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Understanding The Pros and Cons of Reverse Mortgages

Understanding The Pros and Cons of Reverse Mortgages

A reverse mortgage is entirely opposite to a home loan. You mortgage the house to the bank or a lender and in return get periodic payments. Eventually, the house is owned by a bank and they can sell it to recover the loan money along with the interest. It is for senior citizens, specifically for those who lack any constant stream of income. People over sixty are eligible for the reverse mortgage.

The ads given by reverse mortgage companies are very attractive. The ads show it as a means of great fortune. For several people, it is an excellent way of increasing their financial profile after retirement. It can have positive effects on their life quality. But it is important to look at both pros and cons of this mortgage before investing in it.

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Disadvantages of reverse mortgage:

Here are some of the drawbacks of this type of mortgage.

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  1. High fees: The upfront cost which includes insurance, closing and origination cost is very high. It is considered slightly greater than the cost that is charged for refinancing.
  2. Accumulating interests: There are no monthly payments in it, so the amount that you have to pay eventually increases. It grows over the time. With each passing month, the amount of interest increases.
  3. Not enough money to tap in: If there is a lot of home equity, it does not mean that you can use all of it. The reverse mortgage only allows you to use a limited sum of that money. The actual loan payment is calculated by using the appraised value of the home, the amount you owe on the home, current interest rates, and age.
  4. Complicated procedure: It is a mortgage, but in reverse. Some people find it difficult to understand the concept. In the traditional mortgage, money is borrowed up front and loan is paid back in installments over a period of time. It is just the opposite of that. You collect credit over time, and you pay it all back when you leave the house. Any equity that remains at the time of ownership is given to the heirs. Several people find the process complicated and difficult to understand.

Advantages of reverse mortgage:

The biggest benefit of this mortgage is that it saves you the trouble of paying traditional mortgage payments. It also eliminates the access to equity while you are still living in the house. If the circumstances are ideal, then it can the best way of earning financial security and increasing the power of spending.

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The main benefits of this type of mortgage are:

  1. Flexibility: It is highly flexible and can be utilized in several different ways. Its versatility makes it perfect for various types of borrowers. A household which is in need of finances can use the product to decrease their financial stress. Households which have stable finances can use it as a tool for future financial planning.
  2. Improving finances while staying home: The best thing about it is that it allows you to stay in your home for as long as you want. You can live in your house without making any monthly mortgage payments. You can also access a particular amount of money in case of any financial emergency. The lenders do not have any claim on your assets or income in this mortgage.
  3. No downside: With this mortgage you will only owe according to the value of your house at the time loan is paid. It is an enormous advantage because you will get the amount of money according to the value of a home that time, even if the value of the house drops afterward. This feature offers excellent financial security.
  4. Flexibility in options for payment: The options of payment depend on the type of loan you choose. You can receive the loan money in the credit line, annuity, lump sum or a combination of these three options.

Featured photo credit: www.kiplinger.com via kiplinger.com

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Published on November 20, 2018

The Best Ways to Save Money Even Impulsive Spenders Can Get Behind

The Best Ways to Save Money Even Impulsive Spenders Can Get Behind

The truth is, there are many “money saving guides” online, but most don’t cover the root issue for not saving.

Once I’d discovered a few key factors that allowed me to save 10k in one year, I realized why most articles couldn’t help me. The problem is that even with the right strategies you can still fail to save money. You need to have the right systems in place and the right mindset.

In this guide, I’ll cover the best ways to save money — practical yet powerful steps you can take to start saving more. It won’t be easy but with hard work, I’m confident you’ll be able to save more money–even if you’re an impulsive spender.

Why Your Past Prevents You from Saving Money

Are you constantly thinking about your financial mistakes?

If so, these thoughts are holding you back from saving.

I get it, you wish you could go back in time to avoid your financial downfalls. But dwelling over your past will only rob you from your future. Instead, reflect on your mistakes and ask yourself what lessons you can learn from them.

It wasn’t easy for me to accept that I had accumulated thousands of dollars in credit card debt. Once I did, I started heading in the right direction. Embrace your past failures and use them as an opportunity to set new financial goals.

For example, after accepting that you’re thousands of dollars in debt create a plan to be debt free in a year or two. This way when you’ll be at peace even when you get negative thoughts about your finances. Now you can focus more time on saving and less on your past financial mistakes.

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How to Effortlessly Track Your Spending

Stop manually tracking your spending.

Leverage powerful analytic tools such as Personal Capital and these money management apps to do the work for you. This tool has worked for me and has kept me motivated to why I’m saving in the first place. Once you login to your Personal Capital dashboard, you’re able to view your net worth.

When I’d first signed up with Personal Capital, I had a negative net worth, but this motivated me to save more. With this tool, you can also view your spending patterns, expenses, and how much money you’re saving.

Use your net worth as your north star to saving more. Whenever you experience financial setbacks, view how far you’ve come along. Saving money is only half the battle, being consistent is the other half.

The Truth on Why You Keep Failing

Saving money isn’t sexy. If it was, wouldn’t everyone be doing it?

Some people are natural savers, but most are impulsive spenders. Instead of denying that you’re an impulsive spender, embrace it.

Don’t try to save 60 to 70% of your income if this means you’ll live a miserable life. Saving money isn’t a race but a marathon. You’re saving for retirement and for large purchases.

If you’re currently having a hard time saving, start spending more money on nice things. This may sound counterintuitive but hear me out. Wouldn’t it be better to save $200 each month for 12 months instead of $500 for 3 months?

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Most people run into trouble because they create budgets that set them up for failure. This system won’t work for those who are frugal, but chances are they don’t need help saving. This system is for those who can’t save money and need to be rewarded for their hard work.

Only because you’re buying nice things doesn’t mean that you’ll save less. Here are some rules you should have in place:

  1. Save more than 50% of your available money (after expenses)
  2. Only buy nice things after saving
  3. Automate your savings with automatic bank transfers

These are the same rules that helped me save thousands each year while buying the latest iPhone. Focus only on items that are important to you. Remember, you can afford anything but not everything.

How to Foolproof Yourself out of Debt

Personal finance is a game. On one end, you’re earning money; and on the to other, you’re saving. But what ends up counting in the end isn’t how much you earn but how much you save. Research shows that about 60% of Americans spend more than they save.[1]

So how can you separate yourself from the 60%?

By not accumulating more debt. This way you’ll have more money to save and avoid having more financial obligations. A great way to stop accumulating debt is using cash to pay for all your transactions.

This will be challenging, depending on how reliant you are with your credit card, but it’s worth the effort. Not only will you stop accruing debt, but you’ll also be more conscious with what you buy.

For example, you’ll think twice about purchasing a new $200 headphone despite having the cash to buy them. According to a poll conducted by The CreditCards.com, 5 out of 6 Americans are impulsive spenders.[2]

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Telling yourself that you’ll have the discipline to not buy things won’t cut it. This is equal to having junk food in your fridge while trying to eat healthy–it’s only a matter of time before you slip. By using cash to make your purchases, you’ll spend less and save more.

A Proven Formula to Skyrocket Your Savings

Having proven systems in place to help you save more is important, but they’re not the best way to save money.

You can search for dozens of ways to save money, but there’ll always be a limit. Instead of spending the majority of your effort saving, look for ways to increase your income. The truth is that once you have the right systems in place, saving is easy.

What’s challenging is earning more money. There are many routes you can take to achieve this. For example, you can work long and hard at your current job to earn a raise. But there’s one problem–you’re depending on someone else to give you a raise.

Your company will have to have the budget, and you’ll have to know how to toot your own horn to get this raise. This isn’t to say that earning a raise is impossible, but things are better when you’re in control right? That’s why building a side-hustle is the best way to increase your income.

Think of your side-hustle as a part-time job doing something you enjoy. You can sell items on eBay for a profit, or design websites for small businesses. Building a side-hustle will be on the hardest things you’ll do, be too stubborn to quit.

During the early stages, you won’t be making money and that’s okay. Since you already have a source of income, you won’t be dependent on your side-hustle to pay for your expenses. Depending on how much time you invest in your side-hustle, it can one day replace your current income.

Whatever route you take, focus more on earning and save as much as possible. You have more control than you give yourself credit for.

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Transform Yourself into a Saving Money Machine

Saving money isn’t complicated but it’s one of the hardest things you’ll do.

By learning from your mistakes and rewarding yourself after saving you’ll save more. What would you do with an extra $200 or $500 each month? To some, this is life-changing money that can improve the quality of their lives.

The truth is saving money is an art. Save too much and you’ll quit, but save too little and you’ll pay for the consequences in the future. Saving money takes effort and having the right systems in place.

Imagine if you’d started saving an extra $100 this next month? Or, saved $20K in one year? Although it’s hard to imagine, this can be your reality if you follow the principles covered in this guide.

Take a moment to brainstorm which goals you’d be able to reach if you had extra money each month. Use these goals as motivation to help you stay on track on your journey to saving more. If I was able to save thousands of dollars with little guidance, imagine what you’ll be able to do.

What are you waiting for? Go and start saving money, the sky is your limit.

Featured photo credit: rawpixel via unsplash.com

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