International Coordinator/Feature/1

The Force Admiral Feature - 09 DEC 2007

In my time as a mortgage broker and processor, I've seen a lot of credit repots... a lot of mortgage applications... a lot of gift letters, appraisals and other such things. In retrospect, I can think of a lot of clients who I worked with just a couple years ago that are probably in serious financial trouble today, for one simple reason...

They bit off a little more than they could chew, fiscally speaking of course.

The fault of course, didn't completely rest with the borrower. It didn't even rest with the lender, myself or even the US Federal Reserve. It falls to all of us as consumers. As consumers of the United States economy; we, as a whole, control the market of todays economy. When we spend, everybody's happy... everybody's making money. But then, that spending comes to a screeching halt, due to fears of recession and the fact that the financial security we all had just five to ten years ago is replaced by mounting credit card bills, a first AND second mortgage, the rates of which are ALL climbing!

"WHAT CAN I DO!!?" is a question that I STILL hear, as I do maintain contact with many people I've helped over the years, even though I'm long out of the mortgage industry. A few "Keep it Simple" rules will help, while not all are options to everyone, these can help in the long run.

Number 1: Roll revolving debt into a security of somesort.
BASICALLY... what that means, in plain english (above is 'mortgage-ese') means take credit cards, paper loans, and any sort of unsecured debt (debt with no collateral or security) and put it into something that HAS a security... such as a second mortgage, or maybe a car. Unsecured loans generally are variable interest rate loans; and because people tend to default more on unsecured loans versus a car loan or a mortgage, the interest rate is almost ALWAYS higher.

If you have a credit card with a balance of $5000, and a vehicle with clear title that is worth $10000, you could easily put a lein on the vehicle through a bank, use the loan to pay off the credit card, and have a FIXED RATE loan on your vehicle, with a MUCH LOWER interest rate.

Let's pull out a pen and paper... shall we?

Your credit card from The National Bank of Force Admiral has the following...

Balance: $5000
Interest Rate: Prime + 20%
Loan Period: 7 Years (84 payments)

With the Prime Rate as of today being 7.50%, P + 20 = 27.50%. With a 7 year loan on a $5000 credit line, your monthly payment is $134.65.

But because the market is unstable, rates are on the rise, in general... so your payment can change. It could do anything, go down or go up!! The average automobile loan I've seen is roughly 12%. Let's assume we've now qualified for a 12% loan on our truck, with the same repayment time at $5000. That gives us a payment of $88.26! That's almost HALF the price of the unsecured credit card... and you're paying it off in the same timeframe! Paying the amount of $134.65 would pay it off TWICE as fast at this point!

While you will now have a loan on your car you didn't before, you now have a FIXED RATE payment on a secured loan, which is almost always carries a lower interest rate, personal credit history depending of course.  ;]

Number 2: How to avoid Foreclosure...
You now know it's coming... the "F" word. You've done your best for Bank and Country, but it's come to the point where you know it's GOING to happen. What options have you, as a mortgagor? Many options MAY ybe available, IF you notify the bank in time. More often than not, especially if you do it soon enough, banks will work with you on your home, rather than foreclose, as foreclosure is an EXPENSIVE process for a lender. Putting the house up on the market before becoming "late" on your payments and notifying the lender that you are attempting to sell the property may, indeed, stave off Foreclosure, as you are trying to secure the lenders interest. However, at the end of the day, the lender IS the lein-holder on your home, and they will make the ultimate decision as to if and when they will secure their interest... but open communication with your lender is KEY. Informing your lender may mean the difference between just a "dinged" credit report and a home you've lost title to, because you didn't communicate with your lender in time.

Number 3: Financial surgery...?
Sometimes, trimming the 'fat' off the steak of the budget is all you need to do to save HUNDREDS a month in your household budget. Consult a credit counselor BEFORE consulting a bankruptcy attorney. More often than not, simple 'budget management' can fix, or at least DELAY bankruptcy proceedings, maybe long enough to get yourself on track! Consult your local Housing Authority for a non-profit debt management or credit counseling service.

Meanwhile, I think that's enough for my inagural issue... stay safe this Holiday season, and I'll see you about the Force.