mortgage

Oct

2021

What To Do If You Can’t Pay Your Mortgage

Reading Time: 3 minutes

Defaulting on your mortgage is not the same as not being able to pay rent. If you miss your rental payment, you can easily talk to the landlord for an extension. If you really can no longer pay, worse scenario is you pack your things and look for another property to rent that is well within your budget. Not being able to pay your mortgage is much more complicated than that. You will not only be putting your property in jeopardy but also your credit score or standing with the bank (or any other financial institution). Thus, as much as possible refrain from defaulting on your mortgage. So, what to do if you can’t pay your mortgage?

Why Your Credit Score Matters

Before we go into that, it is important to understand first why your credit score matters. Your credit score is a rating of your creditworthiness. It indicates whether you are trustworthy enough for the financial institution to pay your debts. It is important because it is a deciding factor each time you borrow money from a bank. The amount of money that you can borrow including the interest rates are affected by your credit score. And the credit score does not only apply to real estate loans but covers all other forms of loans such auto loans, student loans, personal and even credit card loans. Thus, it is important that you take care of your credit reputation by paying your dues on time.

What To Do If Your Capacity to Pay Has Diminished

So what if you are put in a situation wherein you can no longer afford to fulfill your obligation? The first thing that you need to do is to get in touch with the bank long before the due date. Although lenders normally have a grace period for late payments, it is best to get in touch with them before they charge the late payment fee. For record purposes, it is best to put your concern in writing. Indicate your loan reference number. State your reasons or difficulties. And ask them what your options are. There might be programs available to help you.

If your capacity to pay has been diminished, options normally include the following:

1.Forbearance Plan

With this option, the lending institution will agree to temporarily suspend or reduce your monthly mortgage for a brief period of time. It will give you a short term relief to your financial woes until you recover. But once the forbearance period is over, there should be an agreement on how you are going to repay the suspended dues.

2. Debt Restructuring Plan

In a debt restructuring plan, the terms of your loan will be modified. The monthly payments will be lowered but the term will be extended. The purpose is to make your mortgage more affordable.

What To Do If You Already Missed Payments

3. Repayment Plan

A repayment plan is designed to help you pay back your missed payments. In a repayment plan, the lender normally spreads your overdue amount in a specified period of time. The amount is then added to your monthly payment until the overdue amounts are repaid; thereby increasing your monthly payment. Once the said period is over, your monthly payment will then revert back to normal.

What To Do If You Can No Longer Afford to Continue with the Mortgage

5. Short Sale

A short sale is a sale of an asset that a seller does not own. If a property is mortgaged, technically, the seller does not own the property yet. In a short sale, the lender sells the property below the mortgage value. It can forestall the foreclosure but the lender loses all profit from the said property. But the good thing about it is that it does less damage to your credit score than a foreclosure.

6. Voluntary Foreclosure

Voluntary foreclosure is done in the event that you can no longer afford to continue with your mortgage. A voluntary foreclosure is initiated by the borrower who can no longer continue with the monthly payments. It is done to prevent involuntary foreclosure. A deed in lieu of foreclosure is an example of a voluntary foreclosure. It can release you of your obligations. A deed in lieu of foreclosure is an agreement where you surrender the deed to your property to your lender. Although you will lose your property, you can avoid a foreclosure report on your credit rating. Although a voluntary foreclosure is harmful to your credit rating, it is not as harmful as involuntary or forced foreclosure.

Feature Photo by Karolina Grabowska from Pexels

Aug

2020

Assets and Liabilities in Personal Finance

Reading Time: 2 minutes

Do you know what an asset is? How about a liability? Many probably have an idea on what they are but how many actually understand these terms? True, it might sound boring for many. Unfortunately, these terms are part of the basic terms that everyone should know about personal finance. A deeper understanding of these two terms can lead to drastic improvement on the current stage of your financial life. So, what is the importance of assets and liabilities in personal finance?

Assets vs Liabilities

An asset is any resource that has monetary value. In short, in personal finance, an asset is anything that you own that has value. Your car, house, investments, cash and items such as antique furniture, artworks, watches, jewelries and even some luxury things are all considered assets.

On the other hand, liabilities are everything that you owe. They can be in the form of mortgages, loans, debts and any money that you owe others.

Net Worth

Your total assets minus all your liabilities is your net worth. Knowing your net worth will help you understand your current financial situation. If it is positive, then good for you. If it is negative, then it is a warning sign that you are living beyond your means. In addition, your net worth can serve as reference point in your financial goals.

Launch Challenge

Compute your personal net worth now. Knowing your current state of your finances will help you improve your financial life. Your current net worth will be your starting point in your financial journey.

1. Compute all your Assets

Start by making a list of all your assets. Your assets include the following:

Real Estate Properties
Automobiles
Cash deposits
Investments on businesses, bonds, stocks, funds, etc.
Insurance
Watches and Jewelries
Other items such as antiques, art works and luxury items

Then, place a monetary value on each one. Record the estimated current market value not the purchase price.

Add then add them all up. The total value is your assets.

2. Compute all your Liabilities

Real estate mortgages
Auto loans
Credit card balances
Student loans
Other personal loans

Add up all the outstanding balances to get your total liabilities.

3. Calculate Your Net Worth

Now, subtract your total liabilities from your total assets. Then, that’s your net worth.

Do this every month to monitor your progress. Your goal is to slowly increase your net worth.

Now that you know your net worth, it helps to keep this in mind each time you spend your hard earned money. Knowing your net worth will help you make good financial decisions.

Feature Image by Bruno /Germany from Pixabay Images

Jun

2020

10 Basic Terms About Personal Finance

Reading Time: 3 minutes

Understanding basic money terms should be your first step towards financial literacy. It would be very difficult to start learning financial literacy, much more overhaul your financial life without understanding the basics. Just like reading for example, you won’t be able to learn how to read without knowing the alphabet. In the same way, you will never truly be able to handle your money if you are not familiar with some basic terms about personal finance.

These terms will serves as building blocks in the world of finance. Hence, a deeper understanding of the many terms of concepts of the financial world is crucial in making good personal financial decisions.

Learning and understanding some basic personal finance vocabulary is your first step towards financial freedom.

There are many important personal finance terms. But to make it easier, we have narrowed down the list to ten terms that will help you understand the basics of personal finance.

Here are 10 basic terms that you should know about personal finance:

1. Assets

Assets are any resources with economic value. Sample assets include certificates of deposits, bonds, funds, stocks, real estate or business.

A new definition was introduced by Robert Kiyosaki, author of Rich Dad, Poor Dad. He redefined assets as economic sources that you own that generate income for you. A

An asset is something that puts money in your pocket.

2. Credit

Credit is an agreement where the borrower receives something usually money or any other product or service with value with a promise to pay in the future within a specific time frame, usually with interest. In short, credit pertains to agreement between borrower and lender. Examples of credits are home loans, car loans, consumer and personal loans and credit cards.

3. Compound Interest

Compound interest is the addition of interest on the principal amount of your loan, savings or investments. In short, it is interest on interest. Thus, it has the capability to grow at an increasing amount. Use this concept to your advantage and your wealth will increase. However, this concept can also work against you especially if you have credit card debts. This is how credit card companies earn. Protect yourself and understand this concept so as not to end up a victim of enormous credit card debt.

4. Depreciation

Depreciation is the lowering of the value of an asset over time, usually because of wear and tear. Depreciable assets in your home include your cars, cellphone, appliances and furnitures. For example, if you bought a car worth million a year ago, you can no longer sell that car for the same price today because the value of the car already went down. That is depreciation. Buying depreciable assets on credit is not recommended.

5. Inflation

Inflation is a finance concept that everyone should know because it affects everybody. When the value of your money declines, that is inflation. It simply means that the same amount of money that you are holding now can purchase less goods compared to last year. So, if you have money placed in a regular savings or current account, you are loosing money every year even if you are not actually withdrawing money from your account because of inflation.

6. Financial Freedom

Financial Freedom is the state wherein you are already living your ideal lifestyle without having to work for money. You can be enjoying yourself somewhere in the Bahamas and yet continue to receive money regularly.

Financial Freedom is achieved when your passive income is greater than your monthly expenses.

7. Liabilities

Liabilities are amount that you owe somebody, a company or the bank. They are your debts and financial obligations. Your liabilities include your bills, home loan, car loan, credit card debts and other consumer and personal loans.

8. Mortgage

A mortgage is a loan in which a property or real estate is used as collateral. A collateral serves as security for the loan. Ownership of the real estate is conditional until all obligations and monthly payments are met. This is your typical housing loan.

You are not the owner of your real estate until you have fully paid your mortgage.

9. Net Worth

Your net worth is the monetary equivalent of all your assets added together minus all your liabilities. In short, your net worth is the value of everything you own minus your debts. It is a gauge to measure your financial well-being or how wealthy you are.

NET WORTH = ASSETS - LIABILITIES

High income does not necessarily mean high net worth. A janitor without debt can be considered more wealthy than a company president whose liabilities are greater than his assets.

10. Passive Income

Passive income is money that you receive on a regular basis with minimal work requirement or without you having to work. This income is generated through your investments or assets.

Examples of passive income are:

rental payments from your real estate properties
dividends and capital appreciation from stocks and funds
interests payments on bonds
royalties
income from investments
retirement income

This is the opposite of earned income wherein you need to work or exchange your time, skills and expertise to earn income. Example of earned income is your salary.

First Published in Pinoy Smart Living on 11.13.2018

Image Credit: Gerd Altmann from Pixabay Images

Mar

2020

How To Improve your Finances During a Crisis

Reading Time: 2 minutes

The current crisis has not only negatively affected the people’s health and wellbeing, it has also affected the world economy. Many industries are now falling. Companies, factories and stores are closing. People are losing their job. Unless this crisis will end soon, many people might find themselves with money worries in the near future. Although income might stop coming, household expenses will not. Debt and mortgages are piling up. Thus, it is important for everyone to how how to improve your finances especially during a crisis.

Here are some things that you can do right now on how to improve your finances during a crisis:

1.Review your budget

Take a good look at your monthly budget. If you don’t have any budgeting plan, now is the perfect time to start having one. The money jar budgeting system is a good way to start creating your survival budget in this tough time. If you are already having a rough time, then you need a budget more than ever. A budget will help you track down where your money is going. It will also help you plan on your future spending.

2.Cut Expenses Immediately

Take advantage of the times. Refrain from going out unless necessary. Focus on the basics. Nutrition and health should be the main concern of everyone. Do not buy non-essential items. Stop eating out. Your main goal right now is to cut down on expenses. You don’t know how long this crisis will last so it is important to have as much emergency money as possible.

3.Talk to Creditors

It is almost impossible to keep up with bills if you are being quarantined especially if you have no savings. The best approach is to talk to your creditors and explain your situation. Ask about your options. The good news is that since you are not alone in this crisis, many governments already issued indefinite moratorium for those affected. Banks and insurance companies have started implementing assistance programs. Utility companies are following suit by waiving fees and postponing disconnections.

4.Look for Other Sources of Income

If your income has already been affected, now is the time to look for other sources of income to boost your cash flows. There are many ways to earn even from the comfort of your home. Search online. Look for something that you are good at.You can be someone’s virtual assistant. You can do online tutoring.You can start creating your own blog or vlog. You can create webinars. The possibilities are endless.

5.Improve your Financial IQ

If you are worried about your finances during this pandemic, that is an indicator that there is a need for you to improve your financial IQ. To be financially literate means having the ability to manage personal finance matters. That includes having an emergency survival fund in times of crisis.
It is not yet too late to start now. Take advantage of your time at home. Read about personal finance on books, magazine and the internet. Listen to podcast. Study the lives of millionaires and other highly successful people. Educate yourself and apply it in your life. Start by setting financial goals.

6.Don’t Panic

If you are already an investor; Warren Buffet, the most successful investor in the world, advised investors not to panic. It is best to stay invested and look at the long-term outlook of the stock market. Although it is only natural for investors to be fearful, it is never a good idea to buy stocks based on headlines.

Be fearful when others are greedy. Be greedy when others are fearful. – Warren Buffet

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