Saving for rough times is a crucial part of your financial planning as having some spare cash stashed in an easily accessible place to cover disasters is a good idea. At a certain point common sense dictates that you’re going to run into an unforeseen expense and not having funds to pay for it you’re going to have to use poor borrowing practices. The average surprise cost when such events do occur is thought to run a few thousand dollars however whether it’s a gigantic amount or a very minor amount a disaster fund is needed to cover it.
You don’t need to hide this money under the mattress for it to be available. The best way to conserve this fund is by using a quick access savings account that pays a good rate of interest and hopefully is tax exempt. You could set up a simple bank transfer and allot a small amount into your bank account each pay check. You should also be sure that your savings account is low risk as you wouldn’t want to lose the money by trying for high interest payments. For example: don’t invest the money in the stock market, as stocks and shares can change in value, depriving you of much needed money at a critical moment.
Treat any interest your disaster account earns as a perk and not the main reason for having the account. In a pinch you’ll need quick easy access to your money and this is more useful than a little more money in interest can ever bet. Do not allow your disaster fund to grow into a fortune as the extra money would be more wisely invested, growing more in a better investment vehicle. Keep just enough to cover a rainy day so a few thousand should be more than enough.
Don’t be tempted to use your existing account to create up your rainy day fund. Your existing account makes it easy to “borrow” from the savings without knowing it and this usually means you won’t have enough money when you really need it. Also most checking accounts don’t pay high interest rates. To avoid the accidental spending of your disaster fund keep your checking account for normal bills and expenses.
By: Joe Duggins
Posts Tagged Interest Payments
Saving For Hard Times
Nov 11
Home Equity Release
Sep 18
Home Equity Line of Credit
Get cash using the value in your home
Home equity release is a way to access cash using the value which is ‘tied up’ in your house. It’s a line of credit that is available to homeowners over a certain age who have paid of some or all of their mortgage and want to continue living in their own home.
It is a complicated area of finance and before you enter into any agreement, carry out thorough research on the lender you are considering dealing with and also research the different types of loan available as well as ensuring you’re being offered a reasonable interest rate.
Who is eligible?
People over a certain age (usually from 50 years) HomeownersHow does it work?
Broadly speaking, there are two types of home equity loan; a home reversion plan and a lifetime mortgage. Within these loan types there are many variations and Interest rates. Repayment terms and other conditions will vary between different lenders. Here is a brief overview of how these schemes work:
Lifetime mortgage:
Continue to live in your home Receive a cash lump sum, regular income or both Make monthly interest payments on the loan Repay a pre-agreed amount when your house is sold Home reversion plan:
Continue to live in your own home Sell all or part of your home Receive a cash lump sum Pay little or no rent while you continue to live in your home Your loan is paid off when your house is eventually soldShould you take out a home equity loan?
Like any financial product, that decision depends on your individual circumstances and requirements. A home equity release scheme is a serious financial undertaking and it is absolutely vital that you thoroughly research all your options for raising funds before you commit to this type of financial arrangement:
Can you sell your current home and downsize? Are there any other assets you can sell?Always seek independent financial advice
Learn about the different types of home equity loan (we have covered only the basics here) and thoroughly research any lender you are considering doing business with. Don’t rush into any agreement, it’s important to be armed with all the information you need to make an informed decision and get the best deal available.
By: Maz Grundy
Many small business owners who are in need of financing do not realize the tremendous resources that are available at their fingertips. Those who own a home often have another type of loan available to them, the home equity loan or line of credit.
These loans eliminate some of the problems posed by collateral. If you own a home or part of a home, that ownership stake can be used as collateral instead. This has its pros and cons; it’s good because it is available to many more small business owners, but it could potentially become a problem if the borrower is unable to pay back the loan. In this case, the lending institution acquires an ownership stake in the home.
Home equity loans are generally available from banks in two forms-the traditional loan format and the revolving line of credit. The traditional bank loan form involves a lump sum, with interest payments made on the entire amount. The line of credit, on the other hand, essentially functions as a credit card does-your limit is tied to your home’s equity, and you only pay interest on the outstanding principal. Interest rates on both of these types of home equity loan are generally much lower than credit card interest rates.
The amount of money you can borrow with a home equity loan varies from bank-to-bank. However, most banks use a metric called the loan-to-value ratio. They measure the amount of debt you have against your home, and compare that to the value of the home. Banks feel comfortable loaning you money up to an 80% loan-to-value ratio. So, if you currently owe less than 80% of your home’s value, you can probably find a home equity loan to make up that remainder to finance your business.
By: Matthew Potter