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Why Do The Payments On My Mortgage Increase When The Annual Percentage Rate Increases?

From time to time I have had the opportunity to speak with mortgage customers, credit card customers and customers who were in possession of checking accounts along with other financial products. I have worked in the financial industry for a number of years and sometimes it is not easy for a customer to understand some of the changes that took place concerning their own products or services. It was easy for me to explain but the customer did not always comprehend the information that I was sharing. Periodically I would have to explain to a customer why their mortgage payment increased because the annual percentage rate increased. This is why a personal loan can be great to pay down debt and your down payment more conveniently. With the constant rise in interest rates and the downfall of the economy, you can use personal loans in order to pay off your debts and thereafter clear your personal loan accordingly.

Well, when your loan was first set up you were put on a payment schedule that would allow your mortgage to pay off in 30 years provided you make your payments on time every month. Your loan is fully amortized. In other words, when you make your payments a portion of your payment will go to interest and a portion will go to principal. Since your annual percentage rate, (APR), increased a larger portion of your payment is now going towards interest.

  • Balance $50,000
  • Payment $500
  • Interest $246
  • Principal $254
  • APR 6%

Notice with a balance of $50,000 and an APR of 6% the interest that accrues in a 30-day billing cycle is $246. If this loan continues as it is the balance will be paid off on the scheduled due date. Assume the APR increases to 7% because this is an adjustable-rate mortgage. The amount of interest that now accrues or accumulates is $287, approximately. This means more of your payment is going towards interest and less is going towards the principal balance. This account now has $213 going towards the balance. It will now take a longer period of time for this loan to be paid off because the balance is being reduced slower. To offset this, the payment needs to be increased to make sure enough money is still going towards the principal balance. An increase is needed to at least $541 because that is how much the principal payment was reduced by. ($254 -$213). (The increased payment is for this example only and may not be the exact payment amount needed to pay off the loan at the established due date).

Now sometimes you have to go over the information quite a few times before the customer understands exactly what is going on. Changes in terms and agreements can be confusing at times. If you signed a contract for one amount and one or two changes suddenly takes place you feel like you have been blindsided. At times it is just a matter of emphasizing the fact that the payment increased was needed so that the loan can still pay off on time.

If you have a customer in your office then you can actually print out a couple of amortization schedules which allows the customer to see the break down of principal and interest when the annual percentage rate is 6% versus 7%. This makes it a lot easier.

Should You Get a Small Business Loan Through the SBA or not?

One of the most daunting tasks for small business owners is finding the capital they need to grow their business, even if they have bad credit loans guaranteed approval at the most neediest situation to meet the demands of their customers easily. In many cases, the small business owner depletes his or her savings, maxes out personal credit avenues and exhausts the generosity of family and friends before contemplating getting a small business loan. But, getting a small business loan can mean the difference between a successful small business venture and bankruptcy.

Entrepreneurs are the heart and soul of the American economy. However, living the American dream of being your own boss is expensive. You have to buy raw materials, equipment, pay employees and taxes. One small unexpected expense can put your small business in jeopardy. The federal government, more specifically the Small Business Administration, understands how important small businesses are to the overall economy and developed the Small Business Administration to assist owners in getting the money they need to be successful.

While the federal government does not make loans to small businesses directly, they do insure loans made by traditional lenders. This helps get money into the hands of more entrepreneurs since lenders are more willing to lend based on the fact that if the borrower defaults, the federal government has agreed to pick up part of the tab. The federal government works with banks and lenders of all shapes and sizes and offers many different products, so the odds are pretty good that the bank you use to hold your checking and savings accounts is also approved to assist you with getting a small business loan. Also, state and local government organizations as well as several non-profit agencies are approved to make small business loans, so if banks make you squeamish, you can try locating one of these organizations for your small business funding needs.

There are several different small business loan products available, each with their own qualifying criteria. However, most will require you to have a business plan, a list of what you need and who will be supplying it, other business debt obligations, and the names of your management team, if you have one. You will also need to be prepared to tell the lender exactly how you plan to use the proceeds of the loan and how you anticipate these changes will affect your future earning potential. Some loan products will require that you submit evidence of your experience in the field in which you are doing business as well as some personal background information. Like with most loans, you will need to be prepared to submit to a credit check, both personally and via the business, as well as submit both personal and business financial documents to prove that you have enough money to pay back the loan. You may be asked to provide assets that can be listed as collateral as well. The SBA provides a helpful guide for preparing for the application process here.

While all of this sounds a bit overwhelming, understand that getting a small business loan through the SBA is generally less expensive than through other traditional means and more business owners will qualify for an SBA loan than a loan made through a private lender. And, the end result will be a well funded small business venture that can expand with its customers’ needs.