Home Equity Loan setup

[Mike or Penny Novack]

Bill Cummens wrote:

>Hello Michael,
>Let me first state that I am NOT a financial guy, so I apologize if my questions are basic. This is a 10 yr fixed loan.  I am looking at my Disclosure Statement paperwork that I signed at the time of the loan.  The last page (Net Settlement) shows:
>Loan Amount:							100,000.00
>Minus Total Settlement Charges:			     1500.00
>Minus Total Disbursements to Others:		50,000.00
>Equals Total Disbursements to Borrower:	48,500.00
>
>The $48.5k is what was deposited into my account. Will the interest be on a $51,500 loan amount? The Amortization Schedule they gave me shows $100k as the opening balance so I guess that answers the previous question.
>  
>

OK, first of all, this isn't like the usual "home equity line of credit" 
loan that I described. With those the "amount" is the MAXIMUM that can 
be borrowed but you only owe the the balance you have borrowed so far 
and only interest on that amount and that can usually go up and down for 
some number of years after which the loan becomes a straight mortgage 
for the remainder of the time.

Here is appears you have already taken out the full amount of $100,000 
using  $1500 for the "origination fee", $50,000 to pay off other 
indebtedness, and have received $48,500. So you owe (and owe interest 
on) the full $100,000.

Because you say you are "NOT a financial guy" I suggest you check with 
the lender to confirm that this loan is not fact NOT like a more usual 
"home equity line of credit". Because if it is no reason for you to have 
taken out that $48,500 until you actually  need it for something. If you 
have that option (leave with them till you need to use it) you pay less 
interest.

That being said, a good time to discuss straight mortgages and 
amortization tables and the limitations for fully automated processing. 
The sad truth is that there is NOT a single way to compute and 
amortizations table, no agreement as to how many digits of precision to 
use in the "present value" calculation, when and where to round off, 
etc. That means that just as the payments calculated by two lenders 
might not agree to the penny, neither would HOWEVER gnucash did the 
calculation. You have to decide for yourself which is easier, automated 
transactions that are only approximately correct and every now and again 
you manually enter a correction or entering all of the transactions 
manually in which case they can be exactly correct. After all, if you 
are paying monthly, only twelve of these a year. I especially suggest 
the latter if you will be including any extra principle amounts with 
your payments as then that payment has to be manual.

Michale