How to Avoid Probate in Canada

How to Avoid Probate in Canada.

Probate is the legal process of collecting and distributing a person's assets after his or her death. As attorney fees, court costs, probate fees, or taxes can be expensive, many choose to plan their estate in order to avoid probate. Avoiding probate generally means ensuring that certain assets do not become a part of your probate estate. To prevent assets from becoming a part of your estate and avoid probate in Canada, follow the steps below.

Steps.
1. Name beneficiaries on your life insurance policies. Life insurance is paid directly to the named beneficiary, so the funds never become a part of the probate estate, therefore not subject to probate taxes and fees. You may also wish to name a secondary beneficiary, in case the primary beneficiary predeceases you.
2. Hold your assets in cash and/or bearer certificates. Assets held in cash or bearer certificates, such as stock, may be excluded from the probate estate, reducing the amount of fees and taxes charged to it. A bearer certificate is a financial instrument, such as a check payable to ‘cash', which may be redeemed by any party possessing it.
3. Add a Pay on Death (“POD”) or Transfer on Death (“TOD”) designation to your accounts. This can only be done in the USA. Canada does not have such a law for non-registered investment accounts. Only registered accounts such as an RRSP, RRIF, TFSA accounts can have named beneficiaries. Joint ownership is the only way to avoid probate for non-registered accounts.
A POD or TOD designation allows you to decide to whom the property will transfer or be paid upon your death. As it will be paid or transferred directly to the designated party, it will not be subject to probate taxes. To name a POD or TOD, contact the bank or investment firm where the account is held. The procedure will vary from company to company and will most often involve filling out and returning a simple form.
4. Title your assets to a joint owner. Assets, which are held jointly with rights of survivorship, pass directly to the surviving joint owner, and never become subject to probate. Joint ownership is not right in all circumstances. You may wish to consider the following, before naming a joint owner of any of your assets.
A joint owner can clean out your accounts or otherwise encumber your property. Once a party owns an interest in your property, he or she may take out loans against it, or in the case of a bank or investment account, empty it. This can be done without your knowledge or consent.
You will need the cooperation of the joint owner in order to sell or mortgage the property. Once you name a joint owner, he or she will need to consent to any sale of the property, or any mortgage taken against it.
Naming a joint owner, when he or she is not the only beneficiary of the estate, may cause discontentment between heirs. The other beneficiaries may believe that the joint owner was only meant to hold the property in trust for all of the beneficiaries, and a dispute as to who should inherit the property can easily arise.
There may be tax consequences, such as capital gains property transfer tax, when naming joint owners of certain property. You may want to consult with a Certified General Account (“CGA”) or tax attorney before doing anything that may affect your obligation to pay taxes.
Just as a joint owner has a claim to the joint property, so does his or her creditors. Titling your property with another as a joint owner may subject it to the claims of the joint owner's creditors and/or his or her spouse.
5. Give gifts. Gifting your property now will reduce the value of the estate at your death, thereby reducing the amount of taxes and/or fees due. Be aware that certain legal requirements and/or obligations may apply when making inter-vivos gifts or to those made while you are alive, for the purpose of reducing probate taxes. These considerations include:
You must actually give up control of the gift to the giftee. For example, if you make a gift of an antique piece of furniture, you must deliver the piece to the giftee, and discontinue your possession of it. Another example is if you bestow a bank account upon another, you must add their name and remove yours from the title.
There may be tax consequences for the one who receives the gift. For example, if the fair market value (“FMV”) of the gift exceeds its cost, the accrued gain may be taxable as a capital gain. The Canadian Revenue Agency (“CRA”) defines FMV as “the highest price, expressed in dollars, that a property would bring in an open and unrestricted market, between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other.”
Property tax transfer and other fees may be due when gifting real estate to another. You may wish to consult with a CGA, tax attorney, or probate lawyer before transferring any real property to another party, in order to ensure that your legal and financial rights are protected.
6. Set up a trust. A trust allows you to title your property to it, to be held by an appointed trustee, on your behalf. You may appoint yourself as trustee if you choose. The trust will provide for the distribution of the property after your death. Since the property is owned by the trust, it never becomes a part of your probate estate and is not subject to probate taxes.
7. Title assets to your company. If you have outstanding debt other than a mortgage, that debt will not be subtracted from your assets when the value of your estate at the time of your death is determined. This will increase the value of your estate, causing a higher probate tax to apply. Transferring the loan and the asset purchased with it to a limited company will reduce the gross value of your estate, which in turn will reduce the amount of probate tax due.
8. Make two wills. Parties who hold certain assets may decide to make two wills. A Primary Will, which deals with those assets that are required to be subject to probate, and a Secondary Will, which provides direction as to the distribution of all other assets. While this is not a widely known practice, the Court in Ontario recently approved of this estate planning approach in Granovsky Estate v. Ontario.

Community Q&A.

Question : If a partial distribution was made as a part of the deceased mother's will and the son dies before final distribution, how is the balance handled?
Answer :  In most cases, the balance will be given to the next person listed in the document.
Question : Can a person's RRIF be allocated in a will to someone prior to death and avoid having to be a part of any probate?
Answer :  Registered accounts with named beneficiaries are not subject to probate calculation as it is not part of a taxable estate. If the named beneficiary is "Estate," then it will be subject to probate.
Question : Without a named beneficiary, does life insurance and RRSP go to the probate?
Answer :  Yes, without a named beneficiary any life insurance or RRSPs become part of the deceased's estate and are therefore subject to Estate Administration Tax.
Question : A wife, as beneficiary of a life insurance policy, predeceases the husband. Upon the husband's death, how can their children receive the proceeds of the policy?
Answer :  You must put the children down now as contingent beneficiaries. Contact the insurance provider of the policy.
Question : How do I avoid probate in Canada if everything the deceased has is cash in a bank?
Answer :  You will be able to avoid probate, but you will need to be cautious about how the cash is divided up afterwards. A huge addition of cash will probably put you in a different tax bracket, and you will have to pay more income tax as a result. You will need to find out what the tax burden will be on the amount you receive, if it's purely cash.
Question : What happens when probate is started on a will and then another will is found?
Answer :  The dates the documents were signed will determine the legitimacy. The later one should be the one that is used.
Question : How do I keep my family home from probate? I would like it to continue to be a family home for my children and to let them decide what to do with it in the future.
Answer :  Add their names to the title.Then it will automatically be their property and you will avoid probate, and also, depending on where you live, estate taxes.
Question : Can a financial institution make a claim for the beneficiary's share of an estate?
Answer :  All life insurance products such as deferred annuities or segregated funds are creditor-proof.
Question : Is there a waiver of probate form or a waiver for banks to release bank funds in Canada?
Answer :  In Canada, if the estate size is small, the beneficiary is the spouse and the strength of the relationship of the deceased and the beneficiary is know to be strong by staff of the bank, the financial institution can offer a waiver of probate on a case-by-case basis.
Question : How do I know how much tax I will pay in Ontario?
Answer :  Ontario's official government website has an estate administration tax calculator.

Tips.
If you wish to control when a beneficiary inherits the property, you may want to consider creating a trust instead of naming TODs and PODs.
Talk to your friends and family about how you wish for your personal property to be distributed upon your death. If you really want a specific person to have an item, and are unsure if your loved one's will abide by your wishes, simply give it to them now.

Warnings.

Naming a joint account owner on an account will allow the joint owner to withdraw all of your money or cause a lien to be placed on the account if they are sued and a judgment is entered against them. Naming a POD or TOD may be the safest way to ensure that your property passes to whom you wish, without giving up interest in it until after your death.
Before taking an action, which may affect your legal or financial rights and/or obligations, you should consult with a qualified barrister.
Avoiding probate is not right for everyone. You may wish to consult with a barrister in order to determine if taking steps to avoid probate is appropriate in your particular situation.

June 02, 2020

How to Calculate Compound Interest

How to Calculate Compound Interest.

Compound interest is distinct from simple interest in that interest is earned both on the original investment (the principal) and the interest accumulated so far, rather than simply on the principal. Because of this, accounts with compound interest grow faster than those with simple interest. Additionally, the value will grow even faster if the interest is compounded multiple times per year. Compound interest is offered on a variety of investment products and also charged on certain types of loans, like credit card debt. Calculating how much an amount will grow under compound interest is simple with the right equations.

Part 1 Finding Annual Compound Interest.
1. Define annual compounding. The interest rate stated on your investment prospectus or loan agreement is an annual rate. If your car loan, for example, is a 6% loan, you pay 6% interest each year. Compounding once at the end of the year is the easiest calculation for compounding interest.
A debt may compound interest annually, monthly or even daily.
The more frequently your debt compounds, the faster you will accumulate interest.
You can look at compound interest from the investor or the debtor’s point of view. Frequent compounding means that the investor’s interest earnings will increase at a faster rate. It also means that the debtor will owe more interest while the debt is outstanding.
For example, a savings account may be compounded annually, while a pay-day loan can be compounded monthly or even weekly.
2. Calculate interest compounding annually for year one. Assume that you own a $1,000, 6% savings bond issued by the US Treasury. Treasury savings bonds pay out interest each year based on their interest rate and current value.
Interest paid in year 1 would be $60 ($1,000 multiplied by 6% = $60).
To calculate interest for year 2, you need to add the original principal amount to all interest earned to date. In this case, the principal for year 2 would be ($1,000 + $60 = $1,060). The value of the bond is now $1,060 and the interest payment will be calculated from this value.
3. Compute interest compounding for later years. To see the bigger impact of compound interest, compute interest for later years. As you move from year to year, the principal amount continues to grow.
Multiply the year 2 principal amount by the bond’s interest rate. ($1,060 X 6% = $63.60). The interest earned is higher by $3.60 ($63.60 - $60.00). That’s because the principal amount increased from $1,000 to $1,060.
For year 3, the principal amount is ($1,060 + $63.60 = $1,123.60). The interest earned in year 3 is $67.42. That amount is added to the principal balance for the year 4 calculation.
The longer a debt is outstanding, the bigger the impact of compounding interest. Outstanding means that the debt is still owed by the debtor.
Without compounding, the year 2 interest would simply be ($1,000 X 6% = $60). In fact, every year’s interest earned would be $60 if you did earn compound interest. This is known as simple interest.
4. Create an excel document to compute compound interest. It can be handy to visualize compound interest by creating a simple model in excel that shows the growth of your investment. Start by opening a document and labeling the top cell in columns A, B, and C "Year," "Value," and "Interest Earned," respectively.
Enter the years (0-5) in cells A2 to A7.
Enter your principal in cell B2. For example, imagine you are started with $1,000. Input 1000.
In cell B3, type "=B2*1.06" and press enter. This means that your interest is being compounded annually at 6% (0.06). Click on the lower right corner of cell B3 and drag the formula down to cell B7. The numbers will fill in appropriately.
Place a 0 in cell C2. In cell C3, type "=B3-B$2" and press enter. This should give you the difference between the values in cell B3 and B2, which represents the interest earned. Click on the lower right corner of cell C3 and drag the formula down to cell C7. The values will fill themselves in.
Continue this process to replicate the process for as many years as you want to track. You can also easily change values for principal and interest rate by altering the formulas used and cell contents.

Part 2 Calculating Compound Interest on Investments.
1. Learn the compound interest formula. The compound interest formula solves for the future value of the investment after set number of years. The formula itself is as follows: {\displaystyle FV=P(1+{\frac {i}{c}})^{n*c}}FV=P(1+{\frac  {i}{c}})^{{n*c}} The variables within the equation are defined as follows:
"FV" is the future value. This is the result of the calculation.
"P" is your principal.
"i" represents the annual interest rate.
"c" represents the compounding frequency (how many times the interest compounds each year).
"n" represents the number of years being measured.
2. Gather variables the compound interest formula. If interest compounds more often than annually, it is difficult to calculate the formula manually. You can use a compound interest formula for any calculation. To use the formula, you need to gather the following information.
Identify the principal of the investment. This is the original amount of your investment. This could be how much you deposited into the account or the original cost of the bond. For example, imagine your principal in an investment account is $5,000.
Locate the interest rate for the debt. The interest rate should be an annual amount, stated as a percentage of the principal. For example, a 3.45% interest rate on the $5,000 principal value.
In the calculation, the interest rate will have to be input as decimal. Convert it by dividing the interest rate by 100. In this example, this would be 3.45%/100 = 0.0345.
You also need to know how often the debt compounds. Typically, interest compounds annually, monthly or daily. For example, imagine that it compounds monthly. This means your compounding frequency ("c") would be input as 12.
Determine the length of time you want to measure. This could be a goal year for growth, like 5 or 10 years, or this maturity of a bond. The maturity date of a bond is the date that the principal amount of the debt is to be repaid. For the example, we use 2 years, so input 2.
3. Use the formula. Input your variables in the right places. Check again to make sure that you are inputting them correctly. Specifically, make sure that your interest rate is in decimal form and that you have used the right number for "c" (compounding frequency).
The example investment would be input as follows: {\displaystyle FV=\$5000(1+{\frac {0.0345}{12}})^{2*12}}FV=\$5000(1+{\frac  {0.0345}{12}})^{{2*12}}
Compute the exponent portion and the portion of the formula in parenthesis separately. This is a math concept called order of operations. You can learn more about the concept using this link: Apply the Order of Operations.
4. Finish the math computations in the formula. Simplify the problem by solving for the parts of the equation in parenthesis first, beginning with the fraction.
Divide the fraction within parentheses first. The result should be: {\displaystyle FV=\$5000(1+0.00288)^{2*12}}FV=\$5000(1+0.00288)^{{2*12}}
Add the numbers within parentheses. The result should be: {\displaystyle FV=\$5000(1.00288)^{2*12}}FV=\$5000(1.00288)^{{2*12}}
Solve the multiplication within the exponent (the last part above the closing parenthesis). The result should look like this: {\displaystyle FV=\$5000(1.00288)^{24}}FV=\$5000(1.00288)^{{24}}
Raise the number within the parentheses to the power of the exponent. This can be done on a calculator by entering the value in parentheses (1.00288 in the example) first, pressing the {\displaystyle x^{y}}x^{y} button, then entering the exponent (24 in this case) and pressing enter. The result in the example is {\displaystyle FV=\$5000(1.0715)}FV=\$5000(1.0715)
Finally, multiply the principal by the number in parentheses. The result in the example is $5,000*1.0715, or $5,357.50. This is the value of the account at the end of the two years.
5. Subtract the principal from your answer. This will give you the amount of interest earned.
Subtract the principal of $5,000 from the future value of $5357.50 to get $5,375.50-$5,000, or $357.50
You will earn $357.50 in interest over the two years.

Part 3 Calculating Compound Interest With Regular Payments.
1. Learn the formula. Compounding interest accounts can increase even faster if you make regular contributions to them, such as adding a monthly amount to a savings account. The formula is longer than that used to calculate compound interest without regular payments, but follows the same principles. The formula is as follows: {\displaystyle FV=P(1+{\frac {i}{c}})^{n*c}+{\frac {R((1+{\frac {i}{c}})^{n*c}-1)}{\frac {i}{c}}}}FV=P(1+{\frac  {i}{c}})^{{n*c}}+{\frac  {R((1+{\frac  {i}{c}})^{{n*c}}-1)}{{\frac  {i}{c}}}}[7]The variables within the equation are also the same as the previous equation, with one addition.
"P" is the principal.
"i" is the annual interest rate.
"c" is the compounding frequency and represents how many times the interest is compounded each year.
"n" is the number of years.
"R" is the amount of the monthly contribution.
2. Compile the necessary variables. To compute the future value of this type of account, you will need the principal (or present value) of the account, the annual interest rate, the compounding frequency, the number of years being measured, and the amount of your monthly contribution. This information should be in your investment agreement.
Be sure to convert the annual interest rate into a decimal. Do this by dividing the rate by 100. For example, using the above 3.45% interest rate, we would divide 3.45 by 100 to get 0.0345.
For compounding frequency, simply use the number of times per year that the interest compounds. This means annually is 1, monthly is 12, and daily is 365 (don't worry about leap years).
3. Input your variables. Continuing with the example from above, imagine that you decide to also contribute $100 per month to your account. This account, with a principal value of $5,000, compounds monthly and earns 3.45% annual interest. We will measure the growth of the account over two years.
The completed formula using this information is as follows: {\displaystyle FV=\$5,000(1+{\frac {0.0345}{12}})^{2*12}+{\frac {\$100((1+{\frac {0.0345}{12}})^{2*12}-1)}{\frac {0.0345}{12}}}}FV=\$5,000(1+{\frac  {0.0345}{12}})^{{2*12}}+{\frac  {\$100((1+{\frac  {0.0345}{12}})^{{2*12}}-1)}{{\frac  {0.0345}{12}}}}
4. Solve the equation. Again, remember to use the proper order of operations to do so. This means that you start by calculating the values inside of parentheses.
Solve for the fractions with parentheses first. This means dividing "i" by "c" in three places, all for the same result of 0.00288. The equation now looks like this: {\displaystyle FV=\$5,000(1+0.00288)^{2*12}+{\frac {\$100((1+0.00288)^{2*12}-1)}{0.00288}}}FV=\$5,000(1+0.00288)^{{2*12}}+{\frac  {\$100((1+0.00288)^{{2*12}}-1)}{0.00288}}
Solve the addition within the parentheses. This means adding the 1 to the result from the last part. This gives: {\displaystyle FV=\$5,000(1.00288)^{2*12}+{\frac {\$100((1.00288)^{2*12}-1)}{0.00288}}}FV=\$5,000(1.00288)^{{2*12}}+{\frac  {\$100((1.00288)^{{2*12}}-1)}{0.00288}}
Solve the multiplication within the exponents. This means multiplying the two numbers that are smaller and above the closing parentheses. In the example, this is 2*12 for a result of 24. This gives: {\displaystyle FV=\$5,000(1.00288)^{24}+{\frac {\$100((1.00288)^{24}-1)}{0.00288}}}FV=\$5,000(1.00288)^{{24}}+{\frac  {\$100((1.00288)^{{24}}-1)}{0.00288}}
Solve the exponents. This means raising the amount within parentheses to the result of the last step. On a calculator, this is done by entering the value in parentheses (1.00288 in the example), pressing the {\displaystyle x^{y}}x^{y} key, and then entering the exponent value (which is 24 here). This gives: {\displaystyle FV=\$5,000(1.0715)+{\frac {\$100(1.0715-1)}{0.00288}}}FV=\$5,000(1.0715)+{\frac  {\$100(1.0715-1)}{0.00288}}
Subtract. Subtract the one from the result of the last step in the right part of the equation (here 1.0715 minus 1). This gives: {\displaystyle FV=\$5,000(1.0715)+{\frac {\$100(0.0715)}{0.00288}}}FV=\$5,000(1.0715)+{\frac  {\$100(0.0715)}{0.00288}}
Multiply. This means multiplying the principal by the number is the first set of parentheses and the monthly contribution by the same number in parentheses. This gives: {\displaystyle FV=\$5,357.50+{\frac {\$7.15}{0.00288}}}FV=\$5,357.50+{\frac  {\$7.15}{0.00288}}
Divide the fraction. This gives {\displaystyle FV=\$5,357.50+\$2,482.64}FV=\$5,357.50+\$2,482.64
Add. Finally, add the two number to get the future value of the account. This gives $5,357.50 + $2,482.64, or $7,840.14. This is the value of the account after the two years.
5. Subtract the principal and payments. To find the interest earned, you have to subtract the amount of money you put into the account. This means adding the principal, $5,000, to the total value of contributions made, which is 24 contributions (2 years* 12 months/year) times the $100 you put in each month for a total of $2,400. The total is $5,000 plus $2,400, or $7,400. Subtracting $7,400 from the future value of $7,840.14, you get the amount of interest earned, which is $440.14.
6. Extend your calculation. To really see the benefit of compound interest, imagine that you continue adding money monthly to the same account for twenty years instead of two. In this case, your future value would be about $45,000, even though you will have only contributed $29,000, meaning that you will have earned $16,000 in interest.

FAQ.
Question : What does "to the power of" mean?
Answer : "To the power of" refers to a particular numerical exponent. It is a multiplication in which a number appears as a factor that many times. For example, 2 to the power of 1 equals 2. 2 to the power of 2 equals 2x2, or 4, and 2 to the power of 3 is 2 x 2 x 2, or 8.
Question : How do I find the compound interest on a 29,870 loan at 6% interest?
Answer : First take out the amount by the formulae: principle(1+ r/100) to the power n (number of years), then take out the ci by subtracting the principle from the amount.
Question : What do I type on a calculator to find compound interest?
Answer : Compound interest can be calculated in several ways. The most common is to say that A=Pe^(rt) where P is the initial amount, "e" is a constant around 2.71, "r" is the interest rate (i.e. 7% would be entered in as 0.07), "t" is the duration in which the interest is being calculated in years and "A" is the final amount.
Question : How do I know if it's better to owe interest on something or to pay a lump sum at no interest?
Answer : Cost/value analysis. Calculate the total you'll pay under both methods and find the difference. Then compare that difference to the value of buying now (with a loan) versus later (lump sum).
Question : How do I find the future value and the compound interest if £4000 is invested for 5 years at 42% p.a?
Answer : Principal=$4000, n=5, R=42%,0.42. The formula: FV=PV(1+r)r aise power n and substitute the value.
Question : How do I calculate principal in compound interest?
Answer : Principal = fv = p(1 + i/c)ⁿc. Formula for principal in compound interest (1 + R/100), where R = rate.

Tips.

You can also calculate compound interest easily using an online compound interest calculator. The US Government hosts a good one at https://www.investor.gov/tools/calculators/compound-interest-calculator.
A quick rule of thumb to find compound interest is the "rule of 72." Start by dividing 72 by the amount of the interest your are earning, for example 4%. In this case, this would be 72/4, or 18. This result, 18, is roughly the number of years it will take for your investment to double at the current interest rate. Keep in mind that the rule of 72 is just a quick approximation, not an exact result.[8]
You can also use these calculations to perform "what-if" calculations that can tell you how much you will earn with a given interest rate, principal, compounding frequency, or number of years.

April 09, 2020

How to Discuss Finances Together in a Marriage

How to Discuss Finances Together in a Marriage.

Finances are a hot topic when it comes to all relationships, especially marriages. Saying “I do” means more than just sharing a life together, it also means sharing financial responsibility for that life. Whether good or bad, each spouse needs to be open and honest about his or her current financial standing. What’s more, the couple must work together to decide on important financial decisions for the future. Learn the basics for discussing money with your spouse.



Part 1 Communicating Effectively

1. Broach the subject casually with your spouse. The time to start talking about merging your finances is before the wedding, but at least 40% of couples avoid doing so.

Start the conversation with your action items first. This could mean starting off by talking to your spouse about your desire to look at your own credit score as you prepare to buy a house and suggest that he or she does the same. Say something like “Have you checked your credit report lately? I’ve been wanting to get a good picture of my financial standing. Maybe we can do it together?”

Things like credit scores for both of you may change how you approach buying a home, for example. You may find if one of you has a higher score than the other, it may be better to buy without both of you on the mortgage. However, things line up, remember you are on the same “team”.

2. Gather data to support your decisions. Print your credit reports and any supporting documentation, such as account balances and credit card debt. Financial choices need to be based on numbers not emotion. Make sure you both have a clear idea of what debts came into the union and how you can work to pay those down.

Early on you are doing this to get on the same page about your individual financial pictures. However, in the future, it may be nice to take time each month to sit down together and look over the numbers. Viewing credit card statements and account balances can be a way to keep you accountable as far as goals and also open the floor for an ongoing discussion with your spouse.

3. Be candid about any bad habits. Before you get started, you must be forthright with your spouse about any habits you happen to have that are not apparent on your credit reports.

An example of a bad habit would include not taking the time to write down purchases made on your debit card so you can balance your check book. When you were single, this may have not seemed like a huge deal, but with two people sharing accounts it can quickly become a problem.

Other bad habits you need to bring to your spouse would include past blemishes on your credit like having too many credit cards open, being in default on student loans or having bills in collection. All of these issues can impact credit, but they can also be addressed and resolved.

4. Refrain from pointing the finger. Placing blame and arguing over money will not make any issues better. If you ask your spouse to be honest about credit challenges and then start the blame game you will probably not get that same level of honesty in the future.

5. Listen to understand, not to reply. This means looking at your spouse as he or she is speaking, listening carefully to fully get his or her point of view, and then taking that one step further by confirming what you have heard.

When you sit down to have a tough conversation with your spouse, you will break the trust if you are not willing to listen. Don’t ask the tough questions unless you are ready to handle any answer.

The exchange of information should be fair and equal.



Part 2 Setting Ground Rules.

1. Decide if you will merge all the money or maintain separate accounts. Even after getting married there are no laws that say you have to merge all your accounts. Having separate accounts does not mean neither of you knows what the other is doing. Both partners should have access to the records of the other since you are sharing a household.

Depending on the credit scores for both spouses, it may make more sense to keep separate accounts especially if you want to buy a home soon. One spouse alone on a mortgage is going to have a higher chance of getting the loan than two people with mixed credit scores.

2. Determine who will be the primary overseer of your money. This will include how you make decisions about both small and large purchases. The person who is most organized and financially savvy may be the best choice for managing the finances. However, both partners should take on the responsibility in some way. So, choose duties according to your individual strengths.

For example, one of you may be better at saving, so you will be in charge of building an emergency fund and overseeing retirement savings. The other may be in charge of paying monthly bills and balancing the checkbook. Decide based on what’s best for you and your spouse.

3. Agree about which of you will handle certain expenses. You will need to know who is writing the check for rent, paying the electric bill and other household bills. You do not want to get into a situation where both of you thought the other paid the electric bill and you learn that it wasn’t paid when the lights are turned off. You also don’t want to pay bills twice and be short money.

Being upfront about how much both of you make and how you will divide the bills will make things much easier. Some families divide everything I half while others just pool their money regardless of who makes what.

The use of credit cards versus cash should also be explored as one partner may be used to always using a card and then paying it off once a month while the other only uses cash. This needs to be talked about.

4. Don’t make big purchases without your spouse’s blessing. Regardless of who makes more money, a big ticket item should be bought together. This is a good time to set boundaries about how much either of you can spend without talking to your spouse. This can be as simple as saying you have a spending limit of $100 without checking in since that is a low amount in your budget and won’t overdraw the account.



Part 3 Overcoming Money Troubles.

1. Build a household budget. This budget should include all the household bills, ongoing needs and bills that were outstanding from before you got married. The budget needs to be realistic and something you both commit to. Consider these tips:

Tally up every single monthly expense and plan for them in advance.

Include separate and joint goals.

Include long-term goals like saving for a down payment on a house.

Negotiate with ongoing bills to cut down interest rates or get rid of fees.

Automate whatever you can so that you don’t miss paying bills and acquire late fees.

Go back and revise your budget as needed.

2. Start building an emergency fund. If you didn’t already have an emergency fund before getting married, now is the time to build one. An emergency fund acts as a cushion in times when unexpected expenses pop up or one of you is out of work.

How big your emergency account is will depend on you and your spouse. Many families tuck away enough money for at least 3 to 6 months of expenses. This provides greater security over the long haul.

This savings account would be for true emergencies only, not impulse buys. Take the time to set boundaries as to what qualifies as an emergency.

Some households use a credit card for emergencies like car repairs. Make sure you both agree if this is a good use of your credit cards and leave the available balance for such an emergency. If either of you has problems with managing credit cards, this may not be the best option for your household.

3. Know your debt situation and decide on a strategy to pay it off.[13] Both of you should have a very clear idea of the other person’s debt as well as your own. Don’t fall prey to the idea that it’s your spouse’s problem—it’s not. Both of your debt is usually considered during major purchases, so working together to shrink each person’s debt is ideal.

It can also be helpful to get financial advising or attend a debt reduction course for couples. If you have a significant amount of debt—or have no idea where to start to pay it down—it may be practical to involve a professional who can assist you.

4. Plan for your retirements. Talk to your spouse and come up with a plan that suits both of you for retirement and start saving. Keep in mind, that men and women often have varying opinions when it comes to retirement, so be willing to compromise and consider your spouse’s perspective.

Include payments to 401K and other investments as a part of your budget. Part of this process also includes changing the beneficiaries for each account now that you are married.

If you don’t already, you also need to draw up life insurance policies to secure your spouse and your family in case of a tragedy.



Question : If we get a divorce, will my wife get 50% of my 401K too?

Answer : Honestly, this depends on the state and the county where you are getting divorced. Different locations have different rules of division in a divorce. Some states are equitable division, meaning you split 50/50 while others are not.



Warnings.

Money troubles have ended more than a few marriages. If you are both responsible, open and honest about money, it will make for a stronger marriage.

Be mindful that some people are sensitive about discussing money. To some, money means power and control and these are very volatile subjects. Handle with care.

It can be a difficult and uncomfortable transition going from being a single person in total control of your finances to being part of a couple. If your partner is resistant, give him or her time. If you can show them that you are interested in working as a team with no judgments, your spouse will eventually come around.

February 10, 2020

how to discuss finances together in a marriage

How to Discuss Finances Together in a Marriage.

Finances are a hot topic when it comes to all relationships, especially marriages. Saying “I do” means more than just sharing a life together, it also means sharing financial responsibility for that life. Whether good or bad, each spouse needs to be open and honest about his or her current financial standing. What’s more, the couple must work together to decide on important financial decisions for the future. Learn the basics for discussing money with your spouse.



Part 1 Communicating Effectively

1. Broach the subject casually with your spouse. The time to start talking about merging your finances is before the wedding, but at least 40% of couples avoid doing so.

Start the conversation with your action items first. This could mean starting off by talking to your spouse about your desire to look at your own credit score as you prepare to buy a house and suggest that he or she does the same. Say something like “Have you checked your credit report lately? I’ve been wanting to get a good picture of my financial standing. Maybe we can do it together?”

Things like credit scores for both of you may change how you approach buying a home, for example. You may find if one of you has a higher score than the other, it may be better to buy without both of you on the mortgage. However, things line up, remember you are on the same “team”.

2. Gather data to support your decisions. Print your credit reports and any supporting documentation, such as account balances and credit card debt. Financial choices need to be based on numbers not emotion. Make sure you both have a clear idea of what debts came into the union and how you can work to pay those down.

Early on you are doing this to get on the same page about your individual financial pictures. However, in the future, it may be nice to take time each month to sit down together and look over the numbers. Viewing credit card statements and account balances can be a way to keep you accountable as far as goals and also open the floor for an ongoing discussion with your spouse.

3. Be candid about any bad habits. Before you get started, you must be forthright with your spouse about any habits you happen to have that are not apparent on your credit reports.

An example of a bad habit would include not taking the time to write down purchases made on your debit card so you can balance your check book. When you were single, this may have not seemed like a huge deal, but with two people sharing accounts it can quickly become a problem.

Other bad habits you need to bring to your spouse would include past blemishes on your credit like having too many credit cards open, being in default on student loans or having bills in collection. All of these issues can impact credit, but they can also be addressed and resolved.

4. Refrain from pointing the finger. Placing blame and arguing over money will not make any issues better. If you ask your spouse to be honest about credit challenges and then start the blame game you will probably not get that same level of honesty in the future.

5. Listen to understand, not to reply. This means looking at your spouse as he or she is speaking, listening carefully to fully get his or her point of view, and then taking that one step further by confirming what you have heard.

When you sit down to have a tough conversation with your spouse, you will break the trust if you are not willing to listen. Don’t ask the tough questions unless you are ready to handle any answer.

The exchange of information should be fair and equal.



Part 2 Setting Ground Rules.

1. Decide if you will merge all the money or maintain separate accounts. Even after getting married there are no laws that say you have to merge all your accounts. Having separate accounts does not mean neither of you knows what the other is doing. Both partners should have access to the records of the other since you are sharing a household.

Depending on the credit scores for both spouses, it may make more sense to keep separate accounts especially if you want to buy a home soon. One spouse alone on a mortgage is going to have a higher chance of getting the loan than two people with mixed credit scores.

2. Determine who will be the primary overseer of your money. This will include how you make decisions about both small and large purchases. The person who is most organized and financially savvy may be the best choice for managing the finances. However, both partners should take on the responsibility in some way. So, choose duties according to your individual strengths.

For example, one of you may be better at saving, so you will be in charge of building an emergency fund and overseeing retirement savings. The other may be in charge of paying monthly bills and balancing the checkbook. Decide based on what’s best for you and your spouse.

3. Agree about which of you will handle certain expenses. You will need to know who is writing the check for rent, paying the electric bill and other household bills. You do not want to get into a situation where both of you thought the other paid the electric bill and you learn that it wasn’t paid when the lights are turned off. You also don’t want to pay bills twice and be short money.

Being upfront about how much both of you make and how you will divide the bills will make things much easier. Some families divide everything I half while others just pool their money regardless of who makes what.

The use of credit cards versus cash should also be explored as one partner may be used to always using a card and then paying it off once a month while the other only uses cash. This needs to be talked about.

4. Don’t make big purchases without your spouse’s blessing. Regardless of who makes more money, a big ticket item should be bought together. This is a good time to set boundaries about how much either of you can spend without talking to your spouse. This can be as simple as saying you have a spending limit of $100 without checking in since that is a low amount in your budget and won’t overdraw the account.



Part 3 Overcoming Money Troubles.

1. Build a household budget. This budget should include all the household bills, ongoing needs and bills that were outstanding from before you got married. The budget needs to be realistic and something you both commit to. Consider these tips:

Tally up every single monthly expense and plan for them in advance.

Include separate and joint goals.

Include long-term goals like saving for a down payment on a house.

Negotiate with ongoing bills to cut down interest rates or get rid of fees.

Automate whatever you can so that you don’t miss paying bills and acquire late fees.

Go back and revise your budget as needed.

2. Start building an emergency fund. If you didn’t already have an emergency fund before getting married, now is the time to build one. An emergency fund acts as a cushion in times when unexpected expenses pop up or one of you is out of work.

How big your emergency account is will depend on you and your spouse. Many families tuck away enough money for at least 3 to 6 months of expenses. This provides greater security over the long haul.

This savings account would be for true emergencies only, not impulse buys. Take the time to set boundaries as to what qualifies as an emergency.

Some households use a credit card for emergencies like car repairs. Make sure you both agree if this is a good use of your credit cards and leave the available balance for such an emergency. If either of you has problems with managing credit cards, this may not be the best option for your household.

3. Know your debt situation and decide on a strategy to pay it off.[13] Both of you should have a very clear idea of the other person’s debt as well as your own. Don’t fall prey to the idea that it’s your spouse’s problem—it’s not. Both of your debt is usually considered during major purchases, so working together to shrink each person’s debt is ideal.

It can also be helpful to get financial advising or attend a debt reduction course for couples. If you have a significant amount of debt—or have no idea where to start to pay it down—it may be practical to involve a professional who can assist you.

4. Plan for your retirements. Talk to your spouse and come up with a plan that suits both of you for retirement and start saving. Keep in mind, that men and women often have varying opinions when it comes to retirement, so be willing to compromise and consider your spouse’s perspective.

Include payments to 401K and other investments as a part of your budget. Part of this process also includes changing the beneficiaries for each account now that you are married.

If you don’t already, you also need to draw up life insurance policies to secure your spouse and your family in case of a tragedy.



Question : If we get a divorce, will my wife get 50% of my 401K too?

Answer : Honestly, this depends on the state and the county where you are getting divorced. Different locations have different rules of division in a divorce. Some states are equitable division, meaning you split 50/50 while others are not.



Warnings.

Money troubles have ended more than a few marriages. If you are both responsible, open and honest about money, it will make for a stronger marriage.

Be mindful that some people are sensitive about discussing money. To some, money means power and control and these are very volatile subjects. Handle with care.

It can be a difficult and uncomfortable transition going from being a single person in total control of your finances to being part of a couple. If your partner is resistant, give him or her time. If you can show them that you are interested in working as a team with no judgments, your spouse will eventually come around.

February 10, 2020

How to Avoid Finance Charges on Credit Cards

How to Avoid Finance Charges on Credit Cards.

If you are late paying off the balance of your credit card, you will likely incur further finance charges on the balance until it is paid. The best way to avoid these charges is to pay off the balance on time. You will often get a grace period of around 21 days after receiving the bill in which to do this. If you just pay off the minimum you will be incurring more and more interest and it will take you a long time to pay off the debt.

Method 1 Clearing Your Card Balance.

1. Pay off your balance at the end of every billing cycle. The most straight-forward way to avoid charges on the balance of your credit card is to pay it off in full at the end of each billing cycle. Paying off the whole balance by the due date on your bill will mean that you do not incur any additional finance charges on the balance.

Paying the balance of on time will also help your credit rating improve over time.

2. Determine if you have a grace period. Once you receive your bill, you will often have a grace period in which you can pay it off without incurring charges. These vary depending on what credit card deal you have, so you will have to check the details of your specific account. The typical grace period tends to be around 25 days.

If your card does have a grace period, your card provider must give you at least 21 days after your bill is mailed for you to pay it off.

3. Pay off the balance within your grace period. If your card has a grace period, you must pay off the balance in full before the end of this period to avoid any finance charges. If the grace period is 21 days, make sure you pay off the balance in advance of the due date. You can make the payment up to 5pm on the last day without incurring charges.

Make your payments in plenty of time so that you don’t accidentally miss the deadline.

If you mail your payment, allow 7 to 10 days for the payment to be applied to your account.

For online banking, check with your bank. It can be the same day, or it can take three working days. It’s best to be safe, so pay it off early if possible.

4. Consider transferring the balance to another card. If you are unable to pay off the balance within your grace period, there is an alternative way to clear the balance. You may be able to transfer the balance to another credit card, with a lower APR. For example, some cards will give you 0% APR for a limited time. In this specified period you will not have to pay any finance charges, so you will be able to pay the balance off more cheaply.

If you are considering this, it is important that you are careful and conscientious with your finances.

After the 0% APR period expires you may have to pay a higher rate of interest, so you should be completely sure of the terms and conditions.

If you transfer the balance from one card to another, remember that you have not paid off the debt. Don’t do this just to free up the card to take on more debt.

Method 2 Finding the Best Credit Card Deal.

1. Choose credit cards that do not charge annual service charges. There are numerous charges and fees connected to credit cards that you cannot avoid by paying off the balance on time. These include annual fees that are incurred regardless of how much you use the card. By shopping around you can find a card that doesn’t have these unavoidable service charges.

You can search through a database of hundreds of credit card agreements that are available from a variety of companies online.

The database is available on the website of the Consumer Financial Protection Bureau here: http://www.consumerfinance.gov/credit-cards/agreements/

2. Read the fine print. It’s important that you spend some time reading up on the all small print before you sign up for a credit card. Read it again before you activate a card, and call the company if you don't understand something. Be sure you know the interest rate and how finance charges are determined. Find out if there are ways for the lender to raise the interest rate, and if anything seems questionable, avoid working with that company.

Check to see what fees there are for balance transfers.

When you use the "checks" that arrive with your bill, these are considered balance transfers and are often subjected to additional fees.

3. Determine whether there is a universal default clause. When you are looking at different credit card agreements you should note whether or not they have a universal default clause. This type of clause gives the credit card company the right to raise the interest rate on your card if you are late paying your credit card bill or any other creditor. The credit card provider can monitor your credit report and alter your rates during the contract.

This clause can also be activated for a high debt-to-income ratio.

Remember that a higher interest rate or APR on your card results in high finance charges.

If you have a card with this clause, pay all your bills on time.

Question : I have never missed minimum due date, but still there is a finance charge. Is it because of the outstanding balance, or is the bank cheating me?
Answer : In all likelihood, the bank is not cheating you. If you fail to pay the full balance due before the due date, you will pay finance charges, which usually consist of interest on the unpaid balance.

Question : If the bank is closed on the first 3 days of month, can they charge the full month's interest when you were not able to contact them previous 3 days?
Answe : Yes. Some purchases compound interest monthly, and once the month has started, you could owe interest for the next 30 days. It's just like when you mail a check: it is credited on the day it is received, which would not be on a weekend or holiday.

Question : If my account has been closed but I still have a balance, can I avoid paying the finance charge?
Answer : You can try to negotiate with the credit card company for a payment plan that doesn't involve finance charges or a lump sum payoff but typically you will continue to pay interest as long as you have a balance.

Question : Do I get a personal loan on the basis of my credit card score?
Answer : A lender will consider your credit score as well as your credit history, work history and current income.

Question : If I pay total unbilled amount before due date, can I use my credit limit the next day?
Answer : You should wait until the card issuer has acknowledged receipt of your payment.

Question : If I paid all the outstanding balance, is there any finance charges?
Answer : It's possible there are finance charges left over from before you paid off the balance. If you pay off the full balance on time, there will be no further finance charges placed on your account after that point. If you keep paying the balance down to zero on time every month, you will not see any more finance charges.

Tips.

Check your credit report annually and correct any erroneous information. Some creditors use information obtained in credit reports to increase the finance charge percentage charged.

January 18, 2020

how to avoid finance charges on credit cards

How to Avoid Finance Charges on Credit Cards.

If you are late paying off the balance of your credit card, you will likely incur further finance charges on the balance until it is paid. The best way to avoid these charges is to pay off the balance on time. You will often get a grace period of around 21 days after receiving the bill in which to do this. If you just pay off the minimum you will be incurring more and more interest and it will take you a long time to pay off the debt.

Method 1 Clearing Your Card Balance.

1. Pay off your balance at the end of every billing cycle. The most straight-forward way to avoid charges on the balance of your credit card is to pay it off in full at the end of each billing cycle. Paying off the whole balance by the due date on your bill will mean that you do not incur any additional finance charges on the balance.

Paying the balance of on time will also help your credit rating improve over time.

2. Determine if you have a grace period. Once you receive your bill, you will often have a grace period in which you can pay it off without incurring charges. These vary depending on what credit card deal you have, so you will have to check the details of your specific account. The typical grace period tends to be around 25 days.

If your card does have a grace period, your card provider must give you at least 21 days after your bill is mailed for you to pay it off.

3. Pay off the balance within your grace period. If your card has a grace period, you must pay off the balance in full before the end of this period to avoid any finance charges. If the grace period is 21 days, make sure you pay off the balance in advance of the due date. You can make the payment up to 5pm on the last day without incurring charges.

Make your payments in plenty of time so that you don’t accidentally miss the deadline.

If you mail your payment, allow 7 to 10 days for the payment to be applied to your account.

For online banking, check with your bank. It can be the same day, or it can take three working days. It’s best to be safe, so pay it off early if possible.

4. Consider transferring the balance to another card. If you are unable to pay off the balance within your grace period, there is an alternative way to clear the balance. You may be able to transfer the balance to another credit card, with a lower APR. For example, some cards will give you 0% APR for a limited time. In this specified period you will not have to pay any finance charges, so you will be able to pay the balance off more cheaply.

If you are considering this, it is important that you are careful and conscientious with your finances.

After the 0% APR period expires you may have to pay a higher rate of interest, so you should be completely sure of the terms and conditions.

If you transfer the balance from one card to another, remember that you have not paid off the debt. Don’t do this just to free up the card to take on more debt.

Method 2 Finding the Best Credit Card Deal.

1. Choose credit cards that do not charge annual service charges. There are numerous charges and fees connected to credit cards that you cannot avoid by paying off the balance on time. These include annual fees that are incurred regardless of how much you use the card. By shopping around you can find a card that doesn’t have these unavoidable service charges.

You can search through a database of hundreds of credit card agreements that are available from a variety of companies online.

The database is available on the website of the Consumer Financial Protection Bureau here: http://www.consumerfinance.gov/credit-cards/agreements/

2. Read the fine print. It’s important that you spend some time reading up on the all small print before you sign up for a credit card. Read it again before you activate a card, and call the company if you don't understand something. Be sure you know the interest rate and how finance charges are determined. Find out if there are ways for the lender to raise the interest rate, and if anything seems questionable, avoid working with that company.

Check to see what fees there are for balance transfers.

When you use the "checks" that arrive with your bill, these are considered balance transfers and are often subjected to additional fees.

3. Determine whether there is a universal default clause. When you are looking at different credit card agreements you should note whether or not they have a universal default clause. This type of clause gives the credit card company the right to raise the interest rate on your card if you are late paying your credit card bill or any other creditor. The credit card provider can monitor your credit report and alter your rates during the contract.

This clause can also be activated for a high debt-to-income ratio.

Remember that a higher interest rate or APR on your card results in high finance charges.

If you have a card with this clause, pay all your bills on time.

Question : I have never missed minimum due date, but still there is a finance charge. Is it because of the outstanding balance, or is the bank cheating me?
Answer : In all likelihood, the bank is not cheating you. If you fail to pay the full balance due before the due date, you will pay finance charges, which usually consist of interest on the unpaid balance.

Question : If the bank is closed on the first 3 days of month, can they charge the full month's interest when you were not able to contact them previous 3 days?
Answe : Yes. Some purchases compound interest monthly, and once the month has started, you could owe interest for the next 30 days. It's just like when you mail a check: it is credited on the day it is received, which would not be on a weekend or holiday.

Question : If my account has been closed but I still have a balance, can I avoid paying the finance charge?
Answer : You can try to negotiate with the credit card company for a payment plan that doesn't involve finance charges or a lump sum payoff but typically you will continue to pay interest as long as you have a balance.

Question : Do I get a personal loan on the basis of my credit card score?
Answer : A lender will consider your credit score as well as your credit history, work history and current income.

Question : If I pay total unbilled amount before due date, can I use my credit limit the next day?
Answer : You should wait until the card issuer has acknowledged receipt of your payment.

Question : If I paid all the outstanding balance, is there any finance charges?
Answer : It's possible there are finance charges left over from before you paid off the balance. If you pay off the full balance on time, there will be no further finance charges placed on your account after that point. If you keep paying the balance down to zero on time every month, you will not see any more finance charges.

Tips.

Check your credit report annually and correct any erroneous information. Some creditors use information obtained in credit reports to increase the finance charge percentage charged.

January 18, 2020

How to Finance Home Repairs.

How to Finance Home Repairs.

Paying out of pocket for repairs and renovations is one of the more unfortunate aspects of home ownership. Large, costly renovations may occasionally be necessary in order to get your home ready for sale, while emergency repairs pose the risk of draining your bank account with little warning. If you own a home or are thinking of buying one, it is immensely helpful to learn how to finance home repairs before they arise. The guide below covers a few of your options for paying for home repairs.

Steps.

1. Refinance your mortgage to obtain cash for home repairs. A popular way to pay for home repairs and renovations is through a "cash-out refi," which is simply a way of swapping your existing mortgage for a new one and converting some of your home equity to cash in the process. Your current mortgage lender can help you understand your options for refinancing. Note that liquidating your equity in this way will generally cause your monthly payments or mortgage term to increase.

2. Obtain a home equity line of credit. A home equity line of credit functions like a credit card, with an open-ended term, a credit limit, and a minimum monthly payment based on your outstanding balance. This type credit makes sense for financing home repairs or remodeling projects because these projects tend to increase your home equity anyway.

3. Seek out a second mortgage. A second mortgage can be an unattractive option as it can tend to overburden you with debt, but for home repairs with an end in sight they are helpful. A second mortgage is a loan secured on your accumulated equity. The interest rate will be higher because your primary mortgage lender is given preference over your new lender in case of insolvency; for this reason, try to keep the size of your second mortgage as small as possible.

4. Determine if you qualify for a government loan. In the United States, the Federal Housing Administration runs a loan program called Title 1 for homeowners with very little equity. These loans are made by banks and backed by the federal government, and can be used to finance essential repairs such as structural and electrical problems.

5. Use a credit card for small, emergency repairs. While credit cards typically carry higher interest rates than loans secured on your home equity, they make sense for funding small home repairs. A credit card is available for use immediately and requires no paperwork, unlike other financing options.

6. Borrow from your 401(k). Many employers allow borrowing from your 401(k) to fund home repairs and renovations. This option is low-hassle because the money is already yours, so there is no paperwork or credit check. However, you are required to pay the borrowed money back into your 401(k) before leaving the company.

Tips.

If performing home repairs yourself, it is best not to skimp on materials. Durable, high-quality materials may cost more upfront, but will generally last much longer and prevent you from having to repair or replace materials later.

Warnings.

Avoid entering into financing arrangements directly with the contractor performing the work. These types of deals often carry high interest rates and hidden fees.

December 03, 2019

how to finance home repairs

How to Finance Home Repairs.

Paying out of pocket for repairs and renovations is one of the more unfortunate aspects of home ownership. Large, costly renovations may occasionally be necessary in order to get your home ready for sale, while emergency repairs pose the risk of draining your bank account with little warning. If you own a home or are thinking of buying one, it is immensely helpful to learn how to finance home repairs before they arise. The guide below covers a few of your options for paying for home repairs.

Steps.

1. Refinance your mortgage to obtain cash for home repairs. A popular way to pay for home repairs and renovations is through a "cash-out refi," which is simply a way of swapping your existing mortgage for a new one and converting some of your home equity to cash in the process. Your current mortgage lender can help you understand your options for refinancing. Note that liquidating your equity in this way will generally cause your monthly payments or mortgage term to increase.

2. Obtain a home equity line of credit. A home equity line of credit functions like a credit card, with an open-ended term, a credit limit, and a minimum monthly payment based on your outstanding balance. This type credit makes sense for financing home repairs or remodeling projects because these projects tend to increase your home equity anyway.

3. Seek out a second mortgage. A second mortgage can be an unattractive option as it can tend to overburden you with debt, but for home repairs with an end in sight they are helpful. A second mortgage is a loan secured on your accumulated equity. The interest rate will be higher because your primary mortgage lender is given preference over your new lender in case of insolvency; for this reason, try to keep the size of your second mortgage as small as possible.

4. Determine if you qualify for a government loan. In the United States, the Federal Housing Administration runs a loan program called Title 1 for homeowners with very little equity. These loans are made by banks and backed by the federal government, and can be used to finance essential repairs such as structural and electrical problems.

5. Use a credit card for small, emergency repairs. While credit cards typically carry higher interest rates than loans secured on your home equity, they make sense for funding small home repairs. A credit card is available for use immediately and requires no paperwork, unlike other financing options.

6. Borrow from your 401(k). Many employers allow borrowing from your 401(k) to fund home repairs and renovations. This option is low-hassle because the money is already yours, so there is no paperwork or credit check. However, you are required to pay the borrowed money back into your 401(k) before leaving the company.

Tips.

If performing home repairs yourself, it is best not to skimp on materials. Durable, high-quality materials may cost more upfront, but will generally last much longer and prevent you from having to repair or replace materials later.

Warnings.

Avoid entering into financing arrangements directly with the contractor performing the work. These types of deals often carry high interest rates and hidden fees.

December 03, 2019