Receive regular updates via email

Why do Reverse Mortgages have Insurance?

Question from our Reader:

Is it common for Reverse Mortgages to include an additional monthly fee for “Mortgage Insurance”?
What companies do not charge for Mortgage Insurance?

Hi Ronald,

The lenders do not charge for the Reverse Mortgage Insurance; HUD does on the Home Equity Conversion Mortgage (HECM or “Heck-um”) which is an FHA or government insured program. At this time, there are very few proprietary or private programs available that do not require this insurance as most disappeared when the market experienced all the difficulties in 2009 and 2010. The programs that have come out since the collapse of the market are mainly for Jumbo or high balance loans and I think you will find that the cost with the insurance is still typically less than what these programs have to offer.

The government insurance is what makes the program work. It protects borrowers, lenders, heirs and even the folks who buy the securities backed by the loans. Without the insurance, the viability of the program is very questionable and that is borne out by the fact that most of the programs that were not FHA-insured disappeared when the market collapsed and there are very few that have returned and those that have offer borrowers very few options and at higher rates.

Borrowers who do obtain the proprietary programs, typically because of the loan sizes and property values, currently have fewer programs
available to them. I am only aware of 2 proprietary programs at this time, both are fixed rate requiring a full draw of the funds available and both have interest rates in excess of 7% (greater than the HECM rates plus the insurance renewal of 1.25% of the outstanding balance). There are no guarantees on these programs by HUD, so growing balance lines of credit that they can access at later times would not be guaranteed and therefore borrowers would be open to the risk that something might happen to the lender before they accessed all of their funds, causing their line to close prematurely. Therefore, the fixed rate full draw option on the private programs is the only way to ensure that all funds are available to every borrower.

So Ronald, forgive me for taking so long to answer what is a quick question, but the HECM loans plus the insurance are still below the rate that accrues on the proprietary or private offerings that are available and I wanted to be sure you understood that this insurance protects you on future draws as well as gives you the availability of programs that offer a reverse mortgage line of credit, monthly payments, a full draw or a combination of these features instead of just the one lump sum that the private programs offer. If you need the higher balances that the private programs can give, they are the only way to get them but if not, even with the insurance, the HECM program still gives you more options.

Sources:
About Reverse Mortgage Insurance Premiums
HUD.gov
Upfront Mortgage Insurance Premium

Tips for international students pursuing a business career in the United States

Many international students come to the United States in the quest of pursuing a fulfilling business career. These students are oftentimes inspired by foreign businesspeople who’ve done very well in the western world, such as Fahad Al Rajaan. For many foreign students, studying and working in the US can present a lot of opportunities that may not have been presented to them in their home countries.

While there are plenty of opportunities to excel in business in the United States, there can also be a lot of challenges. To help international students succeed as they pursue their business goals in America, here are some tips for foreign students planning for a business career in the United States.

Work Closely With Your University Advisor
Moving to a new country can be very difficult. If you have relocated to the United States to attend one of the country’s myriad excellent universities, it’s important that you work closely with your university advisor. He or she will be able to ensure that you are taking the right classes in order to achieve your degree goals. Your advisor will also be able to help you with any difficulties that you might be having as a newcomer in a foreign place.

Pursue Internships And Volunteer Opportunities
Internships are a phenomenal way for foreign business students to really learn about the ins and outs of the business world in the United States. At an internship, you’ll gain invaluable hands-on experience that you can’t duplicate in a classroom setting. This is also where you’ll be able to make industry connections that might help to land you a job when you graduate.

Have An Open Mind And Always Be Learning
It’s normal to feel a little overwhelmed when you relocate to a foreign country. However, one of the most important things for international students to remember is that it’s normal to feel a little out of place. However, you can master the cultures and customs of your new home as long as you always keep an open mind. You should strive to be perpetually learning about the world around you, both in and out of a classroom setting.

Be Ready To Start In Lower Level Positions When You Graduate
When you graduate, you won’t be taking on a high-level job right away. In the world of American business, newcomers are expected to “start at the bottom” so to speak, degree or no degree. The biggest thing to remember about the American career landscape is that starting in a lower position and working your way up is considered not only normal, but admirable. It’s just the way that things are done in the United States.

Moving to the United States to pursue a business degree and eventual job is challenging but extremely rewarding. If you follow these tips and work hard, you can find success in the American business world. There are plenty of opportunities for international students who are ready and willing to make the effort.

Financial literacy impacts decision making

Research by the US Federal Trade Commission shows that financial education affects financial decision-making. Failure to plan for retirement, lack of participation in the stock market, and poor borrowing behavior can all be linked to ignorance of basic financial concepts.

Some of these findings, from the 2008 paper Financial Literacy: An Essential Tool for Informed Consumer Choice? by Annamaria Lusardi, may seem quite obvious at first glance. For example, the author points out that those who demonstrate even a basic understanding of relevant financial topics are much more likely to have planned for retirement. These are not sophisticated topics, but basic things such as knowledge of interest compounding and the ability to perform simple mathematical calculations . Skills like these were shown to be among the strongest predictors of successful retirement planning.

To appeal to the average person, who may not have had a lot of prior exposure to financial topics or investment experience, the study suggest a social or even a psychological approach to financial education, for example exploiting “teachable moments” like the beginning of a new job, in order to get a person to think about taking action when their minds are open to new ideas about how financial decisions may affect their lives.

While the points raised by this study are reasonable, the challenge faced by society, even wealthy countries, is vast. Since the late 1980s when there were significant changes in laws regarding retirement planning, companies were much more free to move from traditional defined benefit plans like pensions to defined contribution plans like 401K plans that shift the responsibility of planning from the corporation to the individual.

While individuals and organizations with high levels of financial sophistication, such as firms specializing in industry specific areas such as chemicals m&a experts can easily manage rather exotic financial decisions, the average person has a much more difficult situation. Financial instruments have become increasingly complex and individuals are constantly being bombarded by the investment industry with new and financial products. However, most individuals are not well equipped to make financial decisions.

The study showed that most individuals cannot perform simple calculations and lack knowledge of basic financial concepts. Knowledge of more complex concepts, such as the difference between bonds and stocks, how mutual funds, and how to estimate the value of an asset is even rarer. Financial illiteracy is widespread among the general population, and particularly evident in some demographic groups that happen to also be overrepresented among the poor and struggling working class, such as women, African-Americans, Hispanics, and those with low levels of formal education.

Make smarter decisions with home loan calculators

Mortgage payment calculations are based on complex mathematical formulas, and fortunately there are many options for finding calculators to make this mathematical process easy and painless.

By using a mortgage calculator, it becomes very easy to know the monthly payments you need to make, and very easy to see what happens to your payments when you change key values like the amount of the loan, the number of payments, and the interest rate.

Types of mortgage calculators
There are two different types of mortgage calculators, online calculators and traditional physical calculators that have built-in functions for computing principal and interest payments. The online mortgage calculators are mostly used by the borrowers, and real estate and mortgage professionals usually prefer using the physical ones.

You’ll need nothing more than an Internet connection to be able to access the online mortgage calculators. They are available free of cost and are very easy to operate. You’ll just need to put in the necessary information, usually the amount of the loan, the number of payments, and the interest rate.

The most common types of mortgage calculators include the following:

  • Monthly payment calculator – It helps calculate your monthly payments easily and assists you when you’re thinking of taking out loans.
  • Interest only calculator – You’ll know the amount of interest you need to pay every month. The total interest for the term can also be calculated.
  • Amortization schedule calculator – It helps you cut down your loan term by doing calculations on the principal amount and interest rate of your loan.
  • Bi-weekly payment calculator – This calculator uses an accelerated bi-weekly mortgage payment method and helps you save money. Get to know the difference between monthly and bi-weekly payments with the help of this mortgage calculator.
  • Adjustable rate calculator – Say goodbye to uncertainty with this calculator. Know about the changing interest rates and how it is going to affect your mortgage payments.

The benefits of mortgage calculators
Mortgage calculators are beneficial in several ways when you want to refinance mortgage or calculate your debt payments:

  • They let you know about your affordability.
  • They will tell you the time it will take to pay off your loan completely.
  • They will help you learn about other better payment methods.
  • They will let you choose the most cost-effective payment method.
  • They will help you get the most favorable rates on mortgage refinances.

Using a mortgage calculator prior to making any mortgage related decision is important. The calculations give you an idea about the present market conditions and how you can benefit yourself the most.

Is going to university really worth it?

There used to be a time when getting a degree from most public colleges was very affordable (sometimes with free tuition), and it helped young graduates get access the best paying jobs or professions.

Now, most students have to use one or more student loans to pay their fees, and after all that investment may graduate to a world full of job insecurity and high unemployment rates.

Many people ask the question – is university really worth it? The answer, however, depends on the circumstances of the individual, their aspirations and their access to money.

First, there are some professions where a university degree is essential. In these cases, students have no choice but to undertake further study and many will need one or more loans.

It is not unusual for medical or veterinary students to rack up debts, including student loans, of over one hundred thousand dollars during the course of their university education.

However, the status and potential earnings attached to these professions should mean that the suffering will be worthwhile eventually. In the US, doctors and veterinary surgeons are both highly paid and highly regarded professions.

Other industries also expect an undergraduate degree, such as in the legal profession. Although there are opportunities to access paralegal positions without a degree, to really have the opportunity of a high-flying career, a law degree is essential.

It is not unheard of for law companies and multinational firms in other areas to pay off the loans of graduates when they accept a job with the firm.

This fantastic opportunity only applies to the crème de la crème of candidates, however, so an outstanding academic record and evidence of potential and ambition is also needed.

Students who have difficulty with finance often take part-time work to supplement their income. However, if this is to the detriment of their studies, the end results may be less impressive.

It may be worthwhile to take some time out and build up financial resources before attending university, so that the student does not have to commit time to paid work.

There are numerous jobs, though, which do not require a university education and individuals may be better off by simply gaining work experience while earning a decent wage.

Some of the more manual professionals such as plumbers and electricians can bring significant financial rewards. Students generally gain an apprenticeship and may study at a local college to get the necessary qualifications.

Many highly paid individuals have taken this route through their working life and have built their fortunes and even empires this way, sometimes starting as a plumber, electrician, or carpenter before moving on to lucrative careers as construction managers or real estate developers.

So, university is really worth if for many people but it does depends on the individual’s professional aspirations. It is expensive but it may be essential. However, there are many ways to make a good living and that is only one route. If your talents lie elsewhere, investigate those options, as they may be just as lucrative and rewarding.

Student Loans

As soon as I graduated college I wanted to know how to repay student loans quickly. I definitely didn’t want them hanging over my head. Another reason is that after the passage of the 2005 bankruptcy reform bill student loans are no longer fall under bankruptcy protection. In other words, if you go broke you still have to pay back your student loan. You would think that interest rates would be lower since the lender has more protection from bankruptcy.

If you are in the early stages of looking for a student loan before going to college be sure to look into alternate sources of student funding. Not to say that all schools may engage in bad behavior, but in 2007 Andrew Cuomo (Attorney General of New York State) investigated several schools that had preferred lenders. Most of these preferred lenders actually charged higher interest rates and were giving kick backs to financial aid staff.

There are also many different types of loans to consider for college. Even within the category of Federal Student Loans there are numerous types.

  • Federal Perkins Loan – Need Based
  • Stafford Loan – No payments while the student is in school. Can be unsubsidized which means you can have a loan not based on need?
  • Federal Family Education Loans – Private loans backed by the government

Lastly, it definitely is to your advantage to shop around and try to find the best rates for yourself. It could save you a large sum of money.

Ultimatum game – How to trade effectively

In life we are constantly making deals in ways we might not even think of. It doesn’t have to be as big as buying a house, paying off debt or some other major life event. We make deals as simple as splitting a piece of gum with someone. Traditionally, I’ve used the 50/50 split rule. It seems intuitive and fair. Growing up when I used to split a piece of gum my mom used to tell me, “you split, I pick.” This method ensured that we both had a common interest in making sure the split was as fair as possible. However, you may be able to get a little more if you don’t get to greedy.

Enter the science of what economists call the ultimatum game. In this scenario, there are two participants. One participant is given a sum of money. He or she is told that they must make an offer to the second participant. If the 2nd participant accepts the offer they can both keep the money. Remember, the 2nd participant will always be better off by accepting some offer. For example, a single penny is better than nothing. As you can imagine, the 2nd participant declines the offer at some level. What numerous studies have shown is that regardless of income level or size of offer that the 2nd participant usually declines when their share drops below 30%.

This has numerous implications for deal making and sharing of resources. As long as you can position yourself to let the other person think they are getting more than 30% of the benefit in a deal there is a good chance they will accept.

If they have the gum in the future you may want to opt for a more even split :)

Faxless Payday Loan: Helping Hand or Quick Sand?

Helping HandWhen we talk about loans in any forms, they are always related to debts.

Taking loans can offer you two things: good debts and bad debts – good debts put money in your pocket, bad debts lose money from your pocket.

Your financial needs, situation and knowledge play important roles in making the loan bad debt or good debt.

Loans come in many flavours – One of the most talk about, in my opinion, is payday loans. Why is that?

Faxless payday loan – offering you financial solution, fast – a bit too fast to handle

Payday loan is a small amount, short-term loan that is intended to cover borrower’s financial need until his/her next paycheck received.

With the advent of the Internet, payday loans are becoming more and more accessible. The term “faxless payday loan” refers to payday loan which application is processed online, thanks to the Internet.

While in essence payday loan aims to help people regardless of their credit score, many accuse payday loan as the culprit that drown many people deeper in debt.

Not quite.

In my opinion, people inherit a common weakness. They want more for less, and they want it fast.

People are always looking for fast and instant remedies for their problems, including financial problems. Just like everything in life, such as fast food, instant means immediate gratification first and quality second.

Payday loan offers fast solution. Faxless payday loan even does things faster, due to online application processing and instant approval. The drawback, as always, is the sky-high interest rate.

Those bring interesting relationship: No matter how negative the reputation of payday loan is, it seems that more and more people need payday loan these days, and payday loan providers are thriving these days. Some sort of love-hate relationship between lenders and borrowers.

Reality check: Stop blaming payday loans – have you ever look things from the eye of payday loan providers?

I am appalled to know people are blaming payday loan. Although I’m not offering any payday loans or similar things and not involving in one either, I think there are too much bad apples thrown at lenders, accusing them as scammers.

Have you ever thought that it is borrower’s responsibility to keep him/her-self well-informed regarding what type of loans he/she is about to take? It is borrower’s responsibility to know what question to ask and when to take payday loans.

Many payday loan providers I know are trying hard to offer a solution. They bear huge risks – they lend to borrowers with no regard of their credit scores. That is why payday loans charge huge interest rate: to supplement the high risks of lending to borrowers with bad credit ratings.

The right borrowers do regard payday loans as the life-savers. do help people – the right one and the well-informed one, that is – getting out of debt.

How to use payday loan to your benefit

First thing first – learn everything you can about payday loan. It is your responsibility to learn about payday loan, about the providers, and about what to expect and when.

Always plan everything – You need to know how much will you get from the lenders, the amount of the interest you owe to the lenders, and most importantly, how the short-term loans can help you getting out of debt, and for how long. You can actually ask the payday loan providers to provide you with a calculation on how much would you pay in the end of the loan period.

If the plan looks positive, go for it. If not, run away from it.

One, last advice: Never, ever take any form of loans without the right knowledge about the loans. That only makes payday loan quick sand, not helping hands.

Image by toolfan.hess.

Your Biggest Asset: Your Mind, Financial Knowledge and Information

Investment GuidePeople often forget that their biggest financial asset is not money, stocks, bonds, real estates or business. Your and my biggest asset is financial knowledge and information.

It is heartbreaking to learn that people work hard for years only to trust their money blindly to the so-called fund managers of mutual funds.

Not that mutual funds and the likes are bad – but it is about time that people start to put their money to what matters most – financial education.

The premise is, if you have the right education, you can control your financial in whatever your personal financial endeavours.

Why you need to invest your money and time to obtain financial education and information

Your mind is your biggest asset – your mindset, what you know, and what you believe can command your decision making.

What many people experience in today credit crunch and financial slumps is mainly due to their lack of financial knowledge and information. Lack of these commands your decision making quality, as people act according to the reality they have in their mind.

Well-informed mind will result in well-thought decision making, and this includes decision making that involves money.

How the lack of financial education affects you

Many personal bankruptcy stories are evolving around people that lost their money due to the stock market crash. The most irritating thing is, they lost their money not because of their bad investment decision, but because of their blind trust to fund managers to manage their fund.

The truth is, it’s not the fault of the fund managers – they do whatever they can, but the money owners themselves, for their lack of financial knowledge and information.

The moral of the stories is that people should regain control of their money – they have to decide where to invest in what, and when.

That is achievable through proper financial education, that can comes in many form – courses, seminars, mentorships, and many more. Unfortunately, those could cost you hundreds to thousands of dollar.

Fortunately, there are large amount of free resources available, thanks to the Internet

The best thing of the Internet is information. You can access finance articles, such as loans articles, personal finance articles, and other finance-related articles.

However, the Internet is so flooded with information, that you can get yourself biased due to the pros and cons, as well as different perspective of a financial issue.

The best way to choose which ones are the right ones for you, you can consult finance forums for recommendations, as well as, of course, visiting financial authority sites, such as Financial Times’ FT.com. Visiting finance section of large networks is also a good start – sites, such as Yahoo! Finance, CNN Finance, and other similar sites can offer you credible information that will help you in your personal finance endeavours.

Conclusion

Every single person should take care of their own financial welfare – The Government can’t do that for you. Your boss can’t do that for you. Your parents can’t do that for you. You have to stand up, take responsibility of your personal finance management.

Learn as many as you can, as knowledge will set you free – literally.

Image by Duncan Rawlinson.