your savings in your employer-sponsored plan when you are switching jobs or retiring.

1) Cash your savings.
2) Continue with the retirement plan of your previous employer.
3) Transfer your savings into the retirement plan sponsored by your new employer.
4) Set up a Rollover IRA account with a mutual fund company and move your retirement savings into that account.

Unless you have a pressing need, it is best not to cash your retirement savings. First, cash withdrawals from the retirement plan will be subject to federal and state taxes. Second, your retirement savings diminish and you will have fewer assets to grow tax-deferred.

While the three other options will not erode your retirement savings and will allow it to grow tax-deferred, they are not equal in their ability to help you boost its growth rate.

Increased Investment Choices

Most employees earn meager returns on their employer-sponsored retirement plan savings. A Dalbar study reports that the average 401k plan investor achieved an annual return of just 3.5% during a 20-year period when the S&P 500 returned 13.0% per year.

Part of the problem stems from the fact that most retirement plans offer only a limited number of investment choices. A Columbia University study finds the median number of mutual fund choices in 401k plans to be just 13. The actual number of equity mutual fund investment choices however is less, since the median number includes money market funds, fixed income funds, and balanced funds.

With fewer investment choices, employer-sponsored plans limit your ability to take advantage of different market trends and to continually position your retirement savings in mutual funds with superior risk-reward profiles.

If you set up a Rollover IRA with a large mutual fund company such as Fidelity Investments, T. Rowe Price or Vanguard Group, you will break the shackles imposed by your employer-sponsored plan and dramatically increase the number of mutual funds available for investing your retirement savings. Fidelity, for example, provides access to several thousand mutual funds besides the more than 180 mutual funds it manages.

Setting-up the Rollover IRA

Let’s say you decide to move your retirement savings to a Rollover account with a mutual fund company. How do you make it happen?

Contact the mutual fund company in which you wish to open an account and ask them to send you their Rollover IRA kit. Complete the form for opening the Rollover IRA account and mail it to the mutual fund company. Next, complete any forms required by the retirement plan administrator of your previous employer and request transfer of your assets into the Rollover IRA account.

You have two choices for moving your retirement savings to your Rollover IRA account. One is to elect to have the money transferred directly from the employer-sponsored plan to the Rollover IRA account. This is called direct rollover. With the indirect rollover alternative, you take the distribution from the retirement plan and then deposit it in the Rollover IRA account. Unless exceptions apply, you have 60 days to deposit the distribution and qualify for tax-free rollover.

Boosting Your Rollover IRA Performance

You need a strategy to benefit from the wide range of investment choices available in the Rollover IRA. You can develop the strategy yourself or leverage ideas from investment newsletters such as AlphaProfit Sector Investors’ Newsletter to enhance the growth rate of your nest egg.

AlphaProfit’s Focus and Core model portfolios have grown at an average annual rate of 33% and 21% respectively, compared to an average annual return of 13% for the S&P 500 Index from September 30, 2003 to March 31, 2006.

Let’s say you transfer $50,000 from your employer-sponsored retirement plan to the Rollover IRA and the wider range of investment choices helps you increase your annual return from 8% in the former to 12% in the Rollover IRA. At the end of 20 years, your Rollover IRA will be worth $482,315, more than double the $233,048 it would be worth had you stayed on with the employer-sponsored plan -- that too without any cash additions to your Rollover IRA.

Adding to Your Rollover IRA

You can leverage the potential of your Rollover IRA further by adding to it each time you change jobs. With the Rollover IRA already setup, all you have to do is to instruct the retirement plan administrator of your last employer to transfer assets to the Rollover IRA. There is no limit on the amount of money you can transfer.

You may also add money to your Rollover IRA through regular annual contributions. They are however subject to the annual limit for IRA contributions.


When you are switching jobs or retiring, the Rollover IRA opens a window of opportunity for you, widening the range of investment choices for your retirement assets hitherto not available in the employer-sponsored plan. The self-directed Rollover IRA empowers you to construct and manage a mutual fund portfolio to boost the growth rate of your retirement savings.

Retirement Income Planning: Mutual Funds

When willing to invest in mutual funds for Supplemental Retirement Income Planning, you have millions of alternatives. It is always important to analyze the plan, its limitations and the risks you will be running, and thus, it would be easier for you to narrow your alternatives. For this matter, it could be helpful to get in contact with a Retirement Income Planning financial professional. 

Mutual funds are classified in three main categories that differ in regards to their risks, features and rewards. They are money market funds, bond funds, which also receive the name of “fixed income” and finally, stock funds, which are also called “equity funds”. Let’s take a deeper look at each one of them. 

Money Market Funds can only invest in just some high-quality, short-term investment that be issued by the U.S. government, U.S. corporations and local governments. These funds attempt to keep the value of a share in a fund, called the net asset value (NAV) at a stable $1.00 a share. The returns for these funds have always been lower than the other two kinds of funds. Because of this, money market funds investors have to be aware about the “inflation risk”. Although Bond Funds are a bit risky than money market ones, most of the time, risks can be controlled with greater certainty than stocks. In addition, due to the fact that there are many types of Bund Funds, their risks and rewards vary greatly. These risks may encompass credit risk, which refers to the possibility that issuers whose bonds are owned by the fund do not pay their debts; interest rate risk and prepayment risk, which is associated to the chance that a bond be “retired” early. Finally, there are differences between one stock fund and another. For instance, Growth Funds are focused on stocks that provide large capital gains, Income Funds invest in stocks that pay regular dividends, and Sector Funds are specialized in particular industry segments. In general, they present a medium-to-high level of risk. 

Thus, people who are planning to invest in a fund that combines growth and income, which are definitely key factors, may find mutual funds an interesting balanced alternative choice for Supplemental Retirement Income Planning.

Mutual funds: protect yourself with segregated funds

Segregated funds were initially developed by the insurance industry to compete against mutual funds. Today, many mutual fund companies are in partnership with insurance companies to offer segregated funds to investors. Segregated funds offer some unique benefits not available to mutual fund investors.

Segregated funds offer the following major benefits that are not offered by the traditional mutual fund. 

1. Segregated funds offer a guarantee of principal upon maturity of the fund or upon the death of the investor. Thus, there is a 100 percent guarantee on the investment at maturity or death (this may differ for some funds), minus any withdrawals and management fees - even if the market value of the investment has declined. Most segregated funds have a maturity of 10 years after you initial investment.

2. Segregated funds offer creditor protection. If you go bankrupt, creditors cannot access your segregated fund.

3. Segregated funds avoid estate probate fees upon the death of the investor.

4. Segregated funds have a "freeze option" allowing investors to lock in investment gains and thereby increase their investment guarantee. This can be powerful strategy during volatile capital markets. 

Segregated funds also offer the following less important benefits: 

1. Segregated funds issue a T3 tax slip each year-end, which reports all gains or losses from purchases and redemption's that were made by the investor. This makes calculating your taxes very easy.

2. Segregated funds can serve as an "in trust account," which is useful if you wish to give money to minor children, but with some strings attached.

3. Segregated funds allocate their annual distributions on the basis of how long an investor has invested in the fund during the year, not on the basis of the number of units outstanding. With mutual funds, an investor can invest in November and immediately incur a large tax bill when a capital gain distribution is declared at year-end. 

There has been a lot of marketing and publicity surrounding segregated funds and how much value should be placed on their guarantee of principle protection. In the entire mutual fund universe, there have been only three very aggressive and specialized funds that lost money during any 10-year period since 1980. Thus, the odds of losing money after ten years are extremely low. If you decide you need a guarantee, it can cost as much as 1/2 percent per year in additional fees.

However, with further market volatility these guarantees could be very worthwhile. In addition, most major mutual fund companies also offer segregated funds.

Exchange Traded Funds: Why You Should Never Buy a Mutual Fund Again

Many investors still don't know about Exchange Traded Funds (or ETFs) and their advantages over traditional mutual funds.  In this article, we'll examine Exchange Traded Funds, their history, performance and advantages and why you should never buy a mutual fund again.

ETF 101

Exchange Traded Funds can most accurately be described as the happy marriage of a stock with a mutual fund.

Like mutual funds, when an investor buys an ETF, he is buying a pool of securities at one time.  For instance, an ETF known as DIA, or "Diamonds." allows the investor to take a position in the Dow Jones Industrial Average.

Like a stock, an ETF can be purchased through a brokerage account, can be traded throughout the day, can be bought on margin and offers stock-like trading features such as limit orders, stop orders and short selling

ETFs come in many different flavors.  They track all the major indexes like the Dow, S&P 500, NASDAQ 100, Russell 2000 and others.  They're also available for investors who want to trade sectors like energy, technology, precious metals, financial, health care, emerging markets, interest rates and many more.

Introduced over 12 years ago, ETFs were initially mostly used by professional traders, but in recent years, have experienced rapid growth as a popular investment vehicle with public investors.

ETFs have gained such widespread acceptance and popularity because they provide significant advantages over mutual funds.  The advantages of ETFs include:

--Continuous pricing throughout the day compared to end-of-day pricing for mutual funds

--Can be sold short like a stock which isn't possible with mutual funds

--Can be bought on margin

--Can use limit and stop orders so you can exit or enter during the trading day

--Have lower expenses than mutual funds and no management fees

Adding it all up, it's easy to see why Exchange Traded Funds have been growing at a rate of nearly 50% per year since 1993.


It's easy to see why Exchange Traded Funds have steadily grown in popularity over the last twelve years.  By combining the benefits of a mutual fund with the benefits of a stock, they really do offer investors an optimum combination of flexibility and potential profit.

Of course, the large mutual fund companies don't like ETFs but have had to adjust to their new popularity and so many fund families have introduced ETFs of their own in recent years.

For investors, ETFs offer considerable advantages of flexibility, cost and diversity, and therefore, you should never buy a mutual fund again.

Bridge Loans – From One Home to the Next

You’ve lived in your home for some time and circumstances such as an expanding family mean you need a new one. This brings up the subject of bridge loans. 

From Here to There

You have two basic options when you are considering selling one home to move to another. The first option is to sell your home, make sure it closes and then find a new one. This is by far the safest option. 

The second option is to buy and sell at the same time. Typically, you try to close on your sale around the time you close on the purchase. Theoretically, this allows you to move seamlessly from one home to the next. This is an option rife with potential problems. What happens if there are problems with the sale of your home such as escrow issues or the buyer failing to get a loan? Suddenly, you are looking at being the owner of two homes. Disaster has struck since you’re undoubtedly using proceeds from the sale of your old home to fund the new purchase. With no sale, you have no funds and sleepless nights follow. 

Bridge loans are often touted as a solution for this problem. In theory, a lender will provide you with a loan to cover the gap in time between the sale and purchase of the two homes. While bridge loans do accomplish this, they should be considered a last resort for a few reasons. 

First, bridge loans are obscenely expensive. You’re in a tight spot and the lender knows it. Points and interest rates are going to be shocking. The lender knows there is a higher chance you will default on the loan, so you can expect to pay for the risk up front. 

The second problem with bridge loans concerns your old home. Inevitably, you will anticipate a fairly quick sale of your home, but what if it doesn’t happen? Suddenly, you are making payments on two homes. Few people can afford to make such payments and you can quickly run out of cash. 

Financing a move from one home to a new one can be a tricky process. Make sure you put a lot of thought into it or you could be in for a very bad surprise.

Benefits to Homeownership Outweigh Mortgage Risks

For people considering buying a home for the first time, things can be a bit intimidating. You just have to keep in mind the benefits far outweigh the risks. 

Benefits to Homeownership Outweigh Risks

There are many benefits to owning a home. Sure, there are the usual obstacles to get over. First, people don’t want to put that much money into it, they’d rather just rent. 

Also, they don’t want to have to go through the lengthy process of buying the home and even searching for the right home in the first place. Then they don’t want to have to go through the mortgage process and go into debt to get the home. While these are definitely disadvantages, the simple fact is that there are so many major advantages to owning a home that going through these steps ends up being well worth it.

The most notable benefit to owning a home is equity. Equity is the value of the home. When mortgaging a home, your initial equity is the down payment you made on the home. As you make additional payments, your stake in the equity of the home rises (since the lender owns the rest of the equity). However, it is also important to note that equity also rises when the value of the home rises. This equity is solely yours, the equity of the lender does not increase. That is why many California homeowners are sitting on gold mines.

This equity can be used for valuable things such as home equity loans and home equity lines of credit. These are low interest loans with the home used as collateral. Equity opens up many valuable new doors and is just one reason why owning a home is one of the best things you can ever do.

Another advantage is the tax savings. Every dollar of interest paid in the mortgage payments can be used as a tax write-off. This can be a very considerable amount, especially early on in the loan when the interest is front-loaded, and it can save you a lot of money in taxes. 

Of course, it really comes down to the simple fact that you own a home. That home is yours and that with that comes a certain pride. Owning a home is one of the most important things you will ever do. Don’t pass it up, don’t choose to rent if you don’t have to. There are just too many advantages of owning a home to pass up.

Advantages of a Fixed Rate Mortgage

This is the most popular type of mortgage as the monthly payment for interest and principal remains fixed through out the mortgage term, Property Insurance and taxes may increase but the monthly repayment of the amount will be stable.

Fixed rate mortgages are available for 10 years, 15 years, 20 years and 30 years period of time, there are also fixed rate mortgages available “Biweekly” this helps to shorten up the loan by making the payment every two weeks.

Fixed rate mortgages have 2 distinct features, first one is that the interest rate would remain the same through out the term of your mortgage, second feature is that payment of the loan remains   level for the life and are structured for the repayment of the loan at the end of the mortgage term.

The most popular fixed rate loans are 30 years mortgage and 15 years mortgage. During early payment period, a large amount is being taken for the interest and the rest goes off to the balance principal amount, for instance a 30 years of fixed rate mortgage will take 22.5 yrs of the level payment of the loan for the payment of the half of the mortgage amount. Under 30 years of mortgage, month after the month you can choose to pay only interest or you can pay off principal with interest as it is a great option available for those who have tough time for money at times, with this option of lowering the payment you can increase the cash flow for paying off interest bills, remodeling your house, financing schools or college needs or increase your retirement savings.

With Fixed rate mortgage your loan rate is fixed for the mortgage term, you can pay interest only for 10 years and pay the balance interest plus principal for the next 20 years, this helps you to refinance the loan with out any pre payment penalty.

The advantages of 30 years mortgage is, when it is compared with 15 years mortgage the monthly payments are lesser, interest rate remains the same even if the interest rate goes up, monthly payment does not increases as it remains the same for the entire 30 years, compared to 15 years mortgage you would be paying higher rate of interest and the interest rate remains the same even if the interest rate gets decreased.

If you have planned for a long-term loan and does not like to take up the risk you may opt for fixed rate mortgage.

Tuesday, December 15, 2015

Adjustable Rate Mortgages – Interest Rate Strategy

Over the last few years, many people squeezed into new homes using adjustable rate mortgages. With interest rates going up, you now need a new interest rate strategy

Adjustable Rate Mortgages – ARMs

Adjustable rate mortgages carry a bit of a gamble for home owners. Essentially, you trade smaller interest rates and lower initial payments on the gamble rates will not increase over time. If rates stay low, you make out like a bandit. If rates increase, you need to consider your options to avoid getting stuck with a high interest rate loan and resulting cash flow problems from increased monthly mortgage payments. 

For the last three or four years, adjustable rate mortgages have been offered with incredibly low interest rates. Many people used these low, low, low rates to buy homes that would otherwise be beyond their means. Starting in 2004, Federal Reserve Chairman Alan Greenspan started making noises about increasing money borrowing rates. He has followed through on these hints. Although mortgage rates aren’t tied directly to the Federal Reserve Bank, they are heavily influenced by it. As a result, many people are now facing tight finances. 

Avoid Rising Rates

There are really only two solutions for avoiding the increase in interest rates on adjustable rate mortgages. The first strategy is to immediately convert to a fixed rate mortgage product. Fixed rates are still at historic lows when compared to rates offered over the last 50 years. By flipping to a fixed rate, you will be able to solidify your budget and finances since you will know exactly what you have to pay each month. If rates decrease in the future, you can always try to flip back to an adjustable mortgage loan. 

Unfortunately, some home owners are simply going to have to face the fact they lost one the interest rate gamble. Typically, this will occur when you realize you simply can’t afford to make the monthly payments required by getting a fixed rate loan. In such a situation, you are going to have to sell your home and downsize. In most situations, it is better to do this now since you’ve probably built up a sizeable chunk of equity over the last few years and want to avoid a loss of that equity as the market cools down. While this may sound like a disaster, it really isn’t. Yes, you have to downsize, but you should still have built up a chunk of equity. 

Interest rates are going up whether you want to acknowledge it or not. The time to deal with your adjustable rate mortgage is now, not when you straining to make payments.

A Summary of Mortgage Fees

Most people focus on the current mortgage interest rates when shopping for a home loan. Interest rates are certainly important, but they do not represent the only significant expense associated with financing a home. When you are making plans to purchase a new home, it is important to consider the big picture of all the fees associated with getting a mortgage, rather than focusing solely on interest rates.

Before you can decide just how much house you can afford to purchase, you need to look at an overall summary of mortgage fees so that you will have a clear understanding of all the expenses involved. Many factors can impact the total amount of money you need to borrow, as well as the final out-of-pocket requirement for your monthly payment. 

Down Payment

Most home buyers will be required to make a down payment in order to be considered for mortgage loan approval. The amount of money an individual is required to put down may vary significantly based on a variety of factors, including: the cost of the home, the applicant's credit history, the borrower's qualification for down payment assistance programs, and many other variables. Typically, home buyers are required to make down payments ranging from five to 20 percent of the home's purchase price.

Prepaid Interest

The day you close on your home loan, you will be required to pay the interest that will accrue on the loan between the current time and the day the first monthly payment is due. Prepaying interest allows you to exert some degree of control over the due date for your monthly payments. Many people are able to include the initial prepaid interest in the total amount financed, which keeps them from having to pay this amount out of pocket at the closing table. 

Keep in mind that the longer you put off your first payment, the more prepaid interest you will have to pay at the time of closing. It makes sense to utilize prepaid interest to make sure that your payment due date is convenient to your income schedule, but there is no benefit to postponing the first payment simply because you are allowed to do so.

Homeowners Insurance

When you finance a home, the premium for your first year of homeowners’ insurance coverage is due at the closing table. No mortgage company will allow a sales transaction to take place without being certain that insurance coverage is in effect the moment the title transfers into the mortgagee's name. As with prepaid interest, many home buyers who are able to do so elect to include their initial homeowners insurance premiums in the total amount financed. 

Escrow Account

As long as you have a mortgage on your home, your lender is likely to require you to make escrow payments toward your property taxes and homeowners insurance premiums. This money goes into an escrow account, which the lender uses to make sure these important expenses are paid when they are due. Requiring escrow accounts protects the lender, who has a vested interest in making sure the property is sufficiently insured and remains free of tax liens. 

Title Insurance

One of the most important components of a home loan transaction is the process of verifying that the seller has the legal right to transfer title of the home to the buyer. In addition to verifying that the title of the home is clear prior to closing, it is advisable to protect the home from future title problems tied the actions of past owners with a title insurance policy.

Sellers are typically responsible for paying for title research, since this work is required to verify that they do in fact own the property and have a legal right to transfer it to the buyer. Homebuyers, however, usually pay for the accompanying title insurance policies, which protect them against potential prior claims to the home's title that might surface once the transaction has been completed. Mortgage lenders typically require title insurance policies as a condition of closing. 

Other Closing Costs

A number of additional expenses must be considered in any comprehensive summary of mortgage fees. For example, when title to a property is transferred, a warranty deed must be created, and the changes to the title of the property must be recorded. Additionally, most lenders require property appraisals, surveys, and termite inspections prior to approving a loan. The fees associated with these legal and real estate services are part of the closing costs for a home loan. They can be paid for by the buyer or seller, based on the terms agreed upon in the purchase agreement.