Archive for February 2015

Various Home Equity Loan Types

Equity release plans are becoming more and more popular for people who are looking to fund their retirement by cashing in on the value of the property they own. It is important to note that there are various plans to choose from, and not all of them are the same. By gaining a proper understanding of the advantages and potential disadvantages of each and every plan option, homeowners will be better equipped for making the right decision.

Lifetime Mortgages

This type of equity release allows the homeowner to secure a lump sum amount (tax-free) against the value of their property. The compound interest will only be due for payment upon their death or if they are to relocate to a permanent care facility. This is a particularly popular option since no monthly repayments are required. It is also a popular choice for those who wish to use their equity release to buy an additional property or pay for large-scale renovations to their home.

Drawdown Plans

These plans bear some similarities with lifetime mortgages. The most significant difference is that homeowners can access their funds in stages instead of a lump sum. This is quite a popular choice for those looking to subsidize their pension.

Enhanced Plans

These plans make it possible for the homeowner to release more funds than would ordinarily be possible. They are particularly handy when homeowners need funds to cover medical expenses.

Home Reversion Plans

This is another highly popular option since it allows homeowners to sell a portion of their home. The will still live in their home rent-free and enjoy property value increases as time passes.

Interest Payment Plans

These plans are somewhat similar to lifetime mortgages. The main difference being that homeowners can make monthly payments. These monthly payments are made in order to cover the interest rather than letting it accumulate and become payable once the plan comes to an end.

As you can see, each of the plans mentioned above has its fair share of benefits. Not every plan will suit everyone, and this is exactly why it is so important to seek independent financial advice. An independent advisor will be able to help you identify your most important needs and, with these in mind, can then suggest the best plan or plans from which you may choose. In some cases, plans can be adjusted slightly to suit your needs and it is certainly worth asking about before you sign any agreements.

How to Get Out of Debt Without Going Bankrupt

If you are serious about getting out of debt, you should have or be planning for a written monthly budget where every dollar has a purpose and a $1000 rainy day fund. If you have any other cash lying around, we are going to put it to work paying off extra on your debts, along with the cash from the newly developed income/expense gap.

There are two widely accepted methods for attacking debt. The first is to list all of your debts based on their interest rate, tackling the debt with the highest rate first. The second is to list your debts based on the size of the debt, starting with the smallest debt first. I will explain both and tell you which my personal favorite is.

Many financial advisors will correctly point out that paying off the balance that has the highest rate of interest first, is the smartest way to go. They are totally correct in that this is mathematically the soundest way to approach your debts. However debt is not just about numbers. If you are deeply in debt, interest is not your problem, the outstanding balance is.

To tackle your debts based on the interest rate, you would list your debts in order with the highest interest first, then the second highest and so on. Using this method, we would pay minimum payments all debts and put any extra money towards the debt with the highest interest rate. Technically this method makes sense but it just doesn’t have the emotional kicker that you get with the debt snowball.

The debt snowball focuses on paying off the loan with the smallest outstanding balance first.

With this method we would start with the same list of debts as previously but this time they are sorted based on the outstanding balance. The smallest balance listed first then the next smallest and so on. The major benefit of this method and why I like it so much is that it allows you to get little wins under your belt. We get to concentrate all of our efforts on the little credit card and knock it out pretty quickly, and then we go to a bigger debt such as a $5000 credit card. We then feel great because we have paid off one debt; we start to believe it is possible, it can be done. Then you can tackle a medium-sized loan of $10,000 and now it doesn’t seem so bad, because if we can pay off $5,000 we can pay of $10,000 and so on. By the time we get to the $20,000 student loan, we have already paid off several debts and now $20,000 doesn’t seem like such a difficult task.

The debt snowball method is listed below.

1. List all of your debts with their name and outstanding balance.

2. Organise your debts in order of size with the smallest balance first.

3. Pay minimum payments on all but the smallest debt and put all extra cash on this smallest debt.

4. When the smallest debt is paid off take the amount that you were paying off this loan plus any extra cash and put it towards the next smallest debt, while continuing to pay minimum payments on all outstanding loans.

5. Repeat step 4 until all debts are paid off.

The major benefit with the debt snowball is the psychological boost that you get when a loan disappears. As you continue through the process the amount that you will be able to pay off is going to increase dramatically. This is the snowball effect. You start off small, keep rolling and it gets bigger and bigger.