Planning for Life Events and Major Purchases

The term of your vehicle loan can make a big difference in your monthly payment. It can also have a significant impact on the amount of interest you will pay over the course of the loan. You pay interest each month on the outstanding balance of the vehicle loan, so the longer the term of the loan the more interest that you will pay until the loan is paid off.

When purchasing a home the mortgage you choose and the options you want with it will have a significant impact on how much your home costs you in the long run. Interest charges, origination fees, fees paid for a particular interest rate (formerly referred to as 'points') and settlement costs will often have the most impact. Of these, the interest rate you pay will matter most.

Depending on how fast prices and rents rise and how long you stay in your home, you may be better off renting rather than buying. Factors that are part of the equation are the difference in monthly rent versus mortgage payment, home value appreciation, annual rent increases, the interest rate you will pay on your loan, your marginal tax rate and the yield you might receive on savings. When looking at these factors, consider the present value of each option. The one with the lower present value will be the better financial choice.

With a variety of mortgage loan options available, a strong credit score and positive credit history can give you a lot of buying power. But, how much should you consider spending on a home? Financial planners recommend less than 2.5 times your gross annual salary or income OR less than 30% of your take-home pay.

A reasonably priced home should cost less than 2.5 times your annual gross income, the amount you earn from all sources before taxes. If you have significant debt, like student loans, you may need to adjust your price range to leave room in your budget for other loan payments. 

Another rule of thumb is to have your total monthly housing expense – including your new mortgage payment, property taxes, home insurance and mortgage insurance – make up no more than 30% of your take-home (after-tax) income. 

One of the most important questions consumers will ask themselves is "how much money the sale of their home will yield?" That is largely dependent on two things: the amount you still owe on the home and what you will have to pay your realtor for selling the home. If you have a second mortgage, or home equity loan, on the property, you will have to pay that off when you sell the home. When you sell a home, you will also have to pay interest on your outstanding mortgage balance from the date of your last payment until the time of the sale. You are also liable for property taxes up until the day you sell the home. At times, sellers have additional expenses. Local governments will often require that you pay a transfer tax when the home is sold. Incidental closing costs may also nibble away at your proceeds.

Your monthly payment is based on the net purchase price of the vehicle, the loan term and the interest rate for the loan. The loan amount is based on the net purchase price of the vehicle (plus sales tax) or the vehicle price less any cash rebate, trade-in or down payment. If you have an outstanding balance on the vehicle you trade-in, that amount is added to the price of the vehicle you are purchasing.

Adjustable rate mortgages typically offer home buyers the advantage of having a lower mortgage payment during the initial period of the mortgage. Adjustable rate mortgages are generally offered on a 1, 3, 5 or 7-year basis. Once the initial period expires, the mortgage rate will reset at then current interest rate levels. Depending on the direction interest rates are taking, these resets can result in higher or lower monthly payments to the borrower. This adjustable rate mortgage analyzer will help you understand the implication of your adjustable rate terms by showing what your monthly payment will be under different scenarios.

Vehicle manufacturers or dealers will often offer incentives to purchase a particular vehicle in the form of a low rate loan or a cash back incentive. While a low rate loan sounds attractive, you might be better off taking the cash back, using it to add to your down payment and reducing the loan amount for the vehicle. Evaluate which option is best. A lower loan amount will mean a lower monthly payment, and you might find that the interest savings you will gain by the low rate loan is less than the cash back amount.

Your debt-to-income ratio is a metric that lenders consider when approving a loan such as a mortgage, car loans or personal loans. You may be wondering “what is a good debt-to-income ratio?” Typically, lenders want to see an overall ratio of 36% or less with no more than 28% going towards housing expenses.

The amount of equity available for a home equity loan or home equity line of credit is determined by the loan-to-value ratio of the home and the ratio requirements of the lender. A loan-to-value ratio is calculated by taking total mortgage debt (including any second mortgages or existing home equity loans) and dividing it by the current, appraised value of the home. The size of a home equity loan or line of credit will also depend on the loan-to-value requirements of the lender. Higher loan-to-value requirements can result in larger home equity loans or lines of credit.

Use this calculator and compare home values in your neighborhood and discover big savings with Ent Credit Union.

Repayment of a home equity line of credit requires that the borrower makes a monthly payment to the lender. For some home equity lines of credit, borrowers can make interest-only payments for a defined period, after which a repayment period begins. Interest-only payments are based on the outstanding loan balance and interest rate. During the repayment period, the payment includes both repayment of the loan principal, plus monthly interest on the outstanding balance. Loan payments for the repayment period are amortized so that the monthly payment remains the same throughout the repayment period, but during that time, the percentage of the amount that goes towards principal will increase as the outstanding mortgage balance decreases.