Financial Planning and InvestingWritten by Ioannis Evangelos Haramis
What exactly is financial planning, and why is it so important?Financial planning is process of determining how to manage money, investing, present and future financial goals, and strategy that should be undertaken to obtain them. Because our goals and desires change as we do, financial planning and investing is a task that is never finished. How we are financially able to reach these goals, and risk we are willing to take to get there, necessarily means that any financial plan must be specifically tailored for an individual or family. Financial planning begins by taking into account each individual's assets and liabilities at that particular point in time. The asset category includes life insurance and monetary investments of all kinds, along with physical assets such as a home, automobiles and other items. Liabilities may range from personal loans, credit card debt, and loans taken to obtain hard assets, such as mortgages. Next is where sources of ongoing income and increases in hard asset wealth enter into equation. Income most usually is earned by employment, but other sources, such as possible inheritances, must also be considered. Increases in hard asset wealth, such as rising home prices, will be affected by general economic conditions as well as owner enhancements. From here, things get trickier, and this is where true planning begins! Our particular stage in life -- whether we are young, old, or somewhere in middle -- will usually lead us to desire a particular set of goals. Financial planners often break down our life cycles into distinct phases. Which phase we are in is often determined by age but will also be dictated by how much risk we are willing to assume.
| | Reverse Mortgage ExplainedWritten by Ken Chukwell
Can't remember how many times I've been asked "What is a reverse mortgage"? Reverse mortgages are a great way to get a loan using your primary asset. As in all cases of financial lending, flexibility comes at a price. A reverse mortgage is a loan using your house and is referred to as a “rising debt, falling equity" kind of deal. To compare reverse mortgage to a more traditional one, type of mortgage commonly used when buying a house can be classed as a “forward mortgage”. To qualify for forward mortgage, you must have a steady source of income. Because mortgage is secured by asset, if you default on payments, your house can be taken from you. As you pay off house, your equity is difference between mortgage amount and how much you’ve paid. When last mortgage payment is made, house belongs to you. On other hand a reverse mortgage process doesn’t require that applicant have great credit, or even that they have a steady source of income. The major stipulation is that house is owned by applicant. Generally, there is also a minimum age required as well, older applicant, higher loan amount can be. As well, reverse mortgages must be only debt against your house. Differing from a conventional “forward mortgage”, your debt increases along with your equity. Instead of making any monthly payments, amount loaned has interest added to it - which eats away at your equity. If loan is over a long period of time, when mortgage comes due, there may be a large amount owed. Furthermore, if price of your home decreased, there may not be any equity left over. On flip side, if it was to increase, this could allow for an equity gain, but this isn’t typical of marketplace.
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