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2009-11-06T02:20:00.000-08:00

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About GMI

2009-07-17T05:03:00.000-07:00

GOLD MINE INTERNATIONAL started their Network Marketing operation from Norway under Registration Number 981 447 999 in year 2000. Before entering in e-commerce Network marketing GMI was involved in Custom Made Gold Jewellery. GMI helps you to build a profitable home based business. Currently, there's a vast amount of interest in work at home programs, so now is the time to get in and start building your own business. In GMI, the work you do now will provide residual income for you and your family for years to come.

Once you've chosen a business plan, you'll need to promote it. Please feel free to use the resources on this site and good luck with your business.

If You are Considering MLM Home Business, Take a Look at Us First! We're Better than MLM Home Business! Our Gold Reward Program Truly Works!
GMI offers an unbeatable and fool proof system that Brings You Gold & Cash!

Like you, most people today have thought about or looked at various options to increase or enhance their current income. Sometimes it's because of increasing corporate layoffs, lack of security in their present jobs, too many hours and not enough money. Or sometimes it's a dead end job or retirement looming on the horizon and the realization that there is not enough money for them to live as they have become accustomed. And still others are already retired and terrified to realize they are broke.
Before it happens to you! Take Control of Your Future - Come Realize Your Dream with Our Easy, flexible and achievable plans.
A Tested Home Based Business Idea!

GMI has a simple home based business idea that just makes sense. Work from your home using our easy to adopt and unique Gold Motivation step system and our true leaders will help you to build a true residual income for you and your family. You will not be alone. If you are looking for Financial Freedom, More Time With Your Family, and Increased Financial Security ... You owe it to yourself to see exactly what Gold Mine International system can do for you.
WE ARE NOT MLM we are BETTER than MLM!

More likely, one option people consider is a "Home based business" but there are many MLM home business ideas out there that promises more than they actually deliver. But not with GMI system! Our Gold Reward Program (GRP) gives you the flexibility to earn an income on your own time. It gives you the opportunity to spend more time with your family, and at the same time, gives you the increased financial security you deserve.

We believe we have discovered a solution that just makes sense! Not a
get-rich-quick but a get-rich-sure-opportunity that offers:

* Residual income
* Flexibility to fit your schedule
* A complete easily duplicated system due to our unique Gold Motivation Step.(GMS)
* Guidance and assistance from successful leaders of our team.
* Work less make more opportunity.
* A Tested Home Based Business Idea!
* 100% MONEY BACK GUARANTEE
* NO RISK WHATSOEVER

Look No Further! If you are looking for an honest online business opportunity, GMI is the best choice.

Take your first step to be a millionaire!

GMI ( GOLD MINE INTERNATIONAL ) Sign-In Procedures

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Sign-in through Gold E-Card.

1. With a purchase of every Gold E-Card, a customer can sign in Gold Reward Plan of the same value. Three Gold E-Cards of different values are available on sale virtually through your Gold Card Bank or physical cards could be purchased through authorized agent in selected countries.
2. Customer signed-in using Gold E-Cards will not be allowed to unconfirmed, or change placement as no cool-off period is given for entries via Gold E-Cards, however change of ownership would be allowed free of cost during five days cool-off period.
3. Only the introducer will be able to change Placement or cancel within 5 days from the sign-in date. Provided the person introduced is not signed in through Gold E-Card and gives the current password.

Please be informed that GMI will not be responsible for any lost/stolen Gold E-Card or unauthorized sign-in due to negligence of the customer. Customers are advised to check Gold E-Card through link "Find Card Status" provided at http://www.goldmineint.com/members/verify_card.asp We suggest customers to use Transfer E Card link provided in their Gold E-Card Bank page to transfer E-Cards to other members as sending Gold E Cards via messenger is not recommended.
2. Sign-in through Gold Account

1. The introducer can sign-in a new customer in GMI through virtual Gold E-Card Purchased by their own funds or through Gold Bank.
2. Customer who has been signed-in through Gold Bank statement using cash funds is allowed to be unconfirmed by the introducer within 5days (If no product is been purchased). Full cash is returned without the deduction of any fee, provided the person introduced gives the current password.
3. Every customer gets a Welcome Letter from GMI with the transaction details and Password, through the e-mail mentioned in the purchase form.
4. GMI strongly advise their customers to keep their password, security question and the answer always secure and secret, and should not disclose it to any other members. Customers doing so will be fully responsible for their act and GMI should not be blamed at any certain point.

If you follow the above procedure your Gold Account and your Gold Bank will be secured, and in case of a new sign-ups your order will not be unconfirmed without your knowledge.
Its highly recommended to use true information on your signup page i.e. Name, Age, Telephone Numbers Address and Email Address. Any information found incorrect may result in permanent cancellation of your Gold Account.

GMI ( GOLD MINE INTERNATIONAL ) Refund Policy

2009-07-17T01:58:00.001-07:00

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Refund Policy

We proudly offer 2 alternative refund policies to our customers to prove our flexibility and strong believe in our system. Hence, GMI's customers who could not grow their tree and for any reason could not generate any income from GMI's Gold Step Reward Plan can have Golden Hand Shake through these two options :

1. Cool-off Refund Policy
2. Non-Active Account Refund Policy

1) Cool-off Refund Policy.

1. GMI allows their customers to enjoy a Five days cool-off period from the date of their registration through Gold Bank (Cash Statement).
2. During these Five days cool-off period customers may get their Gold Account cancelled through their Introducer and get 100% amount back from the person who signed them in GMI. (Customers signed in through Gold E-Card can not cancel their Gold Account).

Please note that 5 days Cool Off Period gets over as soon as any transaction is performed in your Gold Account i.e. transferring funds to or from your account, Purchasing Product or E-Cards or Introducing new Customer to GMI.
2) Non-Active Account Refund Policy.

1. This option is for customers who have not received or ordered their Product, Commission or Gold voucher. Customers who have completed six months from the date of joining in GMI, but they have not crossed nine month period yet.
2. Customer should have not received any transferred money to their Gold Bank.

Conditions for Non-Active Account Refund:

1. The customers who qualify for Non-Active Account Refund Policy may request for cancellation through Non Active Refund Link.
2. GMI system after verification of your qualification for cancellation, will instantly cancel your Gold Account and transfer 100% sign-up amount value Gold Vouchers in your Gold Vouchers Statement. Once your GVs are available you can buy Golden Handshake E-Card for 100% value, this card could be used for entering a fresh customer or could also be transferred to your Leader or another active GMI customer to signup new customer.

GMI ( GOLD MINE INTERNATIONAL ) Terms and Conditions

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Terms and Conditions of GMI Gold Reward Program

This is a legal and binding agreement between you - Customer, and GMI – Gold Mine International. By signing up with GMI Gold Reward Program, Customer agrees to all of the terms and conditions of this agreement. If Customer does not agree to these terms, activation of the Gold account will cease.
Joining the Gold Reward Program

By filling out the signup form you will agree to become a customer and are bound by the terms of this agreement. Your participation in the Gold Reward program is solely to get a GMI product in addition to receive a commission on products purchased by your referral individuals joining under you in your Gold Tree.
By filling out the signup form you acknowledge that you have read the terms and conditions, understand, and agree with them.
Term of the Agreements:

The term of this Agreement will begin upon your acceptance of Joining GMI Gold Reward Program and will end when terminated by either party. Either you or GMI may terminate this Agreement at any time, with or without cause, by giving the other party written notice of termination. You are only eligible to earn commission on sales under your Gold tree occurring during the term.

GMI reserves the right to change any of these Terms & Conditions for any reason deemed fit and at its discretion.
Overview.

Upon signing up for Gold Reward Program of GMI, all customers agree to comply with GMI Terms and Conditions. The spirit of this policy is to ensure our customers Joining GMI with regard to the rights of other GMI Customers, conform to the requirements of GMI applicable legislation.

These terms will begin upon your signup with the GMI’s Gold Reward program and will end when your Gold account is terminated. The terms of this agreement may be modified by GMI at any time. If any modification to the terms is unacceptable to you, your only choice is to terminate your Gold account. Your continuing participation in the Gold Reward program will constitute your acceptance of any change.

1. BECOMING A GMI CUSTOMER
1. To signup, Customer of GMI. must be at the legal age in one state or country.
2. GMI reserves the right to accept and/or reject Customer referred without providing any reasons or explanations on such rejection. GMI will not entertain any appeal on rejected cases.
3. GMI Customer is not an employee, agent, representative, or franchisee of GMI, and agrees not to incur any obligation, debt, and expense on behalf of, or in the name of GMI and its websites. He/she is only authorized to purchase products from GMI and/or refer new Customers to GMI in accordance with the Terms & Conditions stipulated herein.
4. All Customers of GMI are eligible to benefit from commissions and/or bonuses in accordance with the Gold Reward Program.
5. Payment of all taxes and/or tariffs applicable will be the responsibility of the Customers in their respective countries.
6. There is currently no annual customer/ member fee and Customer administration fee. These fees, however, may be added in the future at GMI's sole discretion.
2. RESPONSIBILITIES OF A CUSTOMER
1. GMI expects its customers to market products and the Gold Reward Program ethically, professionally, honestly and fully to all GMI's potential customers.
2. GMI is against Customers who sell or promote to other Customers with similar or competitive products or services or recruit or enroll other Customers in any other network-marketing programs or company.
3. Customer understands that although customer may refer other customers into the GMI’s Gold Reward Program, the Program does not allow Customer to profit solely from the activity of referring other Member/Customer. Commissions are paid only for entering Gold Reward Program. No one has made any promise or guarantee that Member/Customer will derive any specific income or profit as a Member/Customer. Customer understands that any income Customer earns in GMI. is determined by Customer's personal activity as an independent member and company's universal Gold Step commission plan. Customer understands that product sales commissions shall be paid only to the qualified Customers and to his or her Downline and Upline. Customer shall not make any income representations except those set forth herein or otherwise specifically set forth in official https://www.goldmineint.com/ Web site. Customer also understands that the incomes as displayed on site, are only an indicative of your potential earnings and are no guarantees.
4. GMI prohibits demonstration of unrealistic income figures and false statements to create temptation to recruit new customers.
5. There are no limitations on territories or franchises to the Gold Reward Program and no restriction as to the location of GMI Customers who can refer as many new customers, but all Customers are personally responsible for their own decision and must satisfy all laws and regulations applicable in their respective countries.
3. ORDERING OF PRODUCT
1. All products should be directly ordered from GMI.
2. GMI system identifies the respective Customer according to the Gold Account name. All purchase orders must be accompanied with a Gold Account name.
3. Customers are responsible for their decision on purchase with GMI.
4. Providing password to the new customer is the responsibility of introducer after the confirmation of order.
5. To assure Gold Reward Program’s payment on weekly basis, the cut-off date for confirmed order is fixed at mid-night on Sunday. Order confirmation received after this time shall be considered for the following week and shall be calculated accordingly.
6. Customers could order their products by making full payment or through the purchase of GMI Gold Easy Payment Plan.
1. Full Payment:
1. A customer who has paid in Full Payment Plan would receive the product within the time stipulated herein and would be assigned a Gold Account in accordance to the purchase page description.
2. GMI Gold Easy Payment Plan:
1. To provide flexibility, GMI allows Customers to place an order through GMI's Gold Easy Payment Plan.
2. Placement of an order through Gold Easy Payment Plan and /or Commissions earned will entitle Customers to GecVoucher(s) which may be used to redeem a Product from GMI at the value of Gold vouchers. Each Gold Center will be assigned GecVoucher according to the selected Gold Plan.
3. There is a limit as to the number of Gold Accounts a Customer can obtain to maximum "3" Gold Accounts in a single Gold Tree. However, GMI strictly prohibits any Customer from obtaining a large or an unreasonable quantity of Gold Accounts for the purpose of manipulating or disrupting the Gold Reward Program.
4. GecVoucher is not transferable and carries an expiry period of 10 years from the date of sign-in.

Please note that if GECV's are not used over a period of ten years you may not be able to utilize them for your product purchase however your GMI account never gets expired and there are no yearly renewal charges for your Gold Account.

Customers keep getting their commission as per the growth of their tree for indefinite period.
5. There are no extra charges or fees for manual redemption of the product except for customers who redeem Gold Coins. Manual redemption cost for Gold Coin is 10% in addition to the total cost of Gold coin.
6. Customers purchasing an instant watch upon new signup will have 10.00 US$ deducted from their Gold Bank Account as Insurance and Delivery Charges.
4. CONFIRMATION OF PURCHASE ORDER:
1. All orders shall be stored or placed in the system till the cool off period is over, and commission will only be released once the cool off period is over on first cut off day.
2. Any cash payment to GMI is the responsibility of country agent and not the individual customer.
3. Upon confirmation of cash payment received by GMI, the respective Gold Account Country Agent (Sender) would be credited and order would be confirmed by the Agents using their cash statement or Gold E-Card.
5. PAYMENT TO GMI
1. Any Cash Payment to GMI is the responsibility of the country agent only.
2. GMI accepts payment from Authorized Country Agents remitted via Telegraphic Transfer (T.T.) or E-Gold to the designated GMI accounts as described in agent’s agreement.
3. If the Agent fails to include the mentioned bank charges, GMI reserves the right to deduct from the commission earned or withhold such order until the mentioned bank charges are remitted to GMI. Incase of E-Gold payment method, If customer fails to enter exact amount or sends it without mentioning proper subject details, etc, payment will be kept on hold till proper amount is received.
4. Agent is responsible to ensure that the Telegraphic Transfer (T.T.) or E-Gold Transfer reaches GMI's account in good order, and GMI is not responsible for any Telegraphic Transfer (T.T.) or E-Gold Transfer not received or misplaced during transition.
6. COOLING-OFF PERIOD
1. Cooling-off period is not applicable to a purchase order made through Gold E-Cards. However, upon confirmation of purchase order as that mentioned in Section 4, such order is subject to a cooling-off period of Five (5) days, If confirmed by Gold Bank (statement).
2. Customers reserve the right to unconfirm the order within the mentioned cooling-off period provided if there is no transaction done during that period, and they are not signed in by Gold E-Card or have not purchased/ordered any product.
3. Gold Account name is final and cannot be changed without paying the fee for this option which is US $ 15.00. Therefore, it is the responsibility of an individual Customer to select, choose and decide for their Gold Account name carefully to avoid sensitive issues relating to race, religion and law. In case of a legal issue arising out of their Gold Account, GMI shall not be responsible and the respective Customer must assume full responsible to resolve such matters at their own expense.
4. The Gold Account shall remain in network and in proper placement in the Gold Tree for a lifetime as long as there is violation of terms and conditions.
5. GMI Customers reserve the right to decide on placement of the referred Customer and such placement must be mentioned in sign up form.
6. GMI must be notified of any correction to the placement of Gold Centers within the cooling off period, after which no changes would be entertained.
7. CHANGES AND ALTERATIONS TO GOLD CENTER
1. Only during five(5) days cool off period GMI allows changes and alterations to the placement of a Gold Center that has been officially confirmed and placed, It is introducer’s duty to make necessary changes using the Change of placement option provided in their account within the right time frame.
8. PRODUCT REDEMPTION
1. GMI's Customers are allowed to use their Gold Vouchers to offset the purchase price in accordance with the retail price of the desired product.
2. GMI's Customers reserve the right to purchase their desired product by making Full Payment to GMI at any time.
3. GecVouchers can be used to redeem Product from GMI through on-line redemption link provided at GMI's website. A customer is required to pay the balance (after deducting the Gold Voucher's value) to Gold Mine International
1. Gold Vouchers.

GMI automatically sends the Gold Coin to Customer according to their updated personal profile Address An automatic program has been created for the redemption of products. If a customer has accumulated enough Gold Vouchers to redeem products, Deduction of GV is reflected in the Customer’s GV statement.
2. Commission.

GMI's Customers could also use their earned commission and adjust it against the redeemed product.

9. DELIVERY OF PRODUCTS
1. Delivery of Product is made within 3 – 4 weeks from the date of official confirmation of order or redemption. (Subject to the country's Law).
2. GMI and their Agents are using a reliable courier services for the product delivery.
3. The product must be received by the Customer only. In most countries, there are no tariff charges but in some other countries where tariff or duties are being charged, the Customer must bear such charges and make payment to the courier carrier or give instruction to pay such charges directly to the relevant authority.
4. The aforesaid charges must be paid to GMI by bank draft prior to confirmation of order. Alternatively, the Customer could instruct GMI to deduct such charges from the Gold Bank, if available. However, GMI would confirm such a purchase but product would only be delivered after GMI deducts the said charges as per Customer's instruction.
5. The Customer could either pay the balance to GMI or instruct GMI to deduct the said balance from Gold Bank and/or Gold Voucher(s) for their desired product for the delivery of product redeemed through the Gold Reward Program. Such redemption would be officially considered as a confirmed order with full payment after the balance payment has been deducted from Gold Bank or Gold Vouchers in accordance to the Customer's instruction.
6. In case of unavoidable circumstances when GMI is unable to deliver the product as shortage of product or product discontinuation, GMI has right to replace the requested product with any of its existing products with same or higher value without any notice to customer.
10. GOLD VOUCHER
1. Gold Vouchers are offered to Customer from GMI's Gold Reward Program and such vouchers are not transferable unless all products are redeemed from each active Gold Account.
2. Gold Vouchers can be used to redeem the GMI Products, or after a Redemption of one product these vouchers could be used at 30% of value to buy Gold E-Cards.
3. Gold Vouchers can not be exchanged with Gold E-Cards unless customer has received at least one GMI product from an active Gold Center and is valid indefinitely.
4. Gold vouchers are transferable for the customers who have redeemed all available products from GMI and have accumulated US$375 GVs in their GV's statement. The GV Transfer Link will become inactive automatically as soon as the number of GVs are less than US$375.
11. CANCELLATION OR EXCHANGE OF PRODUCTS REDEEMED
1. Customer's account is debited by 10% of the product value. In case of cancellation of any confirmed redemption order however cancellation of the order is only possible if the product is not dispatched before cancellation notification reaches GMI.
12. TRANSFER OF GOLD CENTER

INHERITABILITY:
1. The GMI Gold Account, like any other business or asset. The Gold Account is fully transferable in accordance with the terms of nominee, or in the absence of nominee on record, it passes to heirs pursuant to the applicable interstate succession laws.
2. Ownership Transfer of any individual Gold Center is not allowed, except all Fifteen (15) Gold Centers are being sold or transferred. Transfer of ownership of Gold Account can be made online through Gold Messenger support and will cost US$5.
13. COMMISSION PAYMENT
1. All newly confirmed orders are processed by GMI on weekly basis. GMI pays the commission to qualified Customers in the following manner:

a. Commissions earned shall be paid within ONE (1) week from the sales cut-off date.
2. Your weekly commission is automatically deposited to your Earned Commission Bank (Statement), however Customers can request for a Telegraphic Transfer (T.T.) or Company's Cheque, the admin fee of minimum US$20.00 for per T.T. or cheque or 4% of amount requested (Which ever is higher) will be deducted from the respective Customer Earned Commission Bank.
3. Due to a wrong bank or residence address If any T.T. or cheque is returned to GMI, A fee of US$20 for T.T. and US$20 for cheque sent through courier service will be charged for second delivery.
4. Minimum amount to request for a T.T or Cheque is US $ 500 and Maximum amount allowed per transaction is US $ 3000..

No commission will be paid via E-Gold. E-Gold is added to system only to ease the delay via Telegraphic transfer and other processes in purchase of E-Cards for Customers. Similarly, no refunds will be done via E-Gold.

14. TRANSFER FUND

GMI has provided freedom of fund transfer to its customer from one account to another for customer’s convenience, misuse of this service may result in suspension of Gold Account.
1. Make sure you know the Customer you are getting funds from, through Transfer Fund option.
2. Company has the right to suspend all the accounts that are involved in the illegal transfer transactions.
3. As a Customer of GMI, you are responsible for any funds transferred in and out of your account The Company will not accept excuses such as unable to locate the Customer who sold you the funds.
4. Its your duty to inform GMI If you find that funds have been transferred in or out of your account without your knowledge.
5. The Company will suspend all the accounts involved in the transfer transactions until the full amounts have been recovered by the victim.
15. CUSTOMER CONDITION

You are responsible for any and all Content that you send to GMI.

You may not use the Site or other Offerings or any information that you get from the Site or other Offerings to:
1. Interfere with any GMI Customer’s Downliners or Upliners or misuse of GMI’s Site or other Offerings are prohibited;
2. Conduct any unlawful activity is prohibited;
3. Intentionally solicit or harm minors in any way prohibited.;
4. Misrepresent your own identity or any affiliation that you may have is prohibited;
5. Alter or remove any copyright, trademark or other proprietary rights notices; “frame”, “mirror” or “deep link” any part of the Site or other Offerings without our prior written authorization is prohibited;
16. ADVERTISING AND PROMOTION
1. Customers are not allowed to advertise GMI's product, use any literature written/recorded or any other promotional materials that may implicate the Company in any manner.
2. Customer may request in writing to GMI for approval to be granted for any advertising or promotional exercise for which copies of the materials must have been submitted to GMI for written approval prior to the said exercise via authorized Agent/Dealer.
3. Self created literature regarding the product and company is a complete responsibility of customer and not GMI.
17. PRODUCT
1. All Gold Coins supplied by GMI are made of pure 24 Carat gold.
2. All other gold products varies between 18 carat to 21 Carat.
3. GMI watches are 18 Carat Gold Plated
4. Customers are strongly advised to return any defective product within a period of TEN (10) Days from the date of receipt, failing to do so will result a deduction from your account.
18. SECURITY

Each Customer must keep GMI’s GOLD ACCOUNT passwords and other security access information confidential and notify GMI, promptly if the customer believes that the security of an account has been compromised. GMI. has taken reasonable steps to protect the security of online transactions. HOWEVER, GMI. CANNOT AND DOES NOT WARRANT SUCH SECURITY AND WILL NOT BE LIABLE FOR ANY LOSSES OR DAMAGES RESULTING FROM ANY SECURITY BREACHES.

GMI Notifications Service
This service helps you to monitor activities performed on your Gold Account. After subscription, this service can only be unsubscribed by the email notification(s) of this service that you will receive on your primary email address

GMI Notification Service subscription period is 6 months for a fee of US$ 15.00.

By Activating this service user gets notification email for any or all below mentioned activities in their account as per their selection.

A: Login to Gold Account
B: Locking/Unlocking of Gold Account
C: Any transaction performed in Gold Account
19. GENERAL BUSINESS ETHICS POLICY
1. GMI seeks to conduct its business in a professional, ethical and credible manner and expects all its employees, representatives and customers to do likewise.
2. Customer understands that cross sponsoring, cross recruiting and cross line jumping is prohibited in GMI and may result in the imposition of penalty, as more fully set forth hereafter, but may include immediate termination of this Agreement. "Cross sponsoring" means soliciting a Member/Customer or any closely related person or entity into a downline different from the existing downline for that Member/Customer. "Cross recruiting" means soliciting a Member/Customer, or a closely related person or entity, into another MLM company. "Cross line jumping" means a Member/Customer or any closely related person or entity voluntarily becoming Customer that is not under same upline as the one in which the Customer was enrolled earlier. A "closely related person or entity" is any person in the household of the Customer (e.g. spouse, son, daughter, parent living in the same household) or partnership, which is controlled by the Customer
3. Any action, activity that may cause, is likely to cause, is intended to cause GMI, its customers the loss of good reputation or that is detrimental to the business interests of GMI shall be considered an unethical practice and will result termination of customer’s Gold Account. An unethical practice includes the offer of an inducement for a member from one up line in one genealogy to cross-over to another up line in a different genealogy.
4. When using any e-mail address provided to you on or through the site or other offering, you agree not to transmit to any person or entity
* any Content that is unlawful, fraudulent, threatening, abusive, libelous, defamatory, vulgar, obscene, harmful, harassing, tortuous, invasive of another’s privacy, hateful, or is racially, ethnically or otherwise objectionable, or is subject to an agreement of confidentiality, or infringes upon our or any third party’s intellectual property or other rights;
* any non-public information about any company;
* any trade secret;
* any computer code, files or programs (for example, a computer virus) designed to interrupt, destroy, compromise the security of or limit the functionality of any device.
* spamming is strictly prohibited. Spam is defined for this purpose as sending an unsolicited message to any persons, entities, newsgroups, forums, e-mail lists or other groups or lists unless prior authorization has been obtained from the e-mail recipient who explicitly permits sending e-mail communication to them, or unless a business or personal relationship has already been established with the e-mail recipient.
IF YOU ARE “SPAMMED” BY SOMEONE WHO IS SELLING OR DESCRIBING GMI’S PRODUCT OR BUSINESS OPPORTUNITY, PLEASE CONTACT US AT admin@goldmineint.comPROMPTLY SO THAT WE MAY TAKE APPROPRIATE ACTION.
* the use of false headers in e-mails or falsifying, forging or altering the origin of any e-mail in connection with GMI and/or its product and services is prohibited.
* if a person or entity indicates that they do not want to receive e-mail, you agree not to send e-mail to such person or entity. If a person initially agrees to receive e-mail, but later asks to stop receiving e-mail, you must abide by that request.

GMI prohibits engaging in any of the foregoing activities by using the service of another provider, remailer service or otherwise
1. Any complaint against another customer must be directed to GMI Management for investigation to determine the truth of the allegation. The decision of GMI Management is final and conclusive.
2. Any complaint against customers sending abusive language or religious violation words, or offers made for pulling a member from one genealogy to another on Gold Messenger would be considered serious violation of GMI business ethics and result in permanent cancellation of the customer's Gold Account without any notice, as all messenger communication is closely monitored and recorded by GMI admin.
20. TERMINATION OF CUSTOMER
1. Customer may voluntarily terminate this Agreement by sending written notice at any time for any reason. If Customer terminates this Agreement that Customer shall not be allowed to become a Customer again for a period of one (1) month. If Customer re-joins on-line in violation of this policy then that Customer shall be terminated and Customer shall not be allowed to earn any commissions from the new position,
2. GMI reserves the right to terminate a Customer who is found in violation of these Terms and Conditions or any statutory law in the respective country and/or regulations that pertain to the business of GMI and such termination may result in GMI exercising its right to pursue reasonable legal recourse.
3. If Customer breaches any of the provisions of this Agreement, violates any applicable law or regulation or engages in any false, misleading or unfair trade practice, including but not limited to, making misleading income representations or making promises to potential Customer that can not be kept by Customer, (herein called "Violation") any such Violation is grounds for the imposition of penalty, as more fully set forth hereafter. The Company may suspend Customer, including suspension of checks earned at the time, pending investigation of any alleged Violation. Customer shall be given notice of the alleged Violation by e-mail, fax or other rapid method of communication and shall have seven days thereafter to respond in writing (verbal response will not be considered) to any alleged Violation (s), failing which, the Company can consider the allegations to be true. (It is Customer’s responsibility to see that Company receives the response, with supporting documentation, if any, within the seven-day period.) If at the end of the investigation it is determined that Customer is to be penalized, the date of the imposition of the penalty can be, at the Company's option A Customer found in breach or violation of these Terms and Conditions may be subject to disciplinary action by GMI, which may include limitation of Customer's right or the outright termination of his/her accounts
4. A Customer wishing to appeal a disciplinary action must do so within fourteen (14) days from the date of disciplinary or termination notice, after which the disciplinary or termination action shall be considered as final and conclusive. It is the goodwill of GMI to review any appeal and to consider any other appropriate action. GMI shall promptly notify the Customer of its decision, and the GMI decision shall be final and not subject to further review.
5. In all termination cases, the affected Customer shall lose all rights to his/her referred Customer and shall no longer be entitled to receive benefits stipulated in GMI's Gold Reward Program, or any other compensation whatsoever from GMI.
6. Signing up additional Gold Accounts for” Bunching “ purpose to earn unrealistic sales commission is expressly forbidden and subject to suspension or termination of Gold Account. A Customer or Referrer who repeatedly and deliberately manipulates the submission of new sales not in accordance with natural development and which can result in an un-natural burden to the company, shall have his/her Gold Account suspended and this may lead to his/her permanent termination.
7. A Customer or Referrer shall face termination if found manipulating the placement of GA or manipulating the confirmation of an order which violates the policy of GMI which says that a GA should be confirmed immediately and password must be passed on to a new Customer as soon as payment has been received.
8. New Customers are advised to ask for their password from the Referrer and change their password immediately to avoid possible hacking and fraud activities.
9. Customers exceeding more than three GAs (Gold Accounts) in one particular tree violate the GMI policy of holding maximum three Gold Accounts in one particular tree. Such customers will result in getting their accounts seized permanently.
10. The failure by a customer to meet or follow any of the above Terms of Use or who may be in breach of applicable law is grounds for account deactivation. GMI will be the sole arbiter as to what constitutes a violation of the Terms of Use. GMI reserves the right to remove any account without prior notice. When GMI becomes aware of an alleged violation of its Terms of Use, GMI will initiate an investigation into the alleged violation. During the investigation, GMI may restrict a customer's access in order to prevent further potentially unauthorized activity. Depending on the severity of the violation, GMI may, at its sole discretion, restrict, suspend, or terminate a customer's Gold account and/or pursue other civil remedies. If such violation is a criminal offence, GMI will notify the appropriate law enforcement authorities. GMI does not issue credits for outages incurred through service disablement resulting from Terms of Use violations. In such an event GMI will not be liable for any loss suffered by the customer as a result of the suspension of their services. GMI customers agree to indemnify and hold harmless.
21. CUSTOMER DETAILS, DATABASE
1. GMI allows its customers to change and update the customer details at anytime on their own. GMI provides tools for customers to fully manage their Gold account, commission receivables, personal details update, personal and group sales activities.

GMI ( GOLD MINE INTERNATIONAL ) Rules and Regulations

2009-07-17T01:52:00.000-07:00

1. GOLD STEP COMMISSION
1. GMI offers Three Gold Reward Programs (GRP) consists of 2/2 , 3/3 Advance and 3/3 Basic Gold Step Commission Plan which gets extended automatically to 1/1 Platinum Plan once all three plans are active and all other conditions are fulfilled.
2. GMI pays commission once in a week, we do calculation on daily basis but we pay weekly our sales cut-off day is Sunday. Only those Gold Accounts or Gold Centers would be calculated for the commission payment who have passed their five days cool-off period.
3. All active Gold Account and Gold Centers would be calculated and the commission will be paid to the qualified Gold Account holder but maximum payout for Gold Step Commission is 15 steps per day (Any particular day if your Gold Steps are more then 15 then Flushing-out rule applies).
2. 1/1 PLATINUM GOLD PLAN- GOLD STEP COMMISSION
1. Every two new Sales Transactions one on the left and one on the right (1L/1R) of the active Gold Account shall qualify for one Gold Step Commission of US$200.
2. The maximum payout for Gold Step Commission is 15 steps per day.
3. Maximum Gold Step Commission one can earn in a day is US$3000 (15L/15R) inclusive of Gold Vouchers. Commissions in excess of 15 Left and 15 Right shall be considered paid and flushed out.
3. 2/2 GOLD PLAN – GOLD STEP COMMISSION
1. Every Four 4 new Sales Transactions introduced and placed two (2) GCs on the left and two (2) GCs on the right of the Active Gold Account shall qualify for one Gold Step Commission of US$40.
2. The maximum payout for Gold Step Commission is 15 steps per day.
3. Maximum Gold Step Commission one can earn in a day is US$600 (30L/30R) inclusive of Gold Vouchers. Commissions in excess of 30 Left and 30 Right shall be considered paid and flushed out.
4. 3/3 ADVANCE GOLD PLAN – GOLD STEP COMMISSION
1. Every six 6 new Sales Transactions introduced and placed three (3) GCs on the left and three (3) GCs on the right of the Active Gold Account shall qualify for one Gold Step Commission of US$30.
2. The maximum payout for Gold Step Commission is 15 steps per day.
3. Maximum Gold Step Commission one can earn in a day is US$450 (45L/45R) inclusive of Gold Vouchers. Commissions in excess of 45 Left and 45 Right shall be considered paid and flushed out.
5. 3/3 BASIC GOLD PLAN – GOLD STEP COMMISSION
1. Every six 6 new Sales Transactions introduced and placed, three 3 GCs on the left and three 3 GCs on the right of the Active Gold Account shall qualify for one Gold Step Commission of US$15.
2. The maximum payout for Gold Step Commission is 15 steps per day.
3. Maximum Gold Step Commission one can earn in a day is US$225 (45L/45R) inclusive of Gold Vouchers. Commissions in excess of 45 Left and 45 Right shall be considered paid and flushed out.
6. 1/1 PLAN GOLD VOUCHER (GV)
1. 5 Gold Steps equal 1 Rotation.
2. GMI will convert US$200 of every fifth Gold Step Commission into Gold Vouchers (GV).
3. Selected Gold Product will automatically be redeemed for each GC which has accumulated GVs equal to selected product cost. This default system is to ensure that customer receives Gold Products as fast as possible.
4. All Gold Vouchers are valid to redeem a product with in Ten (10) Year’s time limit. GVs are not transferable to another Gold Account, and are not redeemable for Gold E-Cards until one product has been redeemed.
5. Earned Gold Vouchers will be shown in your Gold Voucher Statement.
6. Gold Coin can be redeemed manually by clicking Redemption link inside Gold Office, provided there is sufficient balance in your Gold Bank. Manual redemption costs 10% extra for the Gold Coin but other products price remain same for manual or auto redemption.
7. Auto redemption will be made when a GC has accumulated specific amount of GVs.
8. Customer can only use GECV's or GV's for one Standard and one Zodiac Gold product for Auto redemption, however if customers are eager to buy more Coins they may do manual redemption using cash from Gold Bank (Other unlimited number of products are allowed for customers to purchase using GECV's or GV's).
7. 2/2 PLAN GOLD VOUCHER (GV)
1. 5 Gold Steps equal 1 Rotation.
2. GMI will convert US$40 of every fifth Gold Step Commission into Gold Vouchers (GV) the same rule applies to all 15 active Gold Centers (GCs).
3. Selected Gold Product will automatically be redeemed for each GC which has accumulated GVs equal to selected product cost. This default system is to ensure that customer receives Gold Products as fast as possible.
4. All Gold Vouchers are valid to redeem a product with in Ten (10) Year’s time limit. GVs are not transferable to another Gold Account, and are not redeemable for cash until one product is automatically redeemed.
5. Earned Gold Vouchers will be shown in your Gold Voucher Statement.
6. Gold Coin can be redeemed manually by clicking Redemption link inside Gold Office, provided there is sufficient balance in your Gold Bank.
7. Auto redemption will be made when a GC has accumulated specific amount of GVs.
8. 3/3 ADVANCE PLAN GOLD VOUCHER (GV)
1. 5 Gold Steps equal 1 Rotation.
2. GMI will convert US$30 of every fifth Gold Step Commission into Gold Vouchers (GV) the same rule applies to all 15 active GCs.
3. Selected Gold Product will automatically be redeemed for each GC which has accumulated GVs equal to selected product cost. This default system is to ensure that customer receives Gold Products as fast as possible.
4. All Gold Vouchers are valid to redeem a product with in Ten (10) Year’s time limit. GVs are not transferable to another Gold Account, and are not redeemable for cash until one product is automatically redeemed.
5. Earned Gold Vouchers will be shown in your Gold Voucher Statement.
6. Gold Coin can be redeemed manually by clicking Redemption link inside Gold Office, provided there is sufficient balance in your Gold Bank.
7. Auto redemption will be made when a GC has accumulated specify amount of GVs.
9. 3/3 BASIC PLAN GOLD VOUCHER (GV)
1. 5 Gold Steps equal 1 Rotation.
2. GMI will convert US$15 of every fifth Gold Step Commission into Gold Vouchers (GV) the same rule applies to all 15 active GCs.
3. Selected Gold Product will automatically be redeemed for each GC which has accumulated GVs equal to selected product cost. This default system is to ensure that customer receives Gold Products as fast as possible.
4. All Gold Vouchers are valid to redeem a product with in Ten (10) Year’s time limit. GVs are not transferable to another Gold Account, and are not redeemable for cash until one product is automatically redeemed.
5. Earned Gold Vouchers will be shown in your Gold Voucher Statement.
6. Gold Coin can be redeemed manually by clicking Redemption link inside Gold Office, provided there is sufficient balance in your Gold Bank.
7. Auto redemption will be made when a GC has accumulated specify amount of GVs.
10. Gold E-Card Purchase
1. Gold E-Cards are available on sale through Buy Gold E-Card link in Gold Office to any GC owner who has sufficient amount available in his/her Gold Bank or Earned Commission Bank. You can purchase Gold E-Cards via E-gold account as well.
2. Each Gold E-Card purchased through “Earned Commission Bank” cash link will get GC owner GVs credited to his/her Account.
3. To encourage our GC owners, following incentives are offered on Purchase of Gold E-Cards through their Gold E-Cards Link using “Earned Commission Bank” cash. Please follow the chart given below:

Gold E-Cards Gold Vouchers
Plan 3/3 B 0.50$
Plan 3/3 A 1.00$
Plan 2/2 2.00$

The above mentioned Chart shows the discount per card e.g. customers who buys 30$ card in any quantity gets 0.50$ credited to their GV's account.

Please note that Gold E- Cards purchased using “Gold Bank” or “E-Gold” commission will not entitle you for GV incentive.

11. DIRECT REWARD COMMISSION: APPLIES TO ONLY 3 PLANS.
1. This is an extra incentive for every customer directly introduced by you.
2. Direct Reward Commission shall be US$1.00 to US$5.00 as per GC activated.
12. COMMISSION STATEMENT
1. It is the responsibility of the respective customers to view, print and/or download their respective Commission Statement accordingly and it is also highly advisable that all Customers print a copy of their Commission Statement for their own safekeeping.
2. All unpaid Gold Step Commission brought forward from the previous day shall also be shown in the said commission statement.
3. It is the responsibility of all GMI Customers to read, understand and check their respective Commission Statements accordingly. Customers must notify GMI Admin for any error or omission within five (5) days from the date thereof, after which the Company will not be responsible for any discrepancy and shall not entertain whatsoever claim that may arise.
13. COOLING-OFF PERIOD
1. GMI allows their customers to enjoy a Five days cool-off period from the date of their registration through Gold Bank (Cash Statement).
2. During these Five days cool-off period customers may get their Gold Account cancelled through their Introducer and get 100% amount back from the person who signed them in GMI. (Customers signed in through Gold E-Card can not cancel their Gold Account).
3. During the Five 5 day cooling-off period customers are advised not to perform any transactions, however are free to access their account.
4. Should customers wish to conduct any transaction during the cooling-off period, this action constitutes a waive of such period and is now considered confirmed with full functionality and facilities activated by GMI.
5. Once the Five 5 day cooling-off period is over the Gold Account will be activated as confirmed Gold Center.
6. No cool off period is given on entries made through Gold E-Card.
7. No cool off period is given on entries if new customer has selected instant product.
14. NON-ACTIVE REFUND POLICY
1. The GMI Non-Active Refund Policy is valid for customers who have not received/requested Product, any commission or Gold voucher after 6 months from the date of becoming a GMI customer and have not completed 9 months yet.
2. To qualify, customers must not have earned or received any transferred amount.
3. Customers will not be able to access to their Gold Account after they have received GV's in their GV statement under refund policy. If the customer wishes to network again he/she will need to sign-in a new Gold Account.
4. In case of cancellation the customer gets 100% value of GV's in their GV statement to buy Golden Handshake E-Cards at the 100% value to their GV's which could be transferred via Gold E-Card bank to any active customer or could be used to register a new customer at the same place.
15. GMI NOTIFICATION SERVICE

This service helps you to monitor activities performed on your Gold Account. After subscription, this service can only be unsubscribed by the email notification(s) of this service that you will receive on your primary email address

GMI Notification Service subscription period is 6 months for a fee of US$ 15.00.

By Activating this service user gets notification email for any or all below mentioned activities in their account as per their selection.
1. Login to Gold Account
2. Locking/Unlocking of Gold Account
3. Any transaction performed in Gold Account

Loan

2009-06-17T05:42:00.001-07:00

A loan is a type of debt. This article focuses exclusively on monetary loans, although, in practice, any material object might be lent. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.
The borrower initially does receive an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A loan is of the annuity type if the amount paid periodically (for paying off and interest together) is fixed.
A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.
Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.
Legally, a loan is a contractual promise between two parties where one party, the creditor, agrees to provide a sum of money to a debtor, who promises to return the money to the creditor either in one lump sum or in parts over a fixed period in time. This agreement may include providing additional payments of rental charges on the funds advanced to the debtor for the time the funds are in the hands of the debtor (interest).

Types of loans Secured

2009-06-17T05:41:00.000-07:00

Secured loans are the loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan.
A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.
In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.
A type of loan especially used in limited partnership agreements is the recourse note.
A stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk.
A pre-settlement loan is a non-recourse debt; this is when a monetary loan is given based on the merit and awardable amount in a lawsuit case. Only certain types of lawsuit cases are eligible for a pre-settlement loan. This is considered a secured non-recourse debt due to the fact if the case reaches a verdict in favor of the defendant the loan is forgiven.

Unsecured Of Loan

2009-06-17T05:40:00.002-07:00

Unsecured loans are monetary loans that are not secured against the borrowers assets. These may be available from financial institutions under many different guises or marketing packages:
• credit card debt
• personal loans
• bank overdrafts
• credit facilities or lines of credit
• corporate bonds
The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974.

Federal Perkins Loans
A federal Perkins loans, or Perkins Loans, are need-based student loans offered by the U.S. Department of Education to assist American college students in funding their post-secondary education. The program is named after Carl D. Perkins, a former member of the U.S. House of Representatives from Kentucky.
Perkins Loans carry a fixed interest rate of 5% for the duration of the ten-year repayment period. The Perkins Loans Program has a nine-month grace period, so that borrowers begin repayment in the tenth month upon graduating, falling below half-time status, or withdrawing from their college or university. Because the Perkins Loans is subsidized by the government, interest does not begin to accrue until the borrower begins to repay the loan. The loan limits for undergraduates are $4,000 per year with a lifetime maximum loan of $20,000. For graduate students, the limit is $6,000 per year with a lifetime limit of $40,000 (including undergraduate loans).
Perkins Loans are eligible for Federal Loan Cancellation for teachers in designated low-income schools, as well as for teachers in designated teacher shortage areas such as math, science, and bilingual education. A percentage of the loan is cancelled for each year spent teaching full-time.
Loan guarantee
A loan guarantee is a promise by a government to assume a private debt obligation if the borrower defaults. Most loan guarantee programs are established to correct perceived market failures by which small borrowers, regardless of creditworthiness, lack access to the credit resources available to large borrowers.
Loan guarantees can also be extended to large borrowers for political reasons. For example, Chrysler Corporation, one of the "big three" US automobile manufacturers, obtained a loan guarantee in 1979 amid lobbying by labor interests.
Programs and agencies
United Kingdom
• Small Firms Loan Guarantee

United States Loan

2009-06-17T05:40:00.001-07:00

• Fannie Mae
• Export-Import Bank
• Federal Family Education Loan Program
• Freddie Mac
• Government National Mortgage Association
• Small Business Administration
• VA loan

Debt
Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned. Some companies and corporations use debt as a part of their overall corporate finance strategy.
A debt is created when a creditor agrees to lend a sum of assets to a debtor. In modern society, debt is usually granted with expected repayment; in many cases, plus interest. Historically, debt was responsible for the creation of indentured servants.

Payment Of Loan

2009-06-17T05:39:00.002-07:00

Before a debt can be made, both the debtor and the creditor must agree on the manner in which the debt will be repaid, known as the standard of deferred payment. This payment is usually denominated as a sum of money in units of currency, but can sometimes be denominated in terms of goods. Payment can be made in increments over a period of time, or all at once at the end of the loan agreement.

Types of debt Of Loan

2009-06-17T05:39:00.001-07:00

A company uses various kinds of debt to finance its operations. The various types of debt can generally be categorized into:
1. secured and unsecured debt,
2. private and public debt,
3. syndicated and bilateral debt, and
4. other types of debt that display one or more of the characteristics noted above.
A debt obligation is considered secured if creditors have recourse to the assets of the company on a proprietary basis or otherwise ahead of general claims against the company. Unsecured debt comprises financial obligations, where creditors do not have recourse to the assets of the borrower to satisfy their claims.
Private debt comprises bank-loan type obligations, whether senior or mezzanine. Public debt is a general definition covering all financial instruments that are freely tradeable on a public exchange or over the counter, with few if any restrictions.
Loan syndication is a risk management tool that allows the lead banks underwriting the debt to reduce their risk and free up lending capacity.
A basic loan is the simplest form of debt. It consists of an agreement to lend a principal sum for a fixed period of time, to be repaid by a certain date. In commercial loans interest, calculated as a percentage of the principal sum per year, will also have to be paid by that date.
In some loans, the amount actually loaned to the debtor is less than the principal sum to be repaid; the additional principal has the same economic effect as a higher interest rate (see point (mortgage)).
A syndicated loan is a loan that is granted to companies that wish to borrow more money than any single lender is prepared to risk in a single loan, usually many millions of dollars. In such a case, a syndicate of banks can each agree to put forward a portion of the principal sum.
A bond is a debt security issued by certain institutions such as companies and governments. A bond entitles the holder to repayment of the principal sum, plus interest. Bonds are issued to investors in a marketplace when an institution wishes to borrow money. Bonds have a fixed lifetime, usually a number of years; with long-term bonds, lasting over 30 years, being less common. At the end of the bond's life the money should be repaid in full. Interest may be added to the end payment, or can be paid in regular installments (known as coupons) during the life of the bond. Bonds may be traded in the bond markets, and are widely used as relatively safe investments in comparison to equity.

Accounting debt Loan

2009-06-17T05:38:00.002-07:00

In national accounting, debts are added according to those who are indebted. Household debt is the debt held by households. "National" or Public debt is the debt held by the various governmental institutions (federal government, states, cities ...). Business debt is the debt held by businesses. Financial debt is the debt held by the financial sector (from one financial institution to another). Total debt is the sum of all those debts, excluding financial debt to prevent double accounting. These various types of debt can be computed in debt/GDP ratios. Those ratios help to assess the speed of variations in the indebtness and the size of the debt due. For example the USA have a high consumer debt and a low public debt, while in eastern European countries, for example, the opposite tends to be true.
There are differences in the accounting of debt for private and public agents. If a private agent promises to pay something later, it has a debt, and this debt is enforceable by public agents. If a public body passes a law stating that it'll pay something later (a kind of promise), it keeps the right to change the law later (and not to pay). This is why, for instance, the money governments promised to pay for retirements does not show up in the public debt assessment, whereas the money private companies promised to pay for retirements do.

Securitization Loan

2009-06-17T05:38:00.001-07:00

Securitization occurs when a company groups together assets or receivables and sells them in units to the market through a trust. Any asset with a cash flow can be securitized. The cash flows from these receivables are used to pay the holders of these units. Companies often do this in order to remove these assets from their balance sheets and monetize an asset. Although these assets are "removed" from the balance sheet and are supposed to be the responsibility of the trust that does not end the company's involvement. Often the company maintains a special interest in the trust which is called an "interest only strip" or "first loss piece". Any payments from the trust must be made to regular investors in precedence to this interest. This protects investors from a degree of risk, making the securitization more attractive. The aforementioned brings into question whether the assets are truly off-balance-sheet given the company's exposure to losses on this interest.

Debt, inflation and the exchange rate Of Loan

2009-06-17T05:37:00.002-07:00

As noted above, debt is normally denominated in a particular monetary currency, and so changes in the valuation of that currency can change the effective size of the debt. This can happen due to inflation or deflation, so it can happen even though the borrower and the lender are using the same currency. Thus it is important to agree on standards of deferred payment in advance, so that a degree of fluctuation will also be agreed as acceptable. It is for instance common to agree to "US dollar denominated" debt.
The form of debt involved in banking accounts for a large proportion of the money in most industrialized nations. There is therefore a relationship between inflation, deflation, the money supply, and debt. The store of value represented by the entire economy of the industrialized nation, and the state's ability to levy tax on it, acts to the foreign holder of debt as a guarantee of repayment, since industrial goods are in high demand in many places worldwide.

Inflation indexed debt On Loan

2009-06-17T05:37:00.001-07:00

Borrowing and repayment arrangements linked to inflation-indexed units of account are possible and are used in some countries. For example, the US government issues two types of inflation-indexed bonds, Treasury Inflation-Protected Securities (TIPS) and I-bonds. These are one of the safest forms of investment available, since the only major source of risk — that of inflation — is eliminated. A number of other governments issue similar bonds, and some did so for many years before the US government.
In countries with consistently high inflation, ordinary borrowings at banks may also be inflation indexed.

Debt ratings, risk and cancellation Risk free interest rate

2009-06-17T05:36:00.000-07:00

Lending’s to stable financial entities such as large companies or governments are often termed "risk free" or "low risk" and made at a so-called "risk-free interest rate". This is because the debt and interest are highly unlikely to be defaulted. A good example of such risk-free interest is a US Treasury security - it yields the minimum return available in economics, but investors have the comfort of the (almost) certain expectation that the US Treasury will not default on its debt instruments. A risk-free rate is also commonly used in setting floating interest rates, which are usually calculated as the risk-free interest rate plus a bonus to the creditor based on the creditworthiness of the debtor. In reality, no lending is truly risk free, but borrowers at the "risk free" rate are considered the least likely to default.
However, if the real value of a currency changes during the term of the debt, the purchasing power of the money repaid may vary considerably from that which was expected at the commencement of the loan. So from a practical investment point of view, there is still considerable risk attached to "risk free" or "low risk" lending. The real value of the money may have changed due to inflation, or, in the case of a foreign investment, due to exchange rate fluctuations.
The Bank for International Settlements is an organization of central banks that sets rules to define how much capital banks have to hold against the loans they give out.

Ratings and creditworthiness Loan

2009-06-17T05:33:00.002-07:00

Specific bond debts owed by both governments and private corporations is rated by rating agencies, such as Moody's, Fitch Ratings Inc., A. M. Best and Standard & Poor's. The government or company itself will also be given its own separate rating. These agencies assess the ability of the debtor to honor his obligations and accordingly give him a credit rating. Moody's uses the letters Aaa Aa A Baa Ba B Caa Ca C, where ratings Aa-Caa are qualified by numbers 1-3. Munich Re, for example, currently is rated Aa3 (as of 2004). S&P and other rating agencies have slightly different systems using capital letters and +/- qualifiers.
A change in ratings can strongly affect a company, since its cost of refinancing depends on its creditworthiness. Bonds below Baa/BBB (Moody's/S&P) are considered junk- or high risk bonds. Their high risk of default (approximately 1.6% for Ba) is compensated by higher interest payments.
Bad Debt is a loan that can not (partially or fully) be repaid by the debtor. The debtor is said to default on his debt. These types of debt are frequently repackaged and sold below face value. Buying junk bonds is seen as a risky but potentially profitable form of investment.

Cancellation Of Loan

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Short of bankruptcy, it is rare that debts are wholly or partially forgiven. Traditions in some cultures demand that this be done on a regular (often annual) basis, in order to prevent systemic inequities between groups in society, or anyone becoming a specialist in holding debt and coercing repayment. Under English law, when the creditor is deceived into forgoing payment, this is a crime: see Theft Act 1978.
International Third World debt has reached the scale that many economists are convinced that debt cancellation is the only way to restore global equity in relations with the developing nations.

Effects of debt Loan

2009-06-17T05:32:00.002-07:00

Debt allows people and organizations to do things that they would otherwise not be able, or allowed, to do. Commonly, people in industrialized nations use it to purchase houses, cars and many other things too expensive to buy with cash on hand. Companies also use debt in many ways to leverage the investment made in their assets, "leveraging" the return on their equity. This leverage, the proportion of debt to equity, is considered important in determining the riskiness of an investment; the more debt per equity, the riskier. For both companies and individuals, this increased risk can lead to poor results, as the cost of servicing the debt can grow beyond the ability to pay due to either external events (income loss) or internal difficulties (poor management of resources).
Excesses in debt accumulation have been blamed for exacerbating economic problems. For example, prior to the beginning of the Great Depression debt/GDP ratio was very high. Economic agents were heavily indebted. This excess of debt, equivalent to excessive expectations on future returns, accompanied asset bubbles on the stock markets. When expectations corrected, deflation and a credit crunch followed. Deflation effectively made debt more expensive and, as Fisher explained, this reinforced deflation again, because, in order to reduce their debt level, economic agents reduced their consumption and investment. The reduction in demand reduced business activity and caused further unemployment. In a more direct sense, more bankruptcies also occurred due both to increased debt cost caused by deflation and the reduced demand.
It is possible for some organizations to enter into alternative types of borrowing and repayment arrangements which will not result in bankruptcy. For example, companies can sometimes convert debt that they owe into equity in themselves. In this case, the creditor hopes to regain something equivalent to the debt and interest in the form of dividends and capital gains of the borrower. The "repayments" are therefore proportional to what the borrower earns and so can not in themselves cause bankruptcy. Once debt is converted in this way, it is no longer known as debt.

Arguments against debt

2009-06-17T05:32:00.001-07:00

Some argue against debt as an instrument and institution, on a personal, family, social, corporate and governmental level. Islam forbids lending with interest even today, while the Catholic Church allowed it from 1822 onwards, and the Torah states that all debts should be erased every 7 years and every 50 years.
Debt will increase through time if it is not repaid faster than it grows through interest. This effect may be termed usury, while the term "usury" in other contexts refers only to an excessive rate of interest, in excess of a reasonable profit for the risk accepted.
In international legal thought, odious debt is debt that is incurred by a regime for purposes that do not serve the interest of the state. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state.
In an economy with high interest rates, debt will be more costly to a business than more flexible dividends on equity investment. It may be easier for a struggling business to be financed through equity investment as it may be possible to avoid paying a dividend if times are hard.

Levels and flows Loan

2009-06-17T05:31:00.004-07:00

Global debt underwriting grew 4.3% year-over-year to $5.19 trillion during 2004. It is expected to rise in the coming years if the spending habits of millions of people worldwide continue the way they do.

Consumer debt Loan

2009-06-17T05:31:00.003-07:00

Consumer debt is consumer credit which is outstanding. In macroeconomic terms, it is debt which is used to fund consumption rather than investment.
Some consider all debt incurred for anything else other than investments unwise or detrimental to the economy while others believe that consumer credit is beneficial to the economy. Historically, across many cultures, being in personal debt was considered almost immoral. More recently, an alternative analysis might view consumer debt as a way to increase domestic production, on the grounds that if credit is easily available, the increased demand for consumer goods should cause an increase of overall domestic production. The permanent income hypothesis suggests that consumers take debt to smooth consumption throughout their lives, borrowing to finance expenditures (particularly housing and schooling) earlier in their lives and paying down debt during higher-earning periods.
Both domestic and international economists have supported a recent upsurge in South Korean consumer debt, which has helped fuel economic expansion. On the other hand, credit card debt is almost unknown just across the sea in Japan and China, one because of long standing historical biases against personal debt, the other because the economy is still underdeveloped. Theoretical underpinnings aside, personal debt is on the rise, particularly in the United States and the UK.
The most common form of consumer debt is credit card debt, payday loans, and other consumer finance, which are often at higher interest rates than long term secured loans, such as mortgages. The interest rate charged depends on a range of factors, including the economic climate, perceived ability of the customer to repay, competitive pressures from other lenders, and the inherent structure and security of the credit product. Rates generally range from 0.25% above base-rate, to well into double figures. Consumer debt can be associated with Predatory lending, although there is much debate as to what exactly constitutes predatory lending.
Long-term consumer debt is often considered fiscally suboptimal. While some consumer items may be useful investments that justify debt (such as automobiles, which are usually but not always exempted in discussions of consumer debt, and business suits), most consumer goods are not. For example, incurring high-interest consumer debt through buying a big-screen television "now", rather than saving for it, can not usually be financially justified by the subjective benefits of having the television early. On the other hand, personal finance advisors encourage a more liberal attitude towards taking on debt if it can be leveraged into a small business or real estate. This higher-risk, possibly high-outcome, "personal-finances-as-a-game" attitude runs counter to the traditional mores of rising slowly through the ranks of a company through discipline and hard work, but may have increasing validity in an age of globalization.
In many countries, the ease with which individuals can accumulate consumer debt beyond their means to repay has precipitated a growth industry in debt consolidation and credit counseling.

Debt consolidation Loan

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Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.
Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.
Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.
Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest.
Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending. Certainly many, if not most, debt consolidation transactions do not involve predatory lending.

Student loan consolidation

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In the United States, federal student loans are consolidated somewhat differently than in the UK, as federal student loans are guaranteed by the U.S. government.

USA Loan

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In a federal student loan consolidation, existing loans are purchased and closed by a loan consolidation company or by the Department of Education (depending on what type of federal student loan the borrower holds). Interest rates for the consolidation are based on that year's student loan rate, which is in turn based on the 91-day Treasury bill rate at the last auction in May of each calendar year.
Student loan rates can fluctuate from the current low of 4.70% to a maximum of 8.25% for federal Stafford loans, 9% for PLUS loans. The current consolidation program allows students to consolidate once with a private lender, and reconsolidate again only with the Department of Education. Upon consolidation, a fixed interest rate is set based on the then-current interest rate. Reconsolidating does not change that rate. If the student combines loans of different types and rates into one new consolidation loan, a weighted average calculation will establish the appropriate rate based on the then-current interest rates of the different b being consolidated together.
Federal student loan consolidation is often referred to as refinancing, which is incorrect because the loan rates are not changed, merely locked in. Unlike private sector debt consolidation, student loan consolidation does not incur any fees for the borrower; private companies make money on student loan consolidation by reaping subsidies from the federal government.
Student loan consolidation can be beneficial to students' credit rating, but it's important to note that not all federal student loan consolidation companies report their loans to all credit bureaus.

UK Loan

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In the UK Student Loan entitlements are guaranteed, and are recovered using a means-tested system from the student’s future income. Student Loans in the UK can not be included in Bankruptcy, but do not affect a person’s credit rating because the repayments are recovered from the student’s future salary at source by the employer before any income is paid, similar to Income Tax and National Insurance contributions. Many students however, are struggling with debt well after their courses have finished
The level of personal debt in the UK has also risen astonishingly in recent years:
"Total UK personal debt at the end of February 2008 stood at £1,421bn. The growth rate increased to 8.9% for the previous 12 months which equates to an increase of £111bn.

Concerns

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In recent years, reports in the media have raised concerns about the use of consolidation loans. The worry is that many people are tempted to consolidate unsecured debt into secured debt, usually secured against their home. Although the monthly payments can often be lower, the total amount repaid is often significantly higher due to the long period of the loan. Debt consolidation sometimes only treats the symptoms of debt and does not address the root problem. In some circumstances, snowballing debt may be a better solution.
There are other alternatives to a debt consolidation loan, where unsecured debt is not "shifted" to secured debt, but is eliminated through a settlement or payment plan. Debt consolidation can be confusing for many people, so it is helpful to learn about all of your options, and sometimes with the help Loan of an advisor.

Debt consolidation vs loans

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The multiple options available to consolidate ones debts can be quite confusing, credit counseling programs, debt settlement, debt consolidation loans, and bankruptcy are just a few options available today. Trying to find the best option to suit your current financial situation can be a difficult task.
Typically, debt consolidation programs are debt repayment programs. They can consolidate most types of unsecured debts from major credit cards to personal and student loans. You choose the accounts you want to enter into the program when joining. Once enrolled, the company will contact your creditors to negotiate more favorable repayment terms on your accounts and possibly reducing your interest rates and it may even eliminate late fees. You will then send that company one lump sum payment monthly which they will disperse to the creditors you enrolled on your account when joining.
Most so called debt consolidation loans are just home equity loans in disguise. They use the equity built up in your current home loan and use it to repay all of your unsecured debts. These types of loan options usually come with heavy application fees and can greatly extend the amount of time it will take you to pay off those debts. These loans also convert all of your current unsecured debts into a secured debt which is now backed by your home. If you fall behind on your payments you could risk losing your property.

Debt-snowball method
The debt-snowball method of debt repayment is a form of debt management that is most often applied to repaying revolving credit — such as credit cards.
Under the method, extra cash is dedicated to paying debts with the smallest amount owed.
This method has gained more recognition recently due to the fact that it is the primary debt-reduction method taught by many financial and wealth experts.

Methodology

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The basic steps in the debt snowball method are as follows:
• List all debts in ascending order from smallest balance to largest.
o This is the method's most distinctive feature, in that the order is determined by amount owed, not the rate of interest charged. However, if two debts are very close in amount owed, then the debt with the higher interest rate would be moved above in the list.
• Commit to pay the minimum payment on every debt.
• Determine how much extra can be applied towards the smallest debt.
• Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off.
o Note that some lenders will apply extra amounts towards the next payment; in order for the method to work the lenders need to be contacted and told that extra payments are to go directly toward principal reduction.
• Once a debt is paid in full, add the old minimum payment (plus any extra amount available) from the first debt to the minimum payment on the second smallest debt, and apply the new sum to repaying the second smallest debt.
• Repeat until all debts are paid in full.
By the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow.
It works as much on human psychology as it does on financial principles; by paying the smaller debts first, the individual, couple, or family sees fewer bills as more individual debts are paid off, thus giving ongoing positive feedback on their progress towards eliminating their debt.
A first home mortgage is not generally included in the debt snowball, but is instead paid off as part of one's larger financial plan. As an example, many financial plans pay off home mortgages in a later step, along with any other debt which is equal to or greater than half of one's annual take-home pay.
The issue of whether one should make retirement contributions during the debt reduction process is a matter of dispute Loan among proponents of this method:
• Some argue that all contributions are to be halted during the debt snowball, thus freeing up more money to pay down the debt snowball.
• Others dispute this practice, citing the cost of compounding interest to be greater than the gains of Loan paying off debt.
• Some compromise by arguing that retirement contributions should be reduced to only the minimum amount that the employer will match with an employee, but not eliminated completely.
• Many financial Loan and wealth experts teach that this halting of retirement contributions should last no more than two years.

Simple Example Of Loan

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An example of the debt-snowball method in action is shown below.
A person has the following amounts of debt and additional funds available to pay debt (the debt is listed with the smallest balance first, as recommended by the method):
• Credit Card A - $250 balance - $25/month minimum
• Credit Card B - $500 balance - $26/month minimum
• Car Payment - $2500 balance - $150/month minimum
• Loan - $5000 balance - $200/month minimum
• The person has an additional $100/month which can be devoted to repayment of debt.
Under the debt-snowball method, payments for the first two months would be made to debtors as follows:
• Credit Card A - $125 ($25/month minimum + $100 additional available)
• Credit Card B - $26/month minimum
• Car Payment - $150/month minimum
• Loan - $200/month minimum
After two months (presuming the person has not added to the balances, which would defeat the purpose of debt reduction), Credit Card A would be paid in full, and the remaining balances as follows:
• Credit Card B - $448
• Car Payment - $2200
• Loan - $4600
The person would then take the $125 previously used to pay off Credit Card A and apply it as additional payment to the Credit Card B balance, which would make payments for the next three months as follows:
• Credit Card B - $151 ($26/month minimum + $125 additional available)
• Car Payment - $150/month minimum
• Loan - $200/month minimum
After three months Credit Card B would be paid in full (the final payment would be $146), and the remaining balances would be as follows:
• Car Payment - $1750
• Loan - $4000
The person would then take the $151 previously used to pay off Credit Card B and apply it as additional payment to the car loan balance, which would make payments as follows:
• Car Payment - $301 ($150/month minimum + $151 additional available)
• Loan - $200/month minimum
It would take six months to pay the car loan (the final payment being $245), whereupon the person would then make payments of $501/month toward the loan (which would have a $2800 balance) for six months (with the last payment at $295).
Thus in 15 months the person has repaid four loans, with two of them being paid in a mere five months and three within one year.
Loan Then Loan Then Loan

Loan Benefits

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The primary benefit of the smallest-balance plan is the psychological benefit of seeing results sooner. Retirement contributions should start once your expected investment yield is higher than the next highest debt interest rate (generally 8% for a balanced portfolio).
A secondary benefit of the smallest-balance plan is the reduction of total amount owed to lenders in a single month. This is a risk reduction in the event of a lost job or emergency.

Criticism

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People with more financial discipline can get ahead quicker by paying off the credit cards and loans with the higher interest rates first. This will minimize costs to become debt-free faster than the smallest-balance approach.
The Debt-Snowball method is only for those on high enough incomes to be able to meet all the minimum repayment requirements on their debts. This method could instead lead to problems for those who are struggling to meet these minimum payments demands. In this circumstance, an individual should not be advised to pay creditors differing amounts as this could count as non-equitable repayment, leading to problems (e.g. with going bankrupt, or with maintaining non-equitable repayments over longer periods).

External debt Loan
External debt Loan (or foreign debt) is that part of the total debt in a country that is owed to creditors outside the country. The debtors (Loan) can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the IMF and World Bank.

Definition Loan

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IMF defines it as "Gross external debt, at any given time, is the outstanding amount of those actual current, and not contingent, liabilities that require payment(s) of principal and/or interest by the debtor at some point(s) in the future and that are owed to nonresidents by residents of an economy."
In this definition, IMF defines the key elements as follows; (a) Outstanding and Actual Current Liabilities: For this purpose, the decisive consideration is whether a creditor owns a claim on the debtor. Here debt liabilities include arrears of both principal and interest. (b) Principal and Interest: When this cost is paid periodically, as commonly occurs, it is known as an interest payment. All other payments of economic value by the debtor to the creditor that reduce the principal amount outstanding are known as principal payments. However, the definition of external debt does not distinguish between whether the payments that are required are principal or interest, or both. Also, the definition does not specify that the timing of the future payments of principal and/or interest need be known for a liability to be classified as debt. (c) Residence: To qualify as external debt, the debt liabilities must be owed by a resident to a nonresident. Residence is determined by where the debtor and creditor have their centers of economic interest - typically, where they are ordinarily located - and not by their nationality. (d) Current and Not Contingent: Contingent liabilities are not included in the definition of external Loan debt. These are defined as arrangements under which one or more conditions must be fulfilled before a financial transaction takes place. However, from the viewpoint of understanding vulnerability, there is analytical interest in the potential impact of contingent liabilities on an economy and on particular institutional sectors, such as government.
Generally external debt Loan is classified into four heads i.e. (1) public and publicly guaranteed debt, (2) private non-guaranteed credits, (3) central bank deposits, and (4) loans due to the IMF. However the exact treatment varies from country to country. For example, while Egypt maintains this four head classification, in India it is classified in seven heads i.e. (a) multilateral, (b) bilateral, (c) IMF loans, (d) Trade Credit, (e) Commercial Borrowings, (f) NRI Deposits, and (g) Rupee Debt. (h) NPR Debt Loan

External Debt Sustainability

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Sustainable debt is the level of debt which allows a debtor country to meet its current and future debt service obligations in full, without recourse to further debt relief or rescheduling, avoiding accumulation of arrears, while allowing an acceptable level of economic growth. (UNCTAD/UNDP, 1996)
External-debt-sustainability analysis is generally conducted in the context of medium-term scenarios. These scenarios are numerical evaluations that take account of expectations of the behavior of economic variables and other factors to determine the conditions under which debt and other indicators would stabilize at reasonable levels, the major risks to the economy, and the need and scope for policy adjustment. In these analysis, macroeconomic uncertainties, such as the outlook for the current account, and policy uncertainties, such as for fiscal policy, tend to dominate the medium-term outlook. [IMF, Debt- and Reserve-Related Indicators of External Vulnerability, Policy Paper, 2000]
World Bank and IMF hold that “a country can be said to achieve external debt sustainability if it can meet its current and future external debt service obligations in full, without recourse to debt rescheduling or the accumulation of arrears and without compromising growth.” According to these two institutions, external debt sustainability can be obtained by a country “by bringing the net present value (NPV) of external public debt down to about 150 percent of a country’s exports or 250 percent of a country’s revenues.” High external debt is believed to have harmful effects on an economy.

Indicators of External Debt Sustainability

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There are various indicators for determining a sustainable level of external debt. While each has its own advantage and peculiarity to deal with particular situations, there is no unanimous opinion amongst economists as to one sole indicator. These indicators are primarily in the nature of ratios i.e. comparison between two heads and the relation thereon and thus facilitate the policy makers in their external debt management exercise. These indicators can be thought of as measures of the country’s “solvency” in that they consider the stock of debt at certain time in relation to the country’s ability to generate resources to repay the outstanding balance.
Examples of debt burden indicators include the (a) debt to GDP ratio, (b) foreign debt to exports ratio, (c) government debt to current fiscal revenue ratio etc. This set of indicators also covers the structure of the outstanding debt including the (d) share of foreign debt, (e) short-term debt, and (f) concessional debt in the total debt stock.
A second set of indicators focuses on the short-term liquidity requirements of the country with respect to its debt service obligations. These indicators are not only useful early-warning signs of debt service problems, but also highlight the impact of the inter-temporal trade-offs arising from past borrowing decisions. Examples of liquidity monitoring indicators include the (a) debt service to GDP ratio, (b) foreign debt service to exports ratio, (c) government debt service to current fiscal revenue ratio etc. The final indicators are more forward looking as they point out how the debt burden will evolve over time, given the current stock of data and average interest rate. The dynamic ratios show how the debt burden ratios would change in the absence of repayments or new disbursements, indicating the stability of the debt burden. An example of a dynamic ratio is the ratio of the average interest rate on outstanding debt to the growth rate of nominal GDP.

Mortgage loan
A mortgage loan is a loan secured by real property through the use of a note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.
A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.

Mortgage loan basics Basic concepts and legal regulation

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According to Anglo-American property law, a mortgage occurs when an owner (usually of a fee simple interest in realty) pledges his interest as security or collateral for a loan. Therefore, a mortgage is an encumbrance on property just as an easement would be, but because most mortgages occur as a condition for new loan money, the word mortgage has become the generic term for a loan secured by such real property.
As with other types of loans, mortgages have an interest rate and are scheduled to amortize over a set period of time; typically 30 years. All types of real property can, and usually are, secured with a mortgage and bear an interest rate that is supposed to reflect the lender's risk.
Mortgage lending is the primary mechanism used in many countries to finance private ownership of residential property. Although the terminology and precise forms will differ from country to country, the basic components tend to be similar:
• Property: the physical residence being financed. The exact form of ownership will vary from country to country, and may restrict the types of lending that are possible.
• Mortgage: the security created on the property by the lender, which will usually include certain restrictions on the use or disposal of the property (such as paying any outstanding debt before selling the property).
• Borrower: the person borrowing who either has or is creating an ownership interest in the property.
• Lender: any lender, but usually a bank or other financial institution.
• Principal: the original size of the loan, which may or may not include certain other costs; as any principal is repaid, the principal will go down in size.
• Interest: a financial charge for use of the lender's money.
• Foreclosure or repossession: the possibility that the lender has to foreclose, repossess or seize the property under certain circumstances is essential to a mortgage loan; without this aspect, the loan is arguably no different from any other type of loan.
Many other specific characteristics are common to many markets, but the above are the essential features. Governments usually regulate many aspects of mortgage lending, either directly (through legal requirements, for example) or indirectly (through regulation of the participants or the financial markets, such as the banking industry), and often through state intervention (direct lending by the government, by state-owned banks, or sponsorship of various entities). Other aspects that define a specific mortgage market may be regional, historical, or driven by specific characteristics of the legal or financial system.
Mortgage loans are generally structured as long-term loans, the periodic payments for which are similar to an annuity and calculated according to the time value of money formulae. The most basic arrangement would require a fixed monthly payment over a period of ten to thirty years, depending on local conditions. Over this period the principal component of the loan would be slowly paid down through amortization. In practice, many variants are possible and common worldwide and within each country.
Lenders provide funds against property to earn interest income, and generally borrow these funds themselves. The price at which the lenders borrow money therefore affects the cost of borrowing. Lenders may also, in many countries, sell the mortgage loan to other parties who are interested in receiving the stream of cash payments from the borrower, often in the form of a security (by means of a securitization). In the United States, the largest firms securitizing loans are Fannie Mae and Freddie Mac, which are government sponsored enterprises.
Mortgage lending will also take into account the (perceived) riskiness of the mortgage loan, that is, the likelihood that the funds will be repaid (usually considered a function of the creditworthiness of the borrower); that if they are not repaid, the lender will be able to foreclose and recoup some or all of its original capital; and the financial, interest rate risk and time delays that may be involved in certain circumstances.

Mortgage loan types

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There are many types of mortgages used worldwide, but several factors broadly define the characteristics of the mortgage. All of these may be subject to local regulation and legal requirements.
• Interest: interest may be fixed for the life of the loan or variable, and change at certain pre-defined periods; the interest rate can also, of course, be higher or lower.
• Term: mortgage loans generally have a maximum term, that is, the number of years after which an amortizing loan will be repaid. Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization.
• Payment amount and frequency: the amount paid per period and the frequency of payments; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.
• Prepayment: some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of a penalty to the lender for prepayment.
The two basic types of amortized loans are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM) (also known as a floating rate or variable rate mortgage). In many countries, floating rate mortgages are the norm and will simply be referred to as mortgages; in the United States, fixed rate mortgages are typically considered "standard." Combinations of fixed and floating rate are also common, whereby a mortgage loan will have a fixed rate for some period, and vary after the end of that period.

Historical U.S. Prime Rates
In a fixed rate mortgage, the interest rate, and hence periodic payment, remains fixed for the life (or term) of the loan. In the U.S., the term is usually up to 30 years (15 and 30 being the most common), although longer terms may be offered in certain circumstances. For a fixed rate mortgage, payments for principal and interest should not change over the life of the loan, although ancillary costs (such as property taxes and insurance) can and do change.
In an adjustable rate mortgage, the interest rate is generally fixed for a period of time, after which it will periodically (for example, annually or monthly) adjust up or down to some market index. Common indices in the U.S. include the Prime Rate, the London Interbank Offered Rate (LIBOR), and the Treasury Index ("T-Bill"); other indices are in use but are less popular.
Adjustable rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive. Since the risk is transferred to the borrower, the initial interest rate may be from 0.5% to 2% lower than the average 30-year fixed rate; the size of the price differential will be related to debt market conditions, including the yield curve.
Additionally, lenders in many markets rely on credit reports and credit scores derived from them. The higher the score, the more creditworthy the borrower is assumed to be. Favorable interest rates are offered to buyers with high scores. Lower scores indicate higher risk for the lender, and higher rates will generally be charged to reflect the (expected) higher default rates.
A partial amortization or balloon loan is one where the amount of monthly payments due are calculated (amortized) over a certain term, but the outstanding principal balance is due at some point short of that term. This payment is sometimes referred to as a "balloon payment" or bullet payment. The interest rate for a balloon loan can be either fixed or floating. The most common way of describing a balloon loan uses the terminology X due in Y, where X is the number of years over which the loan is amortized, and Y is the year in which the principal balance is due.
Other loan types:
• Assumed mortgage
• Balloon mortgage
• Blanket loan
• Bridge loan
• Budget loan
• Buydown mortgage
• Commercial loan
• Endowment mortgage
• Equity loan
• Flexible mortgage
• Foreign National mortgage
• Graduated payment mortgage loan
• Hard money loan
• Jumbo mortgages
• Offset mortgage
• Package loan
• Participation mortgage
• Reverse mortgage
• Repayment mortgage
• Seasoned mortgage
• Term loan or Interest-only loan
• Wraparound mortgage
• Negative amortization loan
• Non-conforming mortgage

Loan to value and down payments

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Upon making a mortgage loan for purchase of a property, lenders usually require that the borrower make a down payment, that is, contribute a portion of the cost of the property. This down payment may be expressed as a portion of the value of the property. The loan to value ratio (or LTV) is the size of the loan against the value of the property. Therefore, a mortgage loan where the purchaser has made a down payment of 20% has a loan to value ratio of 80%. For loans made against properties that the borrower already owns, the loan to value ratio will be imputed against the estimated value of the property.
The loan to value ratio is considered an important indicator of the riskiness of a mortgage loan: the higher the LTV, the higher the risk that the value of the property (in case of foreclosure) will be insufficient to cover the remaining principal of the loan.

Value: appraised, estimated, and actual

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Since the value of the property is an important factor in understanding the risk of the loan, determining the value is a key factor in mortgage lending. The value may be determined in various ways, but the most common are:
1. Actual or transaction value: this is usually taken to be the purchase price of the property. If the property is not being purchased at the time of borrowing, this information may not be available.
2. Appraised or surveyed value: in most jurisdictions, some form of appraisal of the value by a licensed professional is common. There is often a requirement for the lender to obtain an official appraisal.
3. Estimated value: lenders or other parties may use their own internal estimates, particularly in jurisdictions where no official appraisal procedure exists, but also in some other circumstances.

Equity or homeowner's equity

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The concept of equity in a property refers to the value of the property minus the outstanding debt, subject to the definition of the value of the property. Therefore, a borrower who owns a property whose estimated value is $400,000 but with outstanding mortgage loans of $300,000 is said to have homeowner's equity of $100,000.

Payment and debt ratios

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In most countries, a number of more or less standard measures of creditworthiness may be used. Common measures include payment to income (mortgage payments as a percentage of gross or net income); debt to income (all debt payments, including mortgage payments, as a percentage of income); and various net worth measures. In many countries, credit scores are used in lieu of or to supplement these measures. There will also be requirements for documentation of the creditworthiness, such as income tax returns, pay stubs, etc; the specifics will vary from location to location. Many countries have lower requirements for certain borrowers, or "no-doc" / "low-doc" lending standards that may be acceptable in certain circumstances.

Standard or conforming mortgages

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Many countries have a notion of standard or conforming mortgages that define a perceived acceptable level of risk, which may be formal or informal, and may be reinforced by laws, government intervention, or market practice. For example, a standard mortgage may be considered to be one with no more than 70-80% LTV and no more than one-third of gross income going to mortgage debt.
A standard or conforming mortgage is a key concept as it often defines whether or not the mortgage can be easily sold or securitized, or, if non-standard, may affect the price at which it may be sold. In the United States, a conforming mortgage is one which meets the established rules and procedures of the two major government-sponsored entities in the housing finance market (including some legal requirements). In contrast, lenders who decide to make nonconforming loans are exercising a higher risk tolerance and do so knowing that they face more challenge in reselling the loan. Many countries have similar concepts or agencies that define what are "standard" mortgages. Regulated lenders (such as banks) may be subject to limits or higher risk weightings for non-standard mortgages. For example, banks in Canada face restrictions on lending more than 75% of the property value; beyond this level, mortgage insurance is generally required (as of April 2007, there is a proposal to raise this limit to 80%).

Repaying the capital

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There are various ways to repay a mortgage loan; repayment depends on locality, tax laws and prevailing culture.

Capital and interest

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The most common way to repay a loan is to make regular payments of the capital (also called principal) and interest over a set term. This is commonly referred to as (self) amortization in the U.S. and as a repayment mortgage in the UK. A mortgage is a form of annuity (from the perspective of the lender), and the calculation of the periodic payments is based on the time value of money formulas. Certain details may be specific to different locations: interest may be calculated on the basis of a 360-day year, for example; interest may be compounded daily, yearly, or semi-annually; prepayment penalties may apply; and other factors. There may be legal restrictions on certain matters, and consumer protection laws may specify or prohibit certain practices.
Depending on the size of the loan and the prevailing practice in the country the term may be short (10 years) or long (50 years plus). In the UK and U.S., 25 to 30 years is the usual maximum term (although shorter periods, such as 15-year mortgage loans, are common). Mortgage payments, which are typically made monthly, contain a capital (repayment of the principal) and an interest element. The amount of capital included in each payment varies throughout the term of the mortgage. In the early years the repayments are largely interest and a small part capital. Towards the end of the mortgage the payments are mostly capital and a smaller portion interest. In this way the payment amount determined at outset is calculated to ensure the loan is repaid at a specified date in the future. This gives borrowers assurance that by maintaining repayment the loan will be cleared at a specified date, if the interest rate does not change.

Interest only

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The main alternative to capital and interest mortgage is an interest only mortgage, where the capital is not repaid throughout the term. This type of mortgage is common in the UK, especially when associated with a regular investment plan. With this arrangement regular contributions are made to a separate investment plan designed to build up a lump sum to repay the mortgage at maturity. This type of arrangement is called an investment-backed mortgage or is often related to the type of plan used: endowment mortgage if an endowment policy is used, similarly a Personal Equity Plan (PEP) mortgage, Individual Savings Account (ISA) mortgage or pension mortgage. Historically, investment-backed mortgages offered various tax advantages over repayment mortgages, although this is no longer the case in the UK. Investment-backed mortgages are seen as higher risk as they are dependent on the investment making sufficient return to clear the debt.
Until recently it was not uncommon for interest only mortgages to be arranged without a repayment vehicle, with the borrower gambling that the property market will rise sufficiently for the loan to be repaid by trading down at retirement (or when rent on the property and inflation combine to surpass the interest rate).

No capital or interest

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For older borrowers (typically in retirement), it may be possible to arrange a mortgage where neither the capital nor interest is repaid. The interest is rolled up with the capital, increasing the debt each year.
These arrangements are variously called reverse mortgages, lifetime mortgages or equity release mortgages, depending on the country. The loans are typically not repaid until the borrowers die, hence the age restriction. For further details, see equity release.

Interest and partial capital

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In the U.S. a partial amortization or balloon loan is one where the amount of monthly payments due are calculated (amortized) over a certain term, but the outstanding capital balance is due at some point short of that term. In the UK, a part repayment mortgage is quite common, especially where the original mortgage was investment-backed and on moving house further borrowing is arranged on a capital and interest (repayment) basis.

Foreclosure and non-recourse lending

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In most jurisdictions, a lender may foreclose the mortgaged property if certain conditions - principally, non-payment of the mortgage loan - obtain. Subject to local legal requirements, the property may then be sold. Any amounts received from the sale (net of costs) are applied to the original debt. In some jurisdictions, mortgage loans are non-recourse loans: if the funds recouped from sale of the mortgaged property are insufficient to cover the outstanding debt, the lender may not have recourse to the borrower after foreclosure. In other jurisdictions, the borrower remains responsible for any remaining debt. In virtually all jurisdictions, specific procedures for foreclosure and sale of the mortgaged property apply, and may be tightly regulated by the relevant government; in some jurisdictions, foreclosure and sale can occur quite rapidly, while in others, foreclosure may take many months or even years. In many countries, the ability of lenders to foreclose is extremely limited, and mortgage market development has been notably slower.

Mortgage lending: United States United States mortgage process

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In the U.S., the process by which a mortgage is secured by a borrower is called origination. This involves the borrower submitting an application and documentation related to his/her financial history and/or credit history to the underwriter. Many banks now offer "no-doc" or "low-doc" loans in which the borrower is required to submit only minimal financial information. These loans carry a higher interest rate and are available only to borrowers with excellent credit. Sometimes, a third party is involved, such as a mortgage broker. This entity takes the borrower's information and reviews a number of lenders, selecting the ones that will best meet the needs of the consumer.
Loans are often sold on the open market to larger investors by the originating mortgage company. Many of the guidelines that they follow are suited to satisfy investors. Some companies, called correspondent lenders, sell all or most of their closed loans to these investors, accepting some risks for issuing them. They often offer niche loans at higher prices that the investor does not wish to originate.
If the underwriter is not satisfied with the documentation provided by the borrower, additional documentation and conditions may be imposed, called stipulations. The meeting of such conditions can be a daunting experience for the consumer, but it is crucial for the lending institution to ensure the information being submitted is accurate and meets specific guidelines. This is done to give the lender a reasonable guarantee that the borrower can and will repay the loan. If a third party is involved in the loan, it will help the borrower to clear such conditions.
The following documents are typically required for traditional underwriter review. Over the past several years, use of "automated underwriting" statistical models has reduced the amount of documentation required from many borrowers. Such automated underwriting engines include Freddie Mac's "Loan Prospector" and Fannie Mae's "Desktop Underwriter". For borrowers who have excellent credit and very acceptable debt positions, there may be virtually no documentation of income or assets required at all. Many of these documents are also not required for no-doc and low-doc loans.
• Credit Report
• 1003 — Uniform Residential Loan Application
• 1004 — Uniform Residential Appraisal Report
• 1005 — Verification Of Employment (VOE)
• 1006 — Verification Of Deposit (VOD)
• 1007 — Single Family Comparable Rent Schedule
• 1008 — Transmittal Summary
• Copy of deed of current home
• Federal income tax records for last two years
• Verification of Mortgage (VOM) or Verification of Payment (VOP)
• Borrower's Authorization
• Purchase Sales Agreement
• 1084A and 1084B (Self-Employed Income Analysis) and 1088 (Comparative Income Analysis) - used if borrower is self-employed

Predatory mortgage lending

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There is concern in the U.S. that consumers are often victims of predatory mortgage lending. The main concern is that mortgage brokers and lenders, operating legally, are finding loop holes in the law to obtain additional profit. The typical scenario is that terms of the loan are beyond the means of the borrower. The borrower makes a number of interest and principal payments, and then defaults. The lender then takes the property and recovers the amount of the loan, and also keeps the interest and principal payments, as well as loan origination fees.

Option ARM

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An option ARM provides the option to pay as little as the equivalent of an amortized payment based on a 1% interest rate. As a result, the difference between the monthly payment and the interest on the loan is added to the loan principal; the loan at this point has negative amortization. In this respect, an option ARM provides a form of equity withdrawal (as in a cash-out refinancing) but over a period of time.
The option ARM gives a number of payment choices each month (for example, the equivalent of an amortized payment where the interest rate 1%, interest only based on actual interest rate, actual 30 year amortized payment, actual 15 year amortized payment). The interest rate may adjust every month in accordance with the index to which the loan is tied and the terms of the specific loan. These loans may be useful for people who have a lot of equity in their home and want to lower monthly costs; for investors, allowing them the flexibility to choose which payment to make every month; or for those with irregular incomes.
One of the important features of this type of loan is that the minimum payments are often fixed for each year for an initial term of up to 5 years. The minimum payment may rise each year a little (payment size increases of 7.5% are common) but remain the same for another year. For example, a minimum payment for year 1 may be $1,000 per month each month all year long. In year 2 the minimum payment for each month is $1,075 each month. This is a gradual increase in the minimum payment. The interest rate may fluctuate each month, which means that the extent of any negative amortization cannot be predicted beyond worst-case scenario as dictated by the terms of the loan.
Option ARM mortgages have been criticized on the basis that some borrowers are not aware of the implications of negative amortization; that eventually option ARMs reset to higher payment levels (an event called "recast" to amortize the loan), and borrowers may not be capable of making the higher monthly payments; and that option ARMs have been used to qualify mortgages for individuals whose incomes cannot support payments higher than the minimum level.

Costs

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Lenders may charge various fees when giving a mortgage to a mortgagor. These include entry fees, exit fees, administration fees and lenders mortgage insurance. There are also settlement fees (closing costs) the settlement company will charge. In addition, if a third party handles the loan, it may charge other fees as well.

The United States mortgage finance industry

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Mortgage lending is a major category of the business of finance in the United States. Mortgages are commercial paper and can be conveyed and assigned freely to other holders. In the U.S., the Federal government created several programs, or government sponsored entities, to foster mortgage lending, construction and encourage home ownership. These programs include the Government National Mortgage Association (known as Ginnie Mae), the Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac). These programs work by buying a large number of mortgages from banks and issuing (at a slightly lower interest rate) "mortgage-backed bonds" to investors, which are known as mortgage-backed securities (MBS).
This allows the banks to quickly relend the money to other borrowers (including in the form of mortgages) and thereby to create more mortgages than the banks could with the amount they have on deposit. This in turn allows the public to use these mortgages to purchase homes, something the government wishes to encourage. The investors, meanwhile, gain low-risk income at a higher interest rate (essentially the mortgage rate, minus the cuts of the bank and GSE) than they could gain from most other bonds.
Securitization is a momentous change in the way that mortgage bond markets function, and has grown rapidly in the last 10 years as a result of the wider dissemination of technology in the mortgage lending world. For borrowers with superior credit, government loans and ideal profiles, this securitization keeps rates almost artificially low, since the pools of funds used to create new loans can be refreshed more quickly than in years past, allowing for more rapid outflow of capital from investors to borrowers without as many personal business ties as the past.
The greatly increased rate of lending led (among other factors) to the United States housing bubble of 2000-2006. The growth of lightly regulated derivative instruments based on mortgage-backed securities, such as collateralized debt obligations and credit default swaps, is widely reported as a major causative factor behind the 2007 subprime mortgage financial crisis.

Second-layer lenders in the US

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A group called second-layer lenders became an important force in the residential mortgage market in the latter half of the 1960s. These federal credit agencies, which include the Federal Home Loan Mortgage Corp., the Federal National Mortgage Association, and the Government National Mortgage Association, conduct secondary market activities in the buying and selling of loans and provide credit to primary lenders in the form of borrowed money. They do not have direct contact with the individual consumer.
Federal Home Loan Mortgage Corporation
The Federal Home Loan Mortgage Corporation, sometimes known as Freddie Mac, was established in 1970. This corporation is designed to promote the flow of capital into the housing market by establishing an active secondary market in mortgages. It may by law deal only with government-supervised lenders such as savings and loan associations, savings banks, and commercial banks; its programs cover conventional whole mortgage loans, participations in conventional loans, and FHA and VA loans.
Federal National Mortgage Association
The Federal National Mortgage Association, known in financial circles as Fannie Mae, was chartered as a government corporation in 1938, rechartered as a federal agency in 1954, and became a government-sponsored, stockholder-owned corporation in 1968. Fannie Mae, which has been described as "a private corporation with a public purpose", basically provides a secondary market for residential loans. It fulfills this function by buying, servicing, and selling loans that, since 1970, have included FHA-insured, VA-guaranteed, and conventional loans. However, purchases outrun sales by such a wide margin that some observers view this association as a lender with a permanent loan portfolio rather than a powerful secondary market corporation.
Government National Mortgage Association
The Government National Mortgage Association, which is often referred to as Ginnie Mae, operates within the Department of Housing and Urban Development. In addition to performing the special assistance, management, and liquidation functions that once belonged to Fannie Mae, Ginnie Mae has an important additional function — that of issuing guarantees of securities backed by government-insured or guaranteed mortgages. Such mortgage-backed securities are fully guaranteed by the U.S. government as to timely payment of both principal and interest.

Competition among US lenders for loan able funds

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To be able to provide homebuyers and builders with the funds needed, financial institutions must compete for deposits. Consumer lending institutions compete for loanable funds not only among themselves but also with the federal government and private corporations. Called disintermediation, this process involves the movement of dollars from savings accounts into direct market instruments: U.S. Treasury obligations, agency securities, and corporate debt. One of the greatest factors in recent years in the movement of deposits was the tremendous growth of money market funds whose higher interest rates attracted consumer deposits.
To compete for deposits, US savings institutions offer many different types of plans:
• Passbook or ordinary accounts — permit any amount to be added to or withdrawn from the account at any time.
• NOW and Super NOW accounts — function like checking accounts but earn interest. A minimum balance may be required on Super NOW accounts.
• Money market accounts — carry a monthly limit of preauthorized transfers to other accounts or persons and may require a minimum or average balance.
• Certificate accounts — subject to loss of some or all interest on withdrawals before maturity.
• Notice accounts — the equivalent of certificate accounts with an indefinite term. Savers agree to notify the institution a specified time before withdrawal.
• Individual retirement accounts (IRAs) and Keogh accounts—a form of retirement savings in which the funds deposited and interest earned are exempt from income tax until after withdrawal.
• Checking accounts — offered by some institutions under definite restrictions.
• Club accounts and other savings accounts—designed to help people save regularly to meet certain goals.

Mortgages in the UK The mortgage loans industry and market

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There are currently over 200 significant separate financial organizations supplying mortgage loans to house buyers in Britain. The major lenders include building societies, banks, specialized mortgage corporations, insurance companies, and pension funds. Over the years, the share of the new mortgage loans market held by building societies has declined. Between 1977 and 1987, it fell drastically from 96% to 66% while that of banks and other institutions rose from 3% to 36%. The banks and other institutions that made major inroads into the mortgage market during this period were helped by such factors as:
• relative managerial efficiency;
• advanced technology, organizational capabilities, and expertise in marketing;
• extensive branch networks; and
• capacities to tap cheaper international sources of funds for lending.
By the early 1990s, UK building societies had succeeded in greatly slowing if not reversing the decline in their market share. In 1990, the societies held over 60% of all mortgage loans but took over 75% of the new mortgage market – mainly at the expense of specialized mortgage loans corporations. Building societies also increased their share of the personal savings deposits market in the early 1990s at the expense of the banks – attracting 51% of this market in 1990 compared with 42% in 1989. One study found that in the five years 1987-1992, the building societies collectively outperformed the UK clearing banks on practically all the major growth and performance measures. The societies' share of the new mortgage loans market of 75% in 1990-91 was similar to the share level achieved in 1985. Profitability as measured by return on capital was 17.8% for the top 20 societies in 1991, compared with only 8.5% for the big four banks. Finally, bad debt provisions relative to advances were only 0.4% for the top 20 societies compared with 2.8% for the four banks.
Though the building societies did subsequently recover a significant amount of the mortgage lending business lost to the banks, they still only had about two-thirds of the total market at the end of the 1980s. However, banks and building societies were by now becoming increasingly similar in terms of their structures and functions. When the Abbey National building society converted into a bank in 1989, this could be regarded either as a major diversification of a building society into retail banking – or as significantly increasing the presence of banks in the residential mortgage loans market. Research organization Industrial Systems Research has observed that trends towards the increased integration of the financial services sector have made comparison and analysis of the market shares of different types of institution increasingly problematical. It identifies as major factors making for consistently higher levels of growth and performance on the part of some mortgage lenders in the UK over the years:
• the introduction of new technologies, mergers, structural reorganization and the realization of economies of scale, and generally increased efficiency in production and marketing operations – insofar as these things enable lenders to reduce their costs and offer more price-competitive and innovative loans and savings products;
• buoyant retail savings receipts, and reduced reliance on relatively expensive wholesale markets for funds (especially when interest rates generally are being maintained at high levels internationally);
• lower levels of arrears, possessions, bad debts, and provisioning than competitors;
• increased flexibility and earnings from secondary sources and activities as a result of political-legal deregulation; and
• being specialized or concentrating on traditional core, relatively profitable mortgage lending and savings deposit operations.

Mortgage types

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The UK mortgage market is one of the most innovative and competitive in the world. Unlike some other countries, there is little intervention in the market by the state or state funded entities and virtually all borrowing is funded by either mutual organisations (building societies and credit unions) or proprietary lenders (typically banks). Since 1982, when the market was substantially deregulated, there has been substantial innovation and diversification of strategies employed by lenders to attract borrowers. This has led to a wide range of mortgage types.
As lenders derive their funds either from the money markets or from deposits, most mortgages revert to a variable rate, either the lender's standard variable rate or a tracker rate, which will tend to be linked to the underlying Bank of England (BoE) repo rate (or sometimes LIBOR). Initially they will tend to offer an incentive deal to attract new borrowers. This may be:
• A fixed rate; where the interest rate remains constant for a set period; typically for 2, 3, 4, 5 or 10 years. Longer term fixed rates (over 5 years) whilst available, tend to be more expensive and/or have more onerous early repayment charges and are therefore less popular than shorter term fixed rates.
• A capped rate; where similar to a fixed rate, the interest rate cannot rise above the cap but can vary beneath the cap. Sometimes there is a collar associated with this type of rate which imposes a minimum rate. Capped rate are often offered over periods similar to fixed rates, e.g. 2, 3, 4 or 5 years.
• A discount rate; where there is set margin reduction in the standard variable rate (e.g. a 2% discount) for a set period; typically 1 to 5 years. Sometimes the discount is expressed as a margin over the base rate (e.g. BoE base rate plus 0.5% for 2 years) and sometimes the rate is stepped (e.g. 3% in year 1, 2% in year 2, 1% in year three).
• A cashback mortgage; where a lump sum is provided (typically) as a percentage of the advance e.g. 5% of the loan.
To make matters more confusing these rates are often combined: For example, 4.5% 2 year fixed then a 3 year tracker at BoE rate plus 0.89%.
With each incentive the lender may be offering a rate at less than the market cost of the borrowing. Therefore, they typically impose a penalty if the borrower repays the loan within the incentive period or a longer period (referred to as an extended tie-in). These penalties used to be called a redemption penalty or tie-in, however since the onset of Financial Services Authority regulation they are referred to as an early repayment charge.
"Self Cert" mortgage
Mortgage lenders usually use salaries declared on wage slips to work out a borrower's annual income and will usually lend up to a fixed multiple of the borrower's annual income. Self Certification Mortgages, informally known as "self cert" mortgages, are available to employed and self employed people who have a deposit to buy a house but lack the sufficient documentation to prove their income.
This type of mortgage can be beneficial to people whose income comes from multiple sources, whose salary consists largely or exclusively of commissions or bonuses, or whose accounts may not show a true reflection of their earnings. Self cert mortgages have two disadvantages: the interest rates charged are usually higher than for normal mortgages and the loan to value ratio is usually lower.
100% mortgages
Normally when a bank lends customer money they want to protect their money as much as possible; they do this by asking the borrower to fund a certain percentage of the property purchase in the form of a deposit.
100% mortgages are mortgages that require no deposit (100% loan to value). These are sometimes offered to first time buyers, but almost always carry a higher interest rate on the loan.
Together/Plus mortgages
A development of the theme of 100% mortgages is represented by Together/Plus type mortgages, which have been launched by a number of lenders in recent years.
Together/Plus Mortgages represent loans of 100% or more of the property value - typically up to a maximum of 125%. Such loans are normally (but not universally) structured as a package of a 95% mortgage and an unsecured loan of up to 30% of the property value. This structure is mandated by lenders' capital requirements which require additional capital for loans of 100% or more of the property value.

UK mortgage process

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UK lenders usually charge a valuation fee, which pays for a chartered surveyor to visit the property and ensure it is worth enough to cover the mortgage amount. This is not a full survey so it may not identify all the defects that a house buyer needs to know about. Also, it does not usually form a contract between the surveyor and the buyer, so the buyer has no right to sue if the survey fails to detect a major problem. For an extra fee, the surveyor can usually carry out a building survey or a (cheaper) "homebuyers survey" at the same time.

Mortgage lending à la Continental Europe

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Within the European Union, the Covered bonds market volume (covered bonds outstanding) amounted to about EUR 2 billion at year-end 2007 with Germany, Denmark, Spain, and France each having outstandings above 200.000 EUR million. In German language, Pfandbriefe is the term applied. Pfandbrief-like securities have been introduced in more than 25 European countries – and in recent years also in the U.S. and other countries outside Europe – each with their own unique law and regulations. However, the diffusion of the concept differ: In 2000, the US institutions Fannie Mae and Freddie Mac together reached one per cent of the national population. Further more, 87 per cent of their purchased mortgages were granted to borrowers in metropolitan areas with higher income levels. In Europe, a wider market has been achieved: In Denmark, mortgage banks reached 35 per cent of the population in 2002, while the German Bausparkassen achieved widespread regional distribution and more than 30 per cent of the German population concluded a Bauspar contract (as of 2001).

Costs

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A study issued by the UN Economic Commission for Europe compared German, US, and Danish mortgage systems. The German Bausparkassen have reported nominal interest rates of approximately 6 per cent per annum in the last 40 years (as of 2004). In addition, they charge administration and service fees (about 1.5 per cent of the loan amount). In the United States, the average interest rates for fixed-rate mortgages in the housing market started in high double figures in the 1980s and have (as of 2004) reached about 6 per cent per annum. However, gross borrowing costs are substantially higher than the nominal interest rate and amounted for the last 30 years to 10.46 per cent. In Denmark, similar to the United States capital market, interest rates have fallen to 6 per cent per annum. A risk and administration fee amounts to 0.5 per cent of the outstanding debt. In addition, an acquisition fee is charged which amounts to one per cent of the principal.

Recent trends

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July 28, 2008, US Treasury Secretary Henry Paulson announced that, along with four large US banks, the Treasury would attempt to kick-start a market for these securities in the U.S., primarily to provide an alternative form of mortgage-backed securities. Similarly, in the UK "the Government is inviting views on options for a UK framework to deliver more affordable long-term fixed-rate mortgages, including the lessons to be learned from international markets and institutions". More specifically, Mr. George Soros issued a Wall Street Journal Opinion: Denmark Offers a Model Mortgage Market. - A survey of European Pfandbrief-like products was issued by the Bank for International Settlements; also, the International Monetary Fund issued a study of the covered bond markets in Germany and Spain

History

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While the idea originated in Prussia in 1769, a Danish act on mortgage credit associations of 1850 enabled the issuing of bonds (Danish: Realkreditobligationer) as a means to refinance mortgage loans. With the German mortgage banks law of 1900, the whole German Empire was given a standardized legal foundation for the emission of Pfandbriefe. An account from the perspective of development economics is available.

Mortgage insurance

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Mortgage insurance is an insurance policy designed to protect the mortgagee (lender) from any default by the mortgagor (borrower). It is used commonly in loans with a loan-to-value ratio over 80%, and employed in the event of foreclosure and repossession.
This policy is typically paid for by the borrower as a component to final nominal (note) rate, or in one lump sum up front, or as a separate and itemized component of monthly mortgage payment. In the last case, mortgage insurance can be dropped when the lender informs the borrower, or its subsequent assigns, that the property has appreciated, the loan has been paid down, or any combination of both to relegate the loan-to-value under 80%.
In the event of repossession, banks, investors, etc. must resort to selling the property to recoup their original investment (the money lent), and are able to dispose of hard assets (such as real estate) more quickly by reductions in price. Therefore, the mortgage insurance acts as a hedge should the repossessing authority recover less than full and fair market value for any hard asset.

Islamic mortgages

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The Sharia law of Islam prohibits the payment or receipt of interest, which means that practicing Muslims cannot use conventional mortgages. However, real estate is far too expensive for most people to buy outright using cash: Islamic mortgages solve this problem by having the property change hands twice. In one variation, the bank will buy the house outright and then act as a landlord. The homebuyer, in addition to paying rent, will pay a contribution towards the purchase of the property. When the last payment is made, the property changes hands.
Typically, this may lead to a higher final price for the buyers. This is because in some countries (such as the United Kingdom and India) there is a Stamp Duty which is a tax charged by the government on a change of ownership. Because ownership changes twice in an Islamic mortgage, a stamp tax may be charged twice. Many other jurisdictions have similar transaction taxes on change of ownership which may be levied. In the United Kingdom, the dual application of Stamp Duty in such transactions was removed in the Finance Act 2003 in order to facilitate Islamic mortgages.
An alternative scheme involves the bank reselling the property according to an installment plan, at a price higher than the original price.
Both of these methods compensate the lender as if they were charging interest, but the loans are structured in a way that in name they are not, and the lender shares the financial risks involved in the transaction with the homebuyer.

Other terminologies

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Like any other legal system, the mortgage business sometimes uses confusing jargon. Below are some terms explained in brief. If a term is not explained here it may be related to the legal mortgage rather than to the loan.
Advance This is the money you have borrowed plus all the additional fees.
Base rate In UK, this is the base interest rate set by the Bank of England. In the United States, this value is set by the Federal Reserve and is known as the Discount Rate.
Bridging loan This is a temporary loan that enables the borrower to purchase a new property before the borrower is able to sell another current property.
Disbursements These are all the fees of the solicitors and governments, such as stamp duty, land registry, search fees, etc.
Early redemption charge / Pre-payment penalty / Redemption penalty This is the amount of money due if the mortgage is paid in full before the time finished.
Equity This is the market value of the property minus all loans outstanding on it.
First time buyer This is the term given to a person buying property for the first time.
Loan origination fee A charge levied by a creditor for underwriting a loan. The fee often is expressed in points. A point is 1 percent of the loan amount.
Sealing fee This is a fee made when the lender releases the legal charge over the property.
Subject to contract This is an agreement between seller and buyer before the actual contract is made.

Payday loan
A payday loan (also called a paycheck advance or payday advance) is a small, short-term loan that is intended to cover a borrower's expenses until his or her next payday. The loans are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as a credit card (see cash advance). Legislation regarding payday loans varies widely between different countries and, within the USA, between different states.
Some jurisdictions impose strict usury limits, limiting the nominal annual percentage rate (APR) that any lender, including payday lenders, can charge; some outlaw payday lending entirely; and some have very few restrictions on payday lenders. Due to the extremely short-term nature of payday loans, the difference between APR and effective annual rate (EAR) can be substantial, because EAR takes compounding into account. For a $15 charge on a $100 2-week payday loan, the APR is 26 × 15% = 390% but the EAR is 1.1526 - 1 × 100% = 3686%. Careful reporting of whether EAR or APR is quoted is necessary to make meaningful comparisons.

The loan process Retail lending

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Borrowers visit a payday lending store and secure a small cash loan, with payment due in full at the borrower's next paycheck (usually a two week term). In the United States, finance charges on payday loans are typically in the range of 15 to 30 percent of the amount for the two-week period, which translates to rates ranging from 390 percent to 780 percent when expressed as an annual percentage rate (APR) The borrower writes a postdated check to the lender in the full amount of the loan plus fees. On the maturity date, the borrower is expected to return to the store to repay the loan in person. If the borrower doesn't repay the loan in person, the lender may process the check traditionally or through electronic withdrawal from the borrower's checking account.
If the account is short on funds to cover the check, the borrower may now face a bounced check fee from their bank in addition to the costs of the loan, and the loan may incur additional fees and/or an increased interest rate as a result of the failure to pay. For customers who cannot pay back the loan when due, members of the national trade association are required to offer an extended payment plan at no additional cost. In states like Washington, extended payment plans are required by state law.
Payday lenders require the borrower to bring one or more recent pay stubs to prove that they have a steady source of income. The borrower is also required to provide recent bank statements. Individual companies and franchises have their own underwriting criteria.

Internet lending

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Online payday loans are marketed through e-mail, online search, paid ads, and referrals. Typically, a consumer fills out an online application form or faxes a completed application that requests personal information, bank account numbers, Social Security number and employer information. Borrowers fax copies of a check, a recent bank statement, and signed paperwork. The loan is direct-deposited into the consumer's checking account and loan payment or the finance charge is electronically withdrawn on the borrower's next payday.
Examples
For example, a borrower seeking a payday loan may write a post-dated personal check for $460 to borrow $400 for up to 14 days. The payday lender agrees to hold the check until the borrower's next payday. At that time, the borrower has the option to redeem the check by paying $460 in cash, or renew the loan (a.k.a. "flip the loan") by paying off the $460 and then immediately taking an additional loan of $400, in effect extending the loan for another two weeks. In many states, "flipping" or "rolling over" the loan is not allowed. In states where there is an extended payment plan, the borrower could choose to opt into a payment plan. If the borrower does not pay off or refinance the loan, the lender deposits the check. In this example, the cost of the initial loan is a $60 finance charge, or 390% APR.
When the Consumer Federation of America conducted a survey of 100 internet payday loan sites, it found loans from $200 to $2,500 were available, with $500 the most frequently offered. Finance charges ranged from $10 per $100 up to $30 per $100 borrowed. The most frequent rate was $25 per $100, or 650% annual interest rate (APR) if the loan is repaid in two weeks.

Payday loans in Canada

2009-06-16T03:18:00.005-07:00

According to the Criminal Code of Canada, any rate of interest charged above 60% per annum is considered criminal. On August 14, 2006, the Supreme Court of British Columbia issued its decision in a class action lawsuit against A OK Payday Loans A OK charged its customers 21% interest, as well as a "processing" fee of C$9.50 for every $50.00 borrowed. In addition a "deferral" fee of $25.00 for every $100.00 was charged if a customer wanted to delay payment. The judge ruled that the processing and deferral fees were interest, and that A OK was charging its customers a criminal rate of interest. The payout as a result of this decision is expected to be several million dollars. The British Columbia Court of Appeal unanimously affirmed this decision. Federal legislation passed in the spring of 2007 transferred regulatory authority on payday loans to the provinces.

U.S. regulation and legislation

2009-06-16T03:18:00.003-07:00

Regulation of lending institutions is handled primarily by individual states, and this growing industry exists atop an active and shifting legal landscape. Lenders lobby to enable payday lending practices, while opponents of the industry lobby to prohibit the high cost loans in the name of consumer protection.
Payday lending is legal and regulated in 37 states. In Georgia and 12 other states, it is either illegal or not feasible, given state law. When not explicitly banned, laws that prohibit payday lending are usually in the form of usury limits: hard interest rate caps calculated strictly by APR.
In the United States, most states have usury laws which forbid interest rates in excess of a certain APR. Some payday lenders have succeeded in getting around usury laws in some states by forming relationships with nationally-chartered banks based in a different state with no usury ceiling (such as South Dakota or Delaware). This practice has been referred to as "rate exportation", the "lender/servicer" model, or the "rent-a-bank" model. Under the legal doctrine of interest-rate exportation, established by Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. 439 U.S. 299 (1978), the loan is governed by the laws of the state where the bank is chartered, regardless of the borrower's state of residence. This is the same doctrine that allows credit card issuers based in South Dakota and Delaware — states that abolished their usury laws — to offer credit cards nationwide. As federal banking regulators became aware of this practice, they began prohibiting these partnerships between commercial banks and payday lenders. The FDIC still allows its member banks to participate in payday lending, but it did issue guidelines in March 2005 that are meant to discourage long term debt cycles by transitioning to a longer term loan after six payday loan renewals. As a result, no federally insured banks engage in the business of payday lending as of 2007 using an agency model.
For usury laws to be effective, they need to include all loan fees as part of the interest. Otherwise, lenders can charge any amount they want as fees and still claim a low interest rate. State laws in the United States generally preclude charging of fees other than those expressly permitted by law, and the federal Truth In Lending Act requires disclosure of all fees. Payday loans, because of their simplified pricing structure, do not contain hidden fees or charges.
Some states have laws limiting the number of loans a borrower can take at a single time. This is currently being accomplished by single, statewide realtime databases. These systems are required in Florida, Michigan, Illinois, Indiana, North Dakota, New Mexico, Oklahoma, and Virginia. These systems require all licensed lenders to conduct a real time verification of the customer's eligibility to receive a loan before conducting a loan. Reports published by state regulators in these states indicate that this system enforces all of the provisions of the state's statutes. Some states also cap the number of loans per borrower per year (Virginia), or require that after a fixed number of loan renewals, the lender must offer a lower interest loan with a longer term, so that the borrower can eventually get out of the debt cycle. Borrowers can circumvent these laws by taking loans from more than one lender if there is not an enforcement mechanism in place by the state. Some states allow that a consumer can have more than one loan outstanding (Oklahoma).

Federal regulation

2009-06-16T03:18:00.001-07:00

In the US, although payday lending is primarily regulated at the state level, the United States Congress passed a law in October 2006 becoming effective on Oct. 1, 2007 that caps lending to military personnel at 36% APR as defined by the Secretary of Defense. The Defense Department called payday lending practices "predatory", and military officers cited concerns that payday lending ruined low-paid enlisted men and women's finances, jeopardized their security clearances, and even interfered with deployment schedules to Iraq.
Some federal banking regulators and legislators seek to restrict or prohibit the loans not just for military personnel, but for all borrowers, because the high costs are viewed as a financial drain on the working and lower-middle class populations who are the primary borrowers.
Regulation in the District of Columbia
Effective January 9, 2008, the maximum interest rate that payday lenders may charge in the District of Columbia is 24 percent, which is the same maximum that banks and credit unions are capped at. Payday lenders also must have a license from the District government in order to operate. As a result of the interest-rate cap enacted by D.C., all licensed payday lenders have withdrawn from the market, and no lawful payday loans are presently available in D.C.

Banning in Georgia

2009-06-16T03:17:00.005-07:00

Georgia law prohibited payday lending for more than 100 years, but the state was not successful in shutting the industry down until the 2004 legislation made payday lending a felony, allowed for racketeering charges and permitted potentially costly class-action lawsuits.

Regulation in New Mexico

2009-06-16T03:17:00.003-07:00

New Mexico caps fees, restricts total loans by a consumer and prohibits immediate loan rollovers, in which a consumer takes out a new loan to pay off a previous loan, under a law that took effect November 1, 2007. A borrower who is unable to repay a loan is automatically offered a 130-day payment plan, with no fees or interest. Once a loan is repaid, under the new law, the borrower must wait 10 days before obtaining another payday loan. The law allows the term of a loan to run from 14 to 35 days, with the fees capped at $15.50 for each $100 borrowed. There is also a 50-cent administrative fee to cover costs of lenders verifying whether a borrower qualifies for the loan, such as determining whether the consumer is still paying off a previous loan. This is accomplished by verifying in real time against the approved lender compliance database administered by the New Mexico regulator. The statewide database does not allow a loan to be issued to a consumer by a licensed payday lender if the loan would result in a violation of state statute. A borrower's cumulative payday loans can not exceed 25 percent of the individual's gross monthly income.

Withdrawal from North Carolina

2009-06-16T03:17:00.001-07:00

On March 1, 2006, the North Carolina Department of Justice announced the state had negotiated agreements with all the payday lenders operating in the state. The state contended that the practice of funding payday loans through banks chartered in other states illegally circumvents North Carolina law. Under the terms of the agreements, the lenders will stop making new loans, will collect only principal on existing loans and will pay $700,000 to non-profit organizations for relief.

Payday loans in the UK

2009-06-16T03:16:00.004-07:00

The number of payday loans has grown in the UK recently: between August 2007 and June 2008, the number of loans made grew by more than 130%.
Unlike in many US states, in the UK there is no prohibition on "rolling over" lending. There does not seem to be a usury limit either: one UK Company offers a "typical APR" of 1355%, although this takes compounding into account; without compounding the APR would be 300%. Advertising of payday lending is subject to the Consumer Credit (Advertisements) Regulations 2004. In particular, the "typical APR" must be stated in adverts which meet certain criteria, such as adverts which indicate that credit will be given to customers who may otherwise find access to credit restricted.
There has been some criticism of these loans in the UK recently. Vince Cable MP said "The growing popularity of these loans highlights the problems stemming from the credit crunch and unsustainable levels of personal debt in the UK.". Chris Tapp, of Credit Action, said in mid 2008: "Over the past year, payday loans have become an issue in the UK, and the growth in people who have problems who have such a loan has been notable in the last six months."

Controversy and criticism

2009-06-16T03:16:00.003-07:00

Payday lending is a controversial practice and faces both legal battles and public perception challenges in nearly every place where it is practiced. In the UK, David Drew MP signed an early day motion criticizing the payday lending market for high APRs and for locking customers into a "cycle of credit dependency"; it also noted the growth of Dollar Financial, a US-based payday lending company trading as Moneyshop in the UK, and called for a public inquiry into the growth of high cost lending in general and payday lending in particular.

Exploiting financial hardship for profit

2009-06-16T03:16:00.001-07:00

Critics such as Consumers Union blame payday lenders for exploiting people's financial hardship for profit. They say lenders target the young and the poor, particularly those near military bases and in low-income communities. They also say that borrowers may not understand that the high interest rates are likely to trap them in a "debt-cycle," where they have to repeatedly renew the loan and pay associated fees every two weeks until they can finally save enough to pay off the principal and get out of debt. Critics also say that payday lending unfairly disadvantages the poor, compared to the middle class who pay at most 25% or so on their credit cards.
However, opponents of government regulation of payday loan businesses argue that some individuals that require the use of payday loans have already exhausted or ruined any other alternatives.

Aggressive advertising practices

2009-06-16T03:15:00.006-07:00

Debt charity Credit Action made a complaint to the UK Office of Fair Trading (OFT) that payday lenders were placing adverts on social network website Facebook which broke advertising regulations. Their main complaint was that the APR was either not displayed at all or not displayed prominently enough, which is clearly required by UK advertising standards.

Aggressive collection practices

2009-06-16T03:15:00.005-07:00

In US law, a payday lender can use only the same industry standard collection practices used to collect other debts.
In many cases, the borrower has written a post-dated check to the lender; if the borrower defaults, then this check will bounce. Some payday lenders have therefore threatened delinquent borrowers with criminal prosecution, for check fraud. This practice is illegal in many jurisdictions.

Ignoring legal restrictions

2009-06-16T03:15:00.003-07:00

Payday lenders have been known to ignore usury limits and charge higher amounts than they are entitled to by law. On May 30, 2008, the Illinois Department of Financial and Professional Regulation fined Global Payday Loan $234,000—the largest fine in Illinois history against a payday lender—for exceeding the $15.50 per $100 limit on charges for payday loans. A customer, known only as J.M., borrowed $300 and repaid $360 ($13.50 more than the company was legally entitled to collect under the Illinois Payday Loan Reform Act), but the company was still sending her warnings that her account was 'seriously delinquent' and that her unpaid balance was $630.

Pricing structure of payday loans

2009-06-16T03:15:00.001-07:00

Issuers of payday loans defend their higher interest rates by saying processing costs for payday loans do not differ much from other loans, including home mortgages. They argue that conventional interest rates for lower dollar amounts and shorter terms would not be profitable. For example, a $100 one-week loan, at a 20% APR (compounded weekly) would generate only 38 cents of interest, which would fail to match loan processing costs.
Critics say payday lenders' processing costs are significantly lower than costs for mortgages and other traditional loans. Payday lenders usually look at recent pay-stubs, whereas larger-loan lenders do full credit checks and make a determination about the borrower's ability to pay back the loan.

Net profitability

2009-06-16T03:14:00.004-07:00

A study by the FDIC Center for Financial Research found “operating costs lie in the range of advance fees” collected and that, after subtracting fixed operating costs and “unusually high rate of default losses,” payday loans “may not necessarily yield extraordinary profits.” Based on the annual reports of publicly traded payday loan companies, loan losses can average 15% or more of loan revenue. Underwriters of payday loans must also deal with people presenting fraudulent checks as security or making stop payments.
Critics concede that some borrowers may default on the loans, but point to the industry's pace of growth as an indication of its profitability. Consumer advocates condemn the practice as a whole, regardless of its profitability, because it "takes advantage of consumers who are already hard-pressed to pay their debts".

Proponents' stance

2009-06-16T03:14:00.003-07:00

Proponents claim that cash advance loans provide a service that is not available from other sources. Many credit unions have attempted to offer similar products, but have been unable to do so without government subsidies or grants, a fact that many lenders and reports have highlighted. Furthermore, most of these programs offered by credit unions have ended due to the high default rates of borrowers.
A staff report released by the Federal Reserve Bank of New York concluded that payday loans should not be categorized as "predatory" since they may improve household welfare. "Defining and Detecting Predatory Lending" reports "if payday lenders raise household welfare by relaxing credit constraints, anti-predatory legislation may lower it." The author of the report, Donald P. Morgan, defined predatory lending as "a welfare reducing provision of credit." However, he also noted that loans are very expensive, and that they are likely to be made to under-educated households or households of uncertain income.

Variations and alternatives Alternatives to payday loans

2009-06-16T03:14:00.001-07:00

Other options are available to most payday loan customers. These include pawnbrokers, credit union loans with lower interest and more stringent terms, credit payment plans, paycheck cash advances from employers, bank overdraft protection, cash advances from credit cards, emergency community assistance plans, small consumer loans and direct loans from family or friends.
Payday lenders do not compare their interest rates to those of mainstream lenders. Instead, they compare their fees to the overdraft, late payment, and penalty fees that will be incurred if the customer is unable to secure any credit whatsoever.
The lenders therefore list a different set of alternatives (costs expressed here as APRs for two-week terms):
• $100 payday advance with $15 fee = 391% APR;
• $100 bounced check with $48 NSF/merchant fees = 1,251% APR;
• $100 credit card balance with $26 late fee = 678% APR;
• $100 utility bill with $50 late/reconnect fees = 1,304% APR.

Variations on payday lending

2009-06-16T03:13:00.004-07:00

A minority of mainstream banks offer advances for customers whose paychecks or other funds are deposited electronically into their accounts. The terms are similar to those of a payday loan; a customer receives a predetermined cash credit available for immediate withdrawal. The amount is deducted, along with a fee, usually about 10 percent of the amount borrowed, when the next direct deposit is posted to the customer's account. After the programs attracted regulatory attention, Wells Fargo called its fee "voluntary" and offered to waive it for any reason. It later scaled back the program in several states.
Income tax refund anticipation loans are not technically payday loans (because they are repayable upon receipt of the borrower's income tax refund, not at his next payday), but they have similar credit and cost characteristics. A car title loan is secured by the borrower's car, but are available only to borrowers who hold clear title (i.e., no other loans) to a vehicle. The maximum amount of the loan is some fraction of the resale value of the car. A similar credit facility seen in the UK is a logbook loan secured against a car's logbook, which the lender retains. These loans may be available on slightly better terms than an unsecured payday loan, since they are less risky to the lender. If the borrower defaults, then the lender can attempt to recover costs by repossessing and reselling the car.

Interest-only loan
An interest-only loan is a loan in which for a set term the borrower pays only the interest on the principal balance, with the principal balance unchanged. At the end of the interest-only term the borrower may enter an interest-only mortgage, pay the principal, or (with some lenders) convert the loan to a principal and interest payment (or amortized) loan at his/her option.

US interest-only mortgages

2009-06-16T03:13:00.003-07:00

In the United States, a five- or ten-year interest-only period is typical. After this time, the principal balance is amortized for the remaining term. In other words, if a borrower had a thirty-year mortgage loan and the first ten years were interest only, at the end of the first ten years, the principal balance would be amortized for the remaining period of twenty years. The practical result is that the early payments (in the interest-only period) are substantially lower than the later payments. This gives the borrower more flexibility because he is not forced to make payments towards principal. Indeed, it also enables a borrower who expects to increase his salary substantially over the course of the loan to borrow more than he would have otherwise been able to afford, or investors to generate cash flow when they might not otherwise be able to. During the interest-only years of the mortgage, the loan balance will not decrease unless the borrower makes additional payments towards principal. Under a conventional amortizing mortgage, the portion of a payment that represents principal is very small in the early years (the same period of time that would be interest-only).
Interest-only loans represent a somewhat higher risk for lenders, and therefore are subject to a slightly higher interest rate. Combined with little or no down payment, the adjustable rate (ARM) variety of interest only mortgages are sometimes indicative of a buyer taking on too much risk- especially when that buyer is unlikely to qualify under more conservative loan structures. Because a homeowner does not build any equity in an interest-only loan he may be adversely affected by prevailing market conditions at the time he is either ready to sell the house or refinance. He may find himself unable to afford the higher regularly amortized payments at the end of the interest only period, unable to refinance due to lack of equity, and unable to sell if demand for housing has weakened.
Due to the speculative aspects of relying on home appreciation which may or may not happen, many financial experts such as Suze Orman advise against interest-only loans for which a borrower would not otherwise qualify. The types of interest-only loans that rely on home appreciation would be negative amortization loans, which most financial institutions discontinued in mid-2008.
A recent study published by the Chicago Federal Reserve Board verified that most Americans can benefit from funding tax deferred accounts rather than paying down mortgage balances. Interest-only loans can be excellent tools for freeing up monthly cash to fund retirement accounts for many homeowners. 3.4 million Households don't contribute at all to their retirement but accelerate the pay down their mortgages. "Those households are losing from 11 to 17 cents for each dollar they put into a faster mortgage payoff", per the Chicago Federal Reserve study published by the National Bureau of Economic Research and reiterated in the Chicago Tribune.

UK interest-only mortgages

2009-06-16T03:13:00.001-07:00

Interest-only loans are popular ways of borrowing money to buy an asset that is unlikely to depreciate much and which can be sold at the end of the loan to repay the capital. For example, second homes, or properties bought for letting to others. In the United Kingdom in the 1980s and 1990s a popular way to buy a house was to combine an interest-only loan with an endowment policy, the combination being known as an endowment mortgage. Homeowners were told that the endowment policy would cover the mortgage and provide a lump sum in addition. Many of these endowment policies were poorly managed and failed to deliver the promised amounts, some of which did not even cover the cost of the mortgage. This mis-selling, combined with the poor stock market performance of the late 1990s, has resulted in endowment mortgages becoming unpopular.

Canadian interest-only mortgages

2009-06-16T03:12:00.004-07:00

Some interest-only mortgages in Canada allow the borrower to pay interest-only, principal and interest, or even principal and interest plus 20% extra. An interest-only mortgage in Canada can be combined with corporate bonds in a Registered Retirement Savings Plan (RRSP) where the plan holder receives a tax deduction, tax deferral, and compound interest.

From an investor's perspective

2009-06-16T03:12:00.003-07:00

Interest-only loans are sometimes generated artificially from structured securities, particularly CMOs. A pool of securities (typically mortgages) is created, and divided into tranches. The cashflows that are received from the underlying debts are spread through the tranches according to predefined rules, an Interest-only (IO) loan is one type of tranche that can be created, it is generally created in tandem with a principal only (PO) tranche. These tranches will cater to two particular types of investors, depending on whether the investors are trying to increase their current yield (which they can get from an IO), or trying to reduce their exposure to prepayments of the loans (which they can get from a PO).
Many homeowners saw the values of their homes increase by as much as four times its price in some markets in a five-year span in the early 2000s. Interest-only loans helped homeowners afford more home and earn more appreciation during this time period. However, interest-only loans have contributed greatly to creating the subsequent housing bubble situation, because many borrowers could not afford the fully indexed rate. Interest-only loans may turn out to be bad financial decisions if housing prices drop, causing those borrowers to carry a mortgage larger than the value of the house, which in turn will make it impossible to refinance the house into a fixed-rate mortgage.

Federal student loan consolidation
In the United States both the Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program (FDLP) include consolidation loans that allow students to consolidate Stafford Loans, PLUS Loans, and Federal Perkins Loans into one single debt. This results in reduced monthly repayments and a longer term for the loan. Unlike the other loans, consolidation loans have a fixed interest rate for the life of the loan

Interest rates and payments

2009-06-16T03:12:00.001-07:00

Consolidation loans have longer terms than other loans. Debtors can choose terms of 10–30 years. Although the monthly repayments are lower, the total amount paid over the term of the loan is higher than would be paid with other loans. The fixed interest rate is calculated as the weighted average of the interest rates of the loans being consolidated, assigning relative weights according to the amounts borrowed, rounded up to the nearest 0.125%, and capped at 8.25%. Some features of the original consolidated loans, such as post graduation grace periods and special forgiveness circumstances, are not carried over into the consolidation loan, and consolidation loans are not universally suitable for all debtors.

History

2009-06-16T03:11:00.003-07:00

The Federal Loan Consolidation Program was created in 1986. In 1998, the United States Congress changed the interest rate to the aforementioned fixed rate weighted mean, effective February 1, 1999. Consolidation loans taken out before that date had a variable interest rate, determined by the individual FDLP loan origination center (e.g., in the case of a university, that university) or FFELP lender (e.g., a third party bank).
In 2005, the Government Accountability Office considered consolidating consolidation loans so that they were exclusively managed through the FDLP. Based on several assumptions about future variations in interest rates, the loan volume, the percentage of defaulters, cost estimates from the United States Department of Education, it concluded that while doing so would incur an additional cost of $46 million, caused by the higher administrative costs of the FDLP compared to the FFELP, this would be offset by a $3,100 million saving comprised in part of avoiding $2,500 million in subsidy costs. In 2008, turmoil in the financial and credit markets has led to the suspension of many loan consolidation programs, including Sallie Mae, Nelnet and Next Student.

Home equity
Home equity is the value of a homeowner's unencumbered interest in their property, i.e. the difference between the home's fair market value and the unpaid balance of the mortgage and any outstanding debt over the home. Equity increases as the mortgage is paid or as the property enjoys appreciation. This is sometimes called real property value in economics.
Technically, home equity has a zero rate of return and is not liquid. So-called home equity management is the process of using equity extraction via loans, at favorable and often tax-favored interest rates, to invest otherwise illiquid equity in a target that offers higher returns. This can be considered a form of arbitrage.
Arbitrage is in essence borrowing money at one rate and earning a higher rate elsewhere. In home equity management, home equity is reduced, and the owner's liability is increased. Therefore, safety and liquidity are essential to preserving nominal home equity. Consequently, the process excludes all equity extraction that is actually spent or invested in non-liquid ways.
Home equity is frequently used as a form of collateral to obtain loans such as HELOC and home equity loan. Interest paid on such loans can be partially tax deductible in the United States and other countries.

Home equity loan

2009-06-16T03:11:00.001-07:00

A home equity loan (sometimes abbreviated HEL) is a type of loan in which the borrower uses the equity in their home as collateral. These loans are sometimes useful to help finance major home repairs, medical bills or college education. A home equity loan creates a lien against the borrower's house, and reduces actual home equity.
Home equity loans are most commonly second position liens (second trust deed), although they can be held in first or, less commonly, third position. Most home equity loans require good to excellent credit history, and reasonable loan-to-value and combined loan-to-value ratios. Home equity loans come in two types, closed end and open end.
Both are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage. Home equity loans and lines of credit are usually, but not always, for a shorter term than first mortgages. In the United States, it is sometimes possible to deduct home equity loan interest on one's personal income taxes.
There is a specific difference between a home equity loan and a Home Equity Line of Credit (HELOC). A HELOC is a line of revolving credit with an adjustable interest rate whereas a home equity loan is a one time lump-sum loan, often with a fixed interest rate.

Closed end home equity loan

2009-06-16T03:10:00.004-07:00

The borrower receives a lump sum at the time of the closing and cannot borrow further. The maximum amount of money that can be borrowed is determined by variables including credit history, income, and the appraised value of the collateral, among others. It is common to be able to borrow up to 100% of the appraised value of the home, less any liens, although there are lenders that will go above 100% when doing over-equity loans. However, state law governs in this area; for example, Texas (which was, for many years, the only state to not allow home equity loans) only allows borrowing up to 80% of equity.
Closed-end home equity loans generally have fixed rates and can be amortized for periods usually up to 15 years. Some home equity loans offer reduced amortization whereby at the end of the term, a balloon payment is due. These larger lump-sum payments can be avoided by paying above the minimum payment or refinancing the loan.

Open end home equity loan

2009-06-16T03:10:00.003-07:00

This is a revolving credit loan, also referred to as a home equity line of credit, where the borrower can choose when and how often to borrow against the equity in the property, with the lender setting an initial limit to the credit line based on criteria similar to those used for closed-end loans. Like the closed-end loan, it may be possible to borrow up to 100% of the value of a home, less any liens. These lines of credit are available up to 30 years, usually at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due.
Typically, the interest rate is based on the Prime rate plus a margin.

Home equity loan fees

2009-06-16T03:10:00.001-07:00

Here is a brief list of possible fees that may apply to your home equity loan: Appraisal fees, originator fees, title fees, stamp duties, arrangement fees, closing fees, early pay-off and other costs are often included in loans. Surveyor and conveyor or valuation fees may also apply to loans, some may be waived. The survey or conveyor and valuation costs can often be reduced, provided you find your own licensed surveyor to inspect the property considered for purchase. The title charges in secondary mortgages or equity loans are often fees for renewing the title information. Most loans will have fees of some sort, so make sure you read and ask several questions about the fees that are charged.

Mortgage equity withdrawal

2009-06-16T03:09:00.001-07:00

In economics, mortgage equity withdrawal (MEW) is the decision of consumers to borrow money against the real value of their houses. The real value is the current value of the property less any accumulated liabilities (mortgages, loans, etc.) Some authors also use equity extraction and include net payments received at time of house sale. In this case the traditional usage of equity extraction is the purchase of a new house.

The rate of MEW has been linked to Marginal propensity to consume (MPC), as measured by Personal Consumption Expenditure (PCE). In the United States, during the dramatic rise in house prices MEW funded PCE 1.1 to 1.7% from 1991 to 2000, and almost 3% from 2000 to 2005.

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Home Call Center Office Requirements?

2009-04-23T07:59:00.000-07:00

Companies that hire work-at-home agents to staff call centers for in-bound or outbound telephone customer service have different requirements for office equipment and space. As a general guide, these are some of the technical requirements for a home-based call center.

Telecommuter and Independent Contractor?

Work-at-home moms could be telecommuting employees or independent contractors. Each has it's own benefits and drawbacks.

Working Solutions

Hiring for temporary or project work, Working Solutions looks for home-based independent contractors to do data entry and call-center work for pay ranging from $7.20 to $30 an hour. Call center projects can include order processing, reservations, enrollments, customer service, sales, market research, technical support, etc.

Converges Home Agent Program

Virtual call center agents receive incoming calls and provide services that may include customer service, sales or technical support. Convergys offers paid training, and employees can select from applicable benefits that include paid time off and holidays, 401(k) plan, employee stock purchase plan, life insurance and medical, dental and vision coverage.

Speak Write

Hiring home-based typists throughout the United States and Canada to work as independent contractors, SpeakWrite requires a typing speed of 65 WPM.

Home Based Call Centre

2009-04-23T07:57:00.000-07:00

A growing number of companies hire people (both as employees and independent contracts) to work from home in call center and data entry jobs. Compensation structures includes payment on a project, call, per minute or per hour basis. Typically, minimum equipment requirements (i.e. DSL, computer, separate phone line) must be met by the applicant.

List of Work-at-Home Call Center Jobs?

The companies listed, which include 1-800-FLOWERS and Hilton Hotels, hire work-at-home call center agents as independent contractors and as regular employees.

Work at Home Call Center Jobs FAQ?

If you'd like to work at home in a call center job, start by researching potential companies carefully. Though there are many legitimate companies hiring home-based call center agents, call center and data entry work-at-home jobs are often used at the bait in work-at-home scams. Most home-based call center jobs require an investment in home office equipment.

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