Tips for First Time Loan Borrower

Thinking of availing a home loan or mortgage for the very first time?

First time home loan shoppers are highly likely to fall for the sugar words and marketing tactics of banks or home loan providers. The following tips may help you strike the best deal without having to sulk over potential mistakes usually committed by inexperienced borrowers.

For your First Time Home Loan…

(Please note that these are just a few guidelines and there may be a lot more that you might want to check out with respect your specific scenario in your country or state)

1. Shop around for the best deal

You may want to compare the loan offers – in terms of rates, monthly installment as well as overall mortgage package – from at least four to five different financial institutions before arriving at a final decision. In addition, you may want to discuss with your friends or relatives who might have had experience with each of these banks. Please note that the lowest interest rates do not mean the best deal. You have to know exactly how they calculate the interest (daily reducing balance, monthly reducing, quarterly reducing etc) and if there are additional charges. In addition, understand if there are any processing fee or lawyer fees along with the rules for prepayment or foreclosure.

Click here for some loan ideas!

2. Negotiate for a discount rate

It might sound odd but most of the banks have the flexibility of offering 0.5% or 0.75% (might vary in certain countries) less interest than the standard advertised rate. This is particularly true if you are having a stable and high earning profession (e.g. doctors, lawyers,…). In addition to these so-called ‘professional packages’ there are also corporate discounts available from some banks targeting specifically people from certain high profile corporates. Hence don’t be ashamed to negotiate.

3. Plan the rest of your life ahead

Never take a home mortgage assuming certain raise in salary or additional income that ‘might’ come in the future. Instead, plan from the point of view of additional financial burdens that you might encounter in the coming years (or the tenure of the loan). This may include wedding expenses, child education, purchase of vehicles or even expensive vacations.

4. Insurance, riders and deposits

It is highly advisable that you take home mortgage insurance for 25% to 30% of your home loan value to avert any risk of non-payment due to critical illness, accidents, job loss due to the above or even death. Mortgage insurance is mandatory (from the lender’s point of view) in most countries if the home purchase contribution from your side is less than 20% or so. If you do not wish to take mortgage insurance, set aside 10% to 15% (or even 20%) of your loan amount towards a term deposit or low risk bank investment. This will indeed help to repay your loan in the case of temporary no-income situations. This will also help in reducing your monthly outflow towards loan.

(You can have both the deposit as well as mortgage insurance which can help you with a little bit of tax planning as well)

5. Go for it ONLY when you are ready!

A home loan is a lifelong burden for most people. Hence before taking a loan, do a readiness and feasibility check from your end to see if it’s the right time to go for such a financial commitment. Also chew only as much as you can swallow – a huge home may be your dream but you have to really think whether you can afford it.

The other aspect of readiness check is to have a good credit history and stable background. Building your credit history by paying back your credit card bills on time, not withholding tax dues, not having several loans etc will boost your credit record. In addition, you may jump jobs and rented homes as little as possible to establish a good history. Frequent address changes are not considered good by financial institution in certain countries.

I hope these tips for first time home buyers were interesting to you. You may want to share this page with your friend who is in the lookout of a home loan.

Car Insurance Terms & Definitions for Dummies

Before taking any auto insurance for the first time, t is a good idea to get familiarized with the common insurance terms and definitions. The insurance agents are supposed to explain these terms to you and they will do that as well. But at the same time they may have their vested interest and hence might tweak the definitions in order to buy you into his services.

The car insurance terms listed below can be good reference guide for all that you want to know about auto insurance. It can also form a very good single read for the patient reader.

(Please note that for the sake of readability, we have split this into four pages. Use the navigation below in order to Quick Jump to the respective pages)

  1. Terms: A to D
  2. Terms: E to L
  3. Terms: M to P
  4. Terms: R to Z

Auto Insurance Terms (A – D)

Accident Forgiveness: This optional coverage helps you avoid a surcharge in the event of the first accident where you are at fault. Inexperienced drivers may opt for this coverage at the time of taking your auto insurance policy.

Accident report form: This is the police report that is prepared during an accident. It contains important information about an automobile accident such as circumstances leading to the accident, parties involved and citations given.

Additional Interest Insured:
Additional interest insured is a company, employer or person who has been named in the policy for liability in the case of an accident that involves an insured person or vehicle. Usually lien holders or a company leasing out vehicles for their employers are additional interest insured.

Anti-Theft Device: A device that can prevent vehicle theft. Some anti-theft devices can track and recover a vehicle and automatically contact a response center to initiate the vehicle recovery process. These devices are known as Active Anti-Theft devices. Passive devices attempt to prevent theft by triggering electronic car alarms, steering wheel locks etc.

At fault: This is a straight-forward definition which simply means to what degree the insured has contributed to the accident where he is involved. This is used to determine what portion of the damages will be borne by the respective insurance companies involved. The method of calculation of fault depends on the the particular state rules.

Auto insurance score: This score is based on information found in a consumer’s credit file and history of incidents. Auto insurance scores help the insurance companies to arrive at the policy prices. Basically, your insurance premium goes up when you have black marks in your credit report.

Binder: A temporary insurance contract or proof of coverage until you receive the permanent policy certificate or paper. It’s also known as a cover note, at times.

Bodily injury coverage: Bodily injury coverage on an auto insurance policy pays you the medical expenses incurred by you and other individuals injured the accident.

Claim: It is the request that you submit to your insurance company in the event of an automobile accident of your insured vehicle. The claim has details on the expenses incurred, damages caused and other financial obligations resulted by the accident.

Claims adjuster: A staff member or representative of an auto insurance company who investigates and settles claims for you in order to ensure that all parties involved receives the applicable compensation

Collision or collision coverage: The part of an auto insurance policy that pays to get your car repaired after a collision with another vehicle or an object is known as collision. It is this part of the coverage that will get your insurance company to seek out another driver’s insurance company to pay for repairs if they were at fault. There is always a deductible amount which means you don’t get paid for the entire damage. However, more collision coverage may mean majority of the damages paid.

Comprehensive coverage: Coverage that pays for damages to your vehicle resulting from a covered loss other than a collision. Losses incurred by fire accidents, vehicle theft, violence or contact with animals, birds or falling objects etc can be covered by comprehensive coverage.

Continuously Insured: This means that your insurance coverage from an insurance company (or more than one insurance company) is always in effect without a break or lapse in coverage for any reason. Continuously insured assures you peaceful driving even when you are switching policies or insurers.

Covered loss: Any damage to yourself, your vehicle or other people or property that is covered under your insurance policy.

Coverage Summary (Also known as Declarations Page or Dec Page): This page is provided by your insurance company and lists the information such as types of coverage elected, limits for each coverage, premium contribution (cost) under each coverage, vehicles covered and any other useful information applicable to your policy.

The Importance of Travel Insurance

Travel insurance is often perceived as an ‘additional cost burden’ by most travelers. Interestingly, even travel agents tend to downplay the role of travel insurance – due to the fear of the increased package pricing and hence losing customer base – wherever it is not mandatory.
Whether you are a domestic traveler or international flyer, the travel insurance offers the following benefits and major coverage (actual benefits may vary based on your chosen package)

  • Health (dental/medical) coverage during your travel and at your destination
  • Accident related coverage is must for any type of travel
  • Loss of baggage cover and theft related coverage
  • Legal support cover during your stay abroad
  • Emergency evacuation and delayed departure cover
  • Death related and funeral expense cover
  • Natural calamities (earth quakes, flood, volcanic) related damage cover

In addition, there may be optional coverage benefits such as car rental, war and terrorism related coverage, adventure sports coverage based on what you opt for.

With airline and hospitality industry fighting margin pressures and economic slowdown related issues, the need for traveling related insurance coverage gets all the more important. Flight cancellations and reservation issues are becoming a daily affair these days, isn’t it?

Travel Insurance Tips

Just like any other insurance coverage, the travel insurance too comes with a lot of ‘ifs’ and ‘buts’ and hence it’s very important to pick the right plan.

Firstly you need to consider a travel insurance plan based on your trip frequency. For example, if you are frequent traveler to a particular country you have to opt for multi trip insurance plan rather than a single entry plan. Similarly if you are more of a domestic traveler, then you need domestic travel insurance.

Next, it is important to make sure that you have the right medical coverage as part of your plan because your domestic medical coverage just does not work in a foreign country.

Once the medical part is taken care of you need to worry about the purpose and duration of your visit. If you are going on a long vacation that involves a lot of traveling from country to country (e.g. a Europe vacation for a month) you need to make sure that your coverage is valid with respect to the prevailing situation and rules of all those countries.

If your purpose is to be part of any extreme sports, then you need to opt for such special coverage and pick the insurance company that offers the same as an option.

If you are visiting a country affected by terror or war situations or wherever travel advisory has been issued, then it is important get that option covered as well.

It is also important to cover for very expensive cruises and luxury vacations. Obviously, you don’t want to lose money on additional expenses such as hotel stay, travel to main port etc without having travel insurance while going on a life time cruise that costs $20,000 – Just in case of a cancellation for example.

Essentially, you must get coverage for most important scenarios such as health, flight cancellation, baggage loss etc and on top opt for coverage for those prevailing conditions. A good travel agent can always help you with the situational requirements while a good insurance adviser would help finding the right plan.

I hope the importance of travel insurance is very clear now!

Car Accident Insurance Claim Process & Tips

Accidents can often leave you in an immediate shock state that you can’t think how to proceed with filing a police case and car accident insurance claim.

Here is exactly what you have to do with respect to your accident claim:

Note: Though we are primarily talking about the US and Canada here, the steps explained below is pretty much the same in most countries.

  1. First of all, if injuries or casualties are involved, immediately use your mobile phone to call the emergency number and get the ambulance and police. You may give first aid to the injured in the meantime
  2. If there are no injuries but serious body damage to the car, you may still need to file a police case in order to push your claim
  3. While awaiting the emergency or police vehicle, gather as much information as possible about the people and vehicle involved in the incident. You may want to take down the names, license plate numbers, place details of the accident and capture a few photographs using your mobile phone camera. In the case of serious accidents, try to get some witness information as well
  4. Next call up your insurance company agent and narrate the incident. He will usually guide you on the next steps which at times towing the vehicle to the nearest associate body shop, if the damage is heavy
  5. While your car is getting assessed for damages by the appointed person from the company, you may already file the insurance claim form. Provide all the details regarding the accident in your claim form and email or fax it to the agent as soon as possible. Some insurance companies may have online filing as well. By the way, if it is a minor damage, the car at this point is still with you in which case the company appointed insurance adjuster will visit you and assess the damage caused
  6. In the next few days, you may get a couple of calls from your insurance company’s lawyer and other staff as well as possibly a call from the other insurance company. Be prepared with your facts
  7. Finally, you will get a positive call that your claim has been approved and you may send the car to the nearest insurance company pre-approved body shop. You then get it fixed and back on wheels again
  8. Please note that in case of accident deaths or drunken driving related accidents there may be further steps with the law enforcement and legal departments

Other Accident claim tips

Always understand your insurance coverage well, before calling up the claim department.

Decide whether a claim is required at all. For example, if more of plastic and glass parts are involved in the damage, the coverage may be limited and the fixing cost high at the insurance company picked body shop. You may be able to fix it cheap elsewhere.

Keep copies of all records of the incident, claim form and details of your conversation (date, content, agent name) with the claim department.

Talk truth when you are narrating the incident to your agent.

Do keep receipts related to your lodging, work commuting cost, car rental etc until the claim is settled. Some of these expenses may be covered in your package.

Make sure that the insurer settles with you the coverage that was promised. In case of any doubt, take legal advice.

Happy motoring (again)!

How much Car can I afford based on Salary?

A lot of financial advisers and loan agents may say that you can afford to spend up to 33 or even 35 percent of your net income towards paying off loans – all types of loans included, that is.

However, that kind of financial planning by Americans is what exactly led us to the credit crisis that we are facing today. Spending more than what one can afford doesn’t help your life at all.

How much car can I afford?

If you are talking about less-risky route, 25% is an ideal figure (in terms of your net income) that you can afford to spend, on all your loans or mortgage together, to be on the safer side.

For example, assume that you have a monthly take home or net salary of $4000.
Your total monthly mortgage outflow in this case would be $1000 or 25 percent of 4000.

This should include your home mortgage, car loan, car insurance premium etc. In this case, how much of it can be on car loan alone?

In the above example, something like $250 or $300 per month is what you can afford to spend on car and related expenses such as car insurance. Obviously, then you need to do your home loan math as well based on the remaining amount which may not be too bad a figure if your spouse is working.

Another guidance

Another question here is how much of your net income you want to spend on monthly transportation (i.e. car loan, car insurance, maintenance and gas)

The answer is ideally 10% of your net income or $400 in the above example. Now you may split that into car loan premium, insurance and gas expenses.

Sounds scary? Aren’t we all spending a little too much on our cars?

Please note that the above figures are for working individuals and the same calculation may not apply to students etc