Posts Tagged ‘mortgage payments’

Money for struggling homeowners

Posted on: August 16th, 2011 by

Eric L. Bach, CPAFor the roughly four million homeowners who have fallen behind on their mortgage payments, the federal government is offering yet another remedy: free money to catch up on their loans.  The effort, called the Emergency Homeowners Loan Program, is the latest in the federal government’s efforts to slow down the flood of foreclosures a necessary step to a meaningful recovery in the housing market, says a Department of Housing and Urban Development official.  For people who have lost their jobs, the $1 billion program offers loans of up to $50,000 that don’t actually need to be repaid, if applicants meet certain requirements.

The goal, says HUD, is to offer short-term aid to people who look like they’ll be back on their feet soon.  But critics say the loans may leave homeowners worse off in the long run.

Rolled out by HUD and the nonprofit housing advocacy group NeighborWorks America, the program is making loans with far better terms than anything on offer at a local bank.  The loans are interest-free.  Payments go directly to the lender for a portion of the borrower’s monthly mortgage, including missed payments or past due charges.  And when the assistance period, which runs for up to two years, ends, 20% of the loan is forgiven with each passing year.  In other words, for qualified borrowers who stay in their home for at least five years after the assistance period and who don’t fall behind on their mortgage again, this money doesn’t have to be paid back.

But some critics say that’s where help for consumers ends.  By taking this loan, borrowers risk falling further into debt.  If they sell their home before the entire loan is forgiven, they’ll be on the hook for the remaining amount.  The same holds true if they fall behind on their mortgage payments again: they’ll need to repay the remaining balance of the loan when they sell or refinance their home.  Separately, borrowers aren’t required to have equity in their home to receive this money, so someone who has to repay this loan risks owing more on the home later than they do now.  For homeowners who are significantly underwater now, the loan may only delay foreclosure.  While the limit each person will get is up to $50,000, loans will average about $35,000 per person, according to NeighborWorks America.

The application process for this program ended July 22, so critics are closely watching to see whether this program succeeds or causes more problems.  If the program is a success, the government may be more inclined to offer programs such as this in the future.


Everyday Money Mistakes

Posted on: June 8th, 2010 by

Money Mistakes - Financial Planning - Rockville, MDFor the amount of financial advice that we find in books, magazines, and online, we still tend to make a lot of mistakes when it comes to our money.  Some of these mistakes might not cost us huge sums, but others can cost us a small fortune.  Even the small mistakes, multiplied over a lifetime, can add up to an enormous sum.

One of the big things is mutual funds.  Do you actually know how much you pay for the funds in your retirement account?  Mutual fund companies don’t send out monthly or quarterly bills.  Instead, they quietly deduct their fees from the returns on your investments.  These fees can add up to thousands of dollars over a lifetime of investing.  To see how much you are really paying, use a free service use a free service such as Morningstar.com to track the actual expense of your funds and ETFs.

Errors in your way of thinking can cause problems as well.  Don’t equate monthly payments with affordability.  Too many people decide whether they can afford something based on whether they can manage the monthly payment.  This is particularly true for homes and cars.  Just because you can handle a payment does not mean you can truly afford the item.  Monthly payments ignore the true cost of ownership.  A car, for example, also requires insurance, gas, repairs, and maintenance.  Instead of focusing on the monthly payment, separate needs from wants and evaluate how you might better use the money.  If you have consumer debt, for example, consider paying off the debt before buying something that will commit you to future monthly payments for years to come.

If you can reduce your mortgage payments, do it.  Reducing a mortgage by even 1% can result in substantial savings.  Whether it’s due to falling mortgage rates, which are at historic lows, or an improved credit score, you may be able to save thousands of dollars of the life of your home loan by refinancing.  Even if you have a low rate now, you should look into the current mortgage rates to see if you can do better.  That 1% savings may justify refinancing over the life of the loan.

A lot of people miss the great deals they can find online.  You can find deals, coupons, and promo codes on just about everything.  Also, many retailers offer additional discounts if you buy online.  Shopping online is often more convenient than going to malls or stores and having to wait in lines.  Before you set out on your next shopping trip, check online and see what coupons or deals are available for the products you are looking for.  The deals could be substantial.

Now that we are post tax season, pending you didn’t file an extension, you should take the time to scan over your return.  If you got a rather large refund, it’s simply the result of you having too many withholdings taken out of your check.  Letting the government hang on to the money for a year until it comes time to file again gives the government an interest free loan.  Instead, ask your employer for new W-4 forms and adjust your withholdings so you can pocket more of your paycheck now.

Finally, don’t mislead yourself into thinking that making the minimum payments on credit cards will get you out of debt.  Even low interest rate credit cards charge a high interest rate.  Just making the minimum payments will add a lot of interest to your total payments over the life of that debt.  Rather than making just the minimum payment, commit to paying more than the minimum, even if by just a few dollars.  This will help pay off your debt much faster.