| Living under a bridge would be quite miserable. If you | | | | disaster when you haven't followed some of the risk |
| plan your life so you always have a roof over your | | | | reducing theories. When you purchased your home, |
| head, you can go to the local food pantry for food | | | | you were possibly earning a good salary. Disaster |
| when your financial circumstances dictate the need. | | | | comes in the form of a job layoff. Unemployment will |
| At least you will be protected from Mother Nature's | | | | never meet your former salary. Now the budget is a |
| elements. This means that you have to take some | | | | lot tighter. |
| risk to provide your housing, a basic need, but the | | | | I know someone who purchased their home in the |
| smart person will limit their risk because of the | | | | 1940's. Sure enough disaster hit and there wasn't the |
| unknown certainties of the future. | | | | money to pay the mortgage payment. However,they |
| In order to minimize your risk, there are some | | | | continued to make their interest payments. This cost |
| guidelines. | | | | them more because the principal had nothing applied |
| The first item is your downpayment. The larger your | | | | for the period of time until income increased again |
| downpayment, the smaller the mortgage loan. Better | | | | and the full mortgage payment could be met. |
| to not stretch your budget at the beginning of the | | | | Another experience I have is with someone who |
| mortgage loan. | | | | purchased their home and 6 months later, they were |
| Your mortgage payment should not exceed 25% of | | | | laid off. Fortunately, that person diminished their risk |
| your disposable income (net wages). If your job pays | | | | as much as possible in the first months of their |
| weekly, calculate a month on only 4 weeks because | | | | mortgage loan and also had a sizeable downpayment |
| you don't receive a paycheck for 1/3 week. | | | | to begin with. |
| Every quarter there are 13 weeks. This fact will yield | | | | Many times, a mortgage is supported by two |
| one week where you do not have to budget your | | | | working people. You can guess what happens when |
| mortgage payment. Here is an opportunity to limit | | | | one can't work . . maybe baby-to-be or medical |
| your risk. You could apply the extra week to the | | | | problem. I personally believe that you never consider |
| principal of your mortgage. This method will allow you | | | | a mortgage loan on the basis of two incomes. |
| to pay off your mortgage earlier than the contracted | | | | Divorce can also be a disaster. Generally, unless there |
| term and save you some interest. | | | | are children involved, the attorneys and court will |
| The interest is calculated on the outstanding balance | | | | suggest that the home is sold and the gain divided by |
| each month. Example: Mortgage loan balance = | | | | the parties. |
| $98,000. Rate = 6%. Interest calculated as follows: | | | | In most cases, the parties walk away with very little |
| $98,000 X .06 divided by 12=$490.00 interest for | | | | but the attorneys take a big chunk. If children are |
| current month. Now if you applied the extra week of | | | | involved and income is sufficient, the home may be |
| the quarter to principal, you will have reduced your | | | | retained because, here we go again, housing is a |
| mortgage loan balance by at least the weekly | | | | basic need. |
| budgeted amount of the mortgage payment. | | | | My life has taken some unexpected turns and curves |
| Looking at the above model should tell you how | | | | that I could never even have predicted in my |
| important it is to make any extra payments of | | | | twenties. Plan your life to allow yourself the basic |
| principal early in the term of the mortgage loan. It | | | | need of housing and limit your risk. Then when life |
| has a cascading effect. | | | | delivers a sharp turn, you will have prepared for the |
| Need I mention it will benefit you to write your | | | | unknown to the best of your abilityand, hopefully, it |
| mortgage with no prepayment penalty? | | | | won't be a total disaster causing you to lose your |
| Now let's discuss circumstances that can be a | | | | basic need, your home. |