Alistair Charles on behalf of Bibby Financial Services. Bibby Financial Services are experts in purchase order finance ( PO finance.)
What is a Mortgage Calculator?
According to Wikipedia, a web based free encyclopedia, a Mortgage Calculator is “an automated tool that enables the user to quickly determine the financial implications of changes in one or more variables in a mortgage financing arrangement. The major variables include: loan principal balance, periodic interest rate, compound interest, number of payments per year, total number of payments and the regular payment amount”.
A mortgage calculator can be a very practical tool when buying a house. It’s not your typical calculator where you can resolve some mathematical equations. A mortgage calculator can give quick and reliable answers to the most savvy buyer. With this tool you can compare interest rates, costs, payment schedules and even play with the numbers, meaning, you can find out how much your monthly payment would be when you do a down payment/principal ratio equation and change the length of the loan by adding more dollars to your monthly payment.
How does a Mortgage Calculator work?
The equation to come up with numbers is not simple. I can write about it and try to explain, I’ve tried to understand it myself, and believe me it’s not an easy task. Why complicate yourself trying to come up with the numbers you need to make a decision on whether you can or you cannot afford the house you like? A mortgage calculator does all the work for you. The input information is key to determine your monthly payment. Mortgage calculators vary by manufacturer but most of them have a common denominator: the information you will need to provide, to come up with the results you are looking for.
For example: you will need to have a loan amount, an interest rate, the length of the mortgage and the home value. Added information that is also necessary is the following: annual taxes, annual insurance and annual PMI, short for private mortgage insurance. Now all of this information is very relevant when using a Mortgage calculator but the information that is essential in this process is the interest rate and the length of the loan. When you change this two variables, meaning you input a lower interest rate, then you will get a lower monthly payment. How much lower? well, that really depends on the amount of the loan.
I hope this information about Mortgage calculators is useful for you. Now the next question is, do you as a home buyer really need to have one or is this a tool more oriented to Real Estate Agents and Loan officers. Personally, I think the latter.
Home equity Loan, also called Home Equitiy Line of Credit or HELOC, is money that is being borrowed against the equity of your home. Most mortgage lenders will require the borrower to pay only the interest of the loan and will have the option to repay the balance in increments sums. An important reason as to why a homeowner will choose a home equity loan is because he wants to cashout from the equity of his real estate. Cashing out from your real estate will have some restrictions such as LTV known as Loan to Value, mortgage lenders will make sure that the loan will not exceed the value of your real estate and, in most cases, will be much lower then the value.
The reason why mortgage lenders will loan normally up to 80% of the value is because they want to feel secure in ase of the loan gets defaulted. The way mortgage lenders calculate the LTV (loan to value) is as follow: The mortgage divided by the value of your real estate equals the percentage of your LTV. For example: You owe the bank $50,000 dlls.and the value of your home is $100,000 dlls. $50,000 divided by $100,000 = 50% LTV. The lower the loan to value, the higher is your cashout and lower your interest rate because the bank has less risk. Please refer to the chart below for a better understanding.
You owe $50,000
Home value is : $100,000
50,000 / 100,000 = 50% LOAN TO VALUE (LTV)
Why will the bank take the risk to lend you the money?
First of all, we all know that the only reason banks are in business is because people need money. So banks are in the business to lend money and not just to protect your money in a bank account.
Think about it: if you have a bank account all you get in return for depositing your money there is 1.5%. In most cases the bank will not even charge anything to keep your account active. Have you ever wonder why banks don’t charge you for this service? Financial institutions will not charge because they are using your money to lend other people for a much higher interest rate. For example: You deposited in your bank account $10,000 and the bank offered you 1.5% APR (Annual Percentage Rate) that is $150 that you have made in a year to have your money in their bank. Now the bank will take your $10,000 and will lend it to your neighbor across the street for an APR of 14% to 29%. In dollars we are looking at the bank profiting from your money anywhere from $1,400 to $2,900 a year. What do you think, are banks in the wrong business?
How do mortgage lenders qualify homeowners to a home equity loan, HELOC?
First of all, we already know that the banks will calculate the LTV (loan to value) and make sure the LTV is as low as it can get, the lower the LTV the better deal it is for the mortgage lender.
The second step the bank will take is to look at your credit. Since home equity loans have higher risk for the banks because they are in second position they would want to make sure that you intent to pay the loan back and not default on the loan eventually. Good credit for banks is not necessarily 750 and above Fico score, you can have a lower fico score such as 680 or 650 and sill qualify for a home equity loan. Mortgage lenders are looking for stability in payments and spending. If you have good history in spending and paying back creditors and mortgage lenders you will qualify.
Alsothe interest rate that you get will depend on your credit score. The third step, in my opinion, is the most important one, which is that the main requisite to get approved for any loan is your income. Mortgage lenders want to know that you will pay back the loan and the interest. So if your income is high enough to pay back the loan and pay some other debt you might have, plus some expenses, then you will qualify for a home equity loan.
How do mortgage lenders calculate if your income is good enough to qualify?
In order for mortgage lenders to qualify your income to support the loan they will calculate the Debt to income ratio also known as (DTI). Mortgage lenders will look at all your expenses and divide it by your income then they will know if you can qualify for the home equity loan. For example: Your expenses are $2,000 every month, including credit cards debt, home mortgage, auto loan, personal loan and some other expenses you have. Your total income is $6,000 a month. What they do is: they take your expenses $2,000 and divided it by your income $6,000.
Monthly debt is $2,000
Monthly Income is $6,000
$2.000 / $6,000 = 33% (DTI)
I believe that 33% is a good deal to the bank, they know that you have enough cushion to repay their home equity loan so you are fine. Most mortgage lenders will require at least 45% DTI.
Why you should consider a Home equity Loan, HELOC?
I think that I should ask you the same question. You are a homeowner and there was a reason why you chose to become own a home. Yes owning a home is what society sees as the “American Dream” but also to invest in yourself rather than paying someone else’s investments. Now that you’re a homeowner you really don’t need to have many credit cards just to have some spending money. Credit cards interest rates are too high and they will lead you to a much bigger debt than you even know. Credit cards interest rates are as high as 33% and your home equity loan will not exceed 8% these days. For example: you used your credit card and spend $5,000 with an interest rate of 33% and on your neighbor accross the street took a loan for the same amount of money, but he used his home by getting a home equity loan with an interest rate of 8%.
Here are the two scenarios: you will have to pay back $5,000 + $1,650 (33%) = $6,650 in total and your neighbor will pay back $5,000 + $400 (8%) = $5,400. Your neighbor saved $1,250 because he used his home to get the money at a lower interest rate. If you want to save money and enjoy your home equity do it, but always remember to get a good interest rate and not settle for less then what you desrve.
Scenario No 1.
Loan Amount $5,000
Interest Rate 33% (1,650)
Total Payback Amount $6.650
Scenario No. 2
Loan Amount $5,000
Interest Rate 8% (400)
Total Payback Amount $5,400
When a seller sells goods or services to a buyer, then the intent of the buyer to buy and the intent of the seller to sell, is written down in a commercial document, which is known as a purchase order or abbreviated as PO. The packing slips and the invoice are prepared based on the purchase order. Companies are usually keen to obtain purchase orders as in case of non-payment, or any disputes, the PO proves to be a valid document that can be produced in a court of law. Frequently a PO has been obtained from a creditworthy customer, but the company may be unable to fulfill it due to non-availability of funds at any given time. In such a situation, finance companies can fund the execution of the purchase order. This process is known as purchase order financing, and the fund thus obtained is known as purchase order finance or PO finance.
Purchase Order Finance summary:
Availability of funds. You get the funds necessary to execute the order and thereby honor your commitment. Your cash flow improves dramatically.
Various facilities. Many finance companies provide a receivables funding facility, which is linked to the purchase order finance facility. Funds are usually provided by making direct payments to your supplier, or by issuing a letter of credit, or by providing a supplier guarantee.
Direct payments to suppliers. Your suppliers are paid directly by the finance company. Typically up to 80% of the confirmed purchase cost can be paid. The remaining 20% minus the fees of the finance company are paid when your customer pays your invoice.
Issuing a Letter of Credit. Based on the provisions and governed by the rules of the International Chamber of Commerce, finance companies or Banks back the commitment of payment to the supplier by issuing a Letter of Credit.
Supplier Guarantee. Leading financial companies provide a commitment of payment to suppliers. This supplier guarantee is grounded in the availability of funds generated from the accounts receivables facility.
Single or Multiple transactions can be made. Once you deliver the goods, which are accepted by your customer, and proof thereof has been obtained, then typically up to 85% of the amount of the invoice can be advanced to you immediately. This funding can facilitate the execution of other transactions. Thus multiple transactions can be made with confidence.
Local reach. The buyer or the supplier may be located anywhere in the United States of America. For local purchase order finance, some finance companies give up to 80% of the amount of the PO order.
Global reach. Leading finance companies have a global reach and they can also fund overseas purchase orders. For overseas PO financing, usually a Letter of Credit is opened. The PO finance is generally obtained from the funds that are generated from the financing of the accounts receivables.
Paying employees, rent and suppliers are the three biggest expenses that most business owners face. If you are a wholesaler / reseller and buy and resell goods, your biggest expense is likely to be supplier payments. On the other hand, if you provide services, your biggest expense is likely to be payroll. Either way, making sure that your suppliers and employees are paid on time is critical. The solution to these challenges is to obtain an infusion of working capital, and that is where trade finance can help you. Trade financing helps ensure that you always have the funds to pay employees and suppliers – and thus – have the resources to grow your company.
Do you have clients that take 30 or more days to pay their invoices? Or, if you are a distributor, do you have clients that have placed large orders, depleting your capital resources? There are two trade finance tools that can help you in these instances. The first tool is called factoring financing. The second one is called purchase order financing.
Factoring Financing
Factoring is an ideal financing tool for companies that can’t afford to wait up to 60 days to get paid by clients. A factoring company can provide you with an advance of up to 85% on your slow paying receivables, providing you with working capital to pay employees and business expenses. Factoring is quick and can provide you with a payment within a day or so after invoicing.
Purchase Order Financing
PO financing is ideal for companies that resell goods to government or commercial clients. It can provide you with financing you need to deliver on your large orders. Purchase order funding works by providing you with funds to pay suppliers, enabling you to close more and larger sales. The transaction is settled once your customer pays for the goods.
Conclusion
Companies that need either domestic or import export financing can benefit from factoring and purchase order financing. And as opposed to traditional bank financing, both are relatively easy to obtain and can be set up in a few days.
About Commercial Capital LLC
Looking for trade financing? We are international trade finance professionals. For a trade finance quote, please call (866) 730 1922.
Benjamin Zander and his wife wrote a book entitled: “The Art of Possibility; Transforming Professional and Personal Life”. Their idea is that “you can create a passionate energy permeating The Art of Possibility that will be a true force in your life. You can make your own rules.” Their book is inspirational. You will be inspired if you buy and read it. The question is: how does this pertain to accounts receivable financing?
It’s all about attitude, enthusiasm and point of view regarding how to conduct your business. Can you make your own rules regarding how banks, commercial finance companies and other financial entities operate? Of course not. Can you make your own rules regarding how you utilize the financial recourses that are available to finance your business? Absolutely!
Here are three examples how to harness the power of accounts receivable financing sometimes with other types of financing to grow your B2B business.
Case Study One:
A Solar Energy Company that designed and supervised the installation of renewable energy systems was unable to obtain bank financing. They were one of the area’s lowest cost providers of solar panels, system design and supervision. One of their biggest assets was State Solar Tax Credits that are paid to homeowners who install the solar energy systems. An obligation from a State to a consumer is not within the definition of an account receivable. In other words, it could not be financed because it was not an obligation to a business. Using the art of possibility, the homeowners were persuaded to assign their solar tax credits to the Solar Energy Company. This transformed a consumer receivable into a commercial accounts receivable. Voila! The Solar Energy Company received accounts receivable financing it needed to grow.
Case Study Two:
An individual purchased an Importing Company that had been financed with a bank’s SBA loan. As collateral for the loan, the bank placed a UCC1 filing on the accounts receivable and inventory of the business. UCC refers to the Uniform Commercial Code in effect throughout the United States of America. In some respects, it simplifies the process of lending, selling and borrowing nationally. In other ways it is very complex. A UCC1 filing by a bank usually prevents any further financing because there is no collateral left to be financed. It is similar to a first mortgage loan on a house. If you have a 95% loan on your house, no other financing is available on the house because there is no equity to lend on. Using the art of possibility, the Importing Company was successful in convincing the bank to subordinate their UCC1 filing to another commercial lender’s UCC1. The Importing Company convinced the bank that it would be mutually beneficial to lower the bank’s UCC1 lien to a secondary position to allow a commercial finance company to offer new accounts receivable financing and inventory financing. Voila! The Importing business has a new credit line available for growth. It is now more profitable and the bank is more likely to be repaid. This is a win-win situation.
Case Study Three:
A start-up Clothing Company involved in manufacturing, distributing and designing T-shirts landed a substantial purchase order for their product. The product was to be made in China, and the Clothing Company lacked sufficient funds to pay for the costs of manufacture and distribution. Using the art of possibility, the Clothing Company obtained a letter of credit to guarantee the Chinese factory of payment, purchase order financing to pay for the T- shirts upon delivery, and accounts receivable financing to pay the purchase order company upon delivery of the goods to the customer in the US.
Accounts receivable financing can help your B2B business realize the art of possibility for growth and profits. Voila!
Copyright © 2007 Gregg Financial Services
www.greggfinancialservices.com
Mr. Elberg is a licensed attorney and licensed real estate broker. Gregg Financial Services is a full service brokerage for commercial finance companies and banks that fund B2B businesses. Mr. Elberg arranges funding from $25,000 to $50 million per month at competitive pricing, and works to reduce your financing costs as your company grows. For more information about GFS, please visit our website: www.greggfinancialservices.com or email:gregg@greggfinancialservices.com
