Tamila McDonald, Author at The Free Financial Advisor

What Is the Grace Period for Mortgage Payments?

October 19, 2020 by Tamila McDonald Leave a Comment

Many households struggle to keep up with their mortgage payments. In some cases, uncertain financial times – like those created by the COVID-19 pandemic – are largely responsible. However, there are certainly other triggers that may make handling your payment difficult. That’s why understanding your mortgage payment grace period is so important. It lets you know how much time you have to manage your obligation before there are serious ramifications. If you want to learn more about the grace period for mortgage payments, here’s what you need to know.

What Is a Mortgage Payment Grace Period?

First, it’s important to understand what a grace period is and what it isn’t. In the simplest terms, for mortgage payments, a grace period is a specific amount of time after your payment due date. As long as your payment comes in during that window, you typically don’t experience any repercussions for your payment technically being late.

For example, by getting your payment in before the grace period ends, you shouldn’t face any late fees. Additionally, the lender usually won’t ding your credit.

Now, you may or may not accrue interest on the unpaid amount during your grace period. Whether that occurs depends on how interest is calculated on your loan and whether the lender opts to delay charging interest on that amount until the grace period expires.

How Do Grace Periods for Mortgage Payments Work?

A grace period is an automatic benefit that is part of your mortgage agreement. Generally, you don’t have to do anything to take advantage of it, aside from ensuring your payment comes in before that time period ends.

However, it’s best to review your mortgage to confirm precisely how yours works. The grace period clause will outline if there are any steps you need to take, such as contacting your lender to let them know that your payment will be late or something similar.

Why Do Lenders Offer a Grace Period on Mortgages?

Grace periods may seem like an odd thing for lenders to offer from a business perspective, as it prevents them from charging late fees the day after your payment is technically late. After all, fees can boost profits.

The trick is, many mortgage lenders are required to offer grace periods. Many states have laws designed to protect borrowers from late fees, including some rules that apply specifically to mortgages.

If a lender operates in a state with a grace period law, they have to offer one. If they don’t, they are breaking the law, and that can come back to hurt them.

However, there can also be other motivators for offering grace periods. For example, back when most people paid their bills by check, mail delays could make a payment seem late when it was actually sent out on time. Grace periods helped account for issues with mail delivery, ensuring borrowers weren’t unfairly penalized. While most people don’t pay by check today, it’s technically still an option available, so some lenders may maintain their grace periods based on that.

Similarly, grace periods can ensure that holidays don’t cause a payment to come in late. Banks generally don’t process transactions on weekends and federal holidays. If a person’s mortgage bill was due on a day when the banks aren’t processing transactions, it could make their payment seem late when it really isn’t.

Additionally, while most mortgages are due on the first of the month, people’s pay schedules may not align with that date. By offering a grace period, it gives borrowers a bit of flexibility, allowing them to send a payment when they receive their paycheck.

How Long is the Mortgage Payment Grace Period?

Precisely how long your mortgage payment grace period is depends on a few factors. Where you live plays a role, as local laws may determine the minimum length. Additionally, who your lender is matters.

Lenders can always choose to offer grace periods that are longer than state law requires, they just can’t make it shorter. As a result, not all lenders within a state use the same time frames.

However, with all of that in mind, a typical grace period lasts 10 to 15 days. If you want to know precisely how long yours is, you’ll need to check your mortgage paperwork, as it will be stated in a clause there.

In some cases, your grace period may also be noted on your monthly mortgage statement. Similarly, that information may be listed in your online mortgage account. But, if you don’t find it there, your best bet is to check your physical mortgage paperwork. If you can’t find the clause, then you may want to contact your lender directly and ask.

What Happens If I Can’t Pay Before Grace Period Ends?

Once the grace period passes, there can be consequences for not making your mortgage payment. The most common ones are late fees and potentially a ding on your credit report.

Late fees – like grace periods – are part of your mortgage agreement. That document will say whether you owe a flat fee, a percentage of your mortgage payment, or another amount for being late.

If your payment is 30 days late or more, then your lender can report the missed payment to the credit bureaus. At that point, you’ll see a derogatory mark on your credit report and, likely, a decline in your credit score. That derogatory mark can remain on your report for as long as seven years, causing long-term harm to your score.

If you know that you can’t make the payment before the end of the grace period, contact your lender. Depending on your situation (the reason you are having trouble missing the payment), there may be assistance available that can help you avoid fees and damage to your credit score. For example, you may qualify for a forbearance, ensuring you won’t be charged fees, penalties, or interest beyond the usual amount for a specific amount of time.

Speaking with your lender allows you to learn more about your options. That way, you can make the right financial choices based on your circumstances and potentially save your home and credit score while avoiding severe monetary penalties.

Do you think the grace period for mortgage payments is long enough? Why or why not? Share your thoughts in the comments below.

Is It a Good Idea to Pay Off Student Loan Debt Quickly

October 12, 2020 by Tamila McDonald Leave a Comment

Figuring out if you should pay off your student loan debt early is surprisingly difficult. While there is typically a benefit to freeing yourself from a monthly payment, focusing extra money on your student loan isn’t always the best move. Depending on your situation, you may be better served with a different approach. If you’re wondering, “Is it a good idea to pay off student loan debt quickly?” here’s what you need to consider.

[Read more…]

How Should I Invest for Retirement At Age 50?

October 5, 2020 by Tamila McDonald Leave a Comment

If you want to retire at age 50, then you have to use a non-traditional strategy. While you can certainly invest using traditional retirement account approaches – like a 401(k) or IRA – that alone isn’t going to work. Removing money from those accounts before you reach age 59 ½ could lead to monetary penalties, which isn’t ideal. As a result, you need to invest a bit differently, ensuring you have access to the cash you need. If you want to make sure you are ready for retirement at age 50, here are some tips that can help.

Start with Traditional Retirement Accounts

Traditional retirement accounts like IRAs and 401(k)s do come with some benefits, usually when it comes to taxes. You may be able to deduct your contributions or, if you go with a Roth, won’t have to pay taxes on withdrawals. Those can both be very big deals financially.

While you can’t pull the money out penalty-free until your at least 59 ½ in most cases, that doesn’t mean these shouldn’t factor into your investment plan. You can simply let these accounts grow until you do reach full eligibility age, allowing them to become a source of income later down the road.

It is important to note that there are also some exceptions that allow you to avoid the early withdrawal penalty. For example, if you do go with a Roth IRA, you do have the option of tapping into your contributions early. Since you paid taxes on that money, you can withdraw those contributions at any time. However, if you tap into the earnings, you will get stuck with the penalty.

There’s also the substantially equal periodic payments (SEPP) exception. With that, if you make early withdrawals from a qualifying plan, including an IRA or 401(k), in equal amounts over the course of five years (or until you turn 59 1.2), you won’t have to pay a penalty. However, if any of those withdrawals deviate from the others, you might end up triggering the penalty.

Invest in Brokerage Accounts

After you’ve covered your basic retirement contributions, it’s time to move onto a brokerage account. Here, you can invest freely. You can add as much money as you’d like and make withdrawals whenever you want. As a result, they can be a solid choice for funding the starting years of your early retirement, essentially covering the gap until you can tap into your retirement fund.

When you choose investments, there are two points you need to cover. First, as with all investing, diversification is your ally. It provides you with some protection against the unexpected, including financial downturns or company or sector struggles.

Second, you need to be as aggressive as you can tolerate. You are investing for a shorter period than if you were aiming to retire at a traditional age. As a result, growth needs to be a core focus.

Now, this doesn’t mean investing to the point that makes you uncomfortable. If the idea of going beyond an 80-20 stock-to-bond portfolio split keeps you awake at night, then it isn’t a good move for you.

However, if your comfortable with taking on some risk, then push it a bit. If 80-20 doesn’t work for you, then maybe 70-30 does. Just understand that growth needs to be a focus if you want to retire early.

Additionally, understand that being aggressive doesn’t mean being irresponsible. Do your research before you choose an investment. Focus on diversification and rebalance your portfolio when the need arises. The goal is to be bold but smart about your approach. If you need to adjust your ratio as you get older to remain comfortable, then explore that option.

Add a Health Savings Account For Retirement At Age 50

As people age, their medical expenses tend to rise. As a result, it can be wise to plan for this eventuality, and a health savings account (HSA) can help you do that.

With a health savings account, withdrawals for medical expenses can be made as needed. What you don’t spend in a given year rolls over, so you can stash cash while you’re working, leaving it available for your post-retirement years. Plus, there are potential tax benefits, including deductible contributions and tax-free growth.

Additionally, if you have money in an HSA and turn 65, you’re free to treat it like a regular retirement account. You don’t have to worry about how you use the funds, as the account essentially starts to work like an IRA at that point.

Now, you can only open an HSA if you have a high deductible health plan. But if you’re in that boat, you might as well make the most of it and use it to plan for your future.

Do you have any other tips that can help someone invest for retirement at age 50? Share your thoughts in the comments below.

Do Stock Splits Make Sense in 2020?

September 28, 2020 by Tamila McDonald Leave a Comment

When a company is publicly traded, it has a set number of outstanding shares. This limits the number of potential investors, as there is only so much stock to go around. Additionally, it can, at times, hinder a company’s ability to bring in money. However, businesses do have the ability to practically create more shares out of thin air. With a stock split, they can increase the total number of shares available. The move can be financially beneficial, but it also comes with risk. If you are wondering, “Do stock splits make sense in 2020?” here’s what you need to know.

[Read more…]

How Long Will My Retirement Funds Last?

September 21, 2020 by Tamila McDonald Leave a Comment

Whether you’re currently retired or simply want to be prepared for the future. Figuring out how long your retirement funds will last is critical. That way, you know when you can safely leave the workforce, or if you need to make changes to retire on your preferred date. While determining the health of your retirement account is challenging, it can be done. If you want to know how long your retirement funds will last, here’s what you need to do.

Estimate Your Needed Withdrawal

If you’re close to retirement, it’s wise to do a solid estimate of your post-retirement expenses. Ideally, you want to create a reasonably accurate budget. Along with any debts or recurring bills, factor in fluctuating costs – like groceries – as well as entertainment, travel, hobbies, or any other places you may want to spend money.

However, you don’t want to stop there. You also need to take a look at all of your sources of retirement income. For example, you may want to factor in Social Security. If you head to the mySocialSecurity portal, you can take a look at how much you’re likely to receive, allowing you to factor it into the equation.

By getting a grip on your expenses and all of your sources of income, you can determine how much you’ll need to withdrawal each month or year from your retirement account. That way, you can move onto the next step with greater ease.

Head to a Retirement Calculator

There are a number of retirement calculators that will help you determine how long your money will last. Usually, all you need to know is the average annual rate of return on your account, the balance at the time you plan on making withdrawals, and how much you want to withdrawal each month or year. It’s also helpful to know your marginal tax rate if the money you pull will be taxable.

At times, you may need to do some additional math to determine how much you’ll have saved before you retire. If so, you can try the calculator by Dave Ramsey to get an idea of the potential value of your retirement account.

Beyond that, if you’re looking for a simple place to start, the calculator by Mutual of Omaha is a solid option. It’s easy to use and produces a simple chart. The only drawback to this one is that it only goes out for 30 years. If your retirement savings will outlast that, then you may need to do a second calculation to get the exact amount of time before it’s gone.

However, if you’re savings is going to last you more than 30 years, and you’re not retiring early, you could likely assume that you’re fine. But it may also be wise to redo the calculation, adjusting certain parameters to ensure you aren’t being overly optimistic.

For example, reduce the expected Social Security growth rate and the expected return on your retirement account. That way, you can see how long it will last if things don’t go as well, giving you another perspective on the staying power of your retirement fund.

Do you have any tips that could help someone figure out how long their retirement funds will last? Share your thoughts in the comments below.

What Makes Gold So Valuable?

September 14, 2020 by Tamila McDonald Leave a Comment

At some point, every would-be or current investor hears that they should consider adding gold to their portfolio. Gold often has a substantial amount of allure, a psychological impact that affects how people perceive its value, stemming back to ancient times when it was highly coveted. It’s also viewed as a form of safe haven, an investment that remains stable even during tumultuous times. If you are wondering what makes gold so valuable, and if its value is deserved, here’s a look at it from an investment perspective.

[Read more…]

When Are Manufactured Homes a Good Investment?

September 8, 2020 by Tamila McDonald Leave a Comment

Manufactured homes are a popular option for budget-conscious people who want to own a house. However, they don’t always have the best reputation. And they certainly have their quirks. As a result, figuring out if buying one is a smart move isn’t easy. As with all real estate-oriented purchases, the value can vary depending on a wide range of factors. If you are wondering, “Are manufactured homes a good investment?” Here’s what you need to know.

What Is a Manufactured Home?

A manufactured home is a form of housing that’s built in a factory. They are usually built on a steel frame, instead of on-site. After a person purchases one. The structure is brought to the buyer’s property. Which could include land they own or a rental plot, such as in a manufactured or mobile home park. Once on-site. It is assembled and secured to a base. The type of which can vary.

Some argue that manufactured housing and mobile homes are different. This is true to a degree. Technically, to be a mobile home, the structure must have been constructed before 1976. Anything after that point is a manufactured home. Additionally, manufactured homes had to meet different building standards. These standard are higher than what their pre-1976 counterparts had to follow.

However, they are both factory-built structures that are usually assembled before being placed on the owner’s land or rental plot. Further, each of these housing types may not be on permanent foundations, depending on the requirements set forth by the state when they were placed. As a result, the general public usually uses the terms interchangeably.

There is also a third category of factory-built housing: the modular home. These can be similar to manufactured homes but are typically delivered in pieces and put together on site. They are also more likely to resemble a stick-built home and more commonly have a traditional foundation.

The Benefits of Owning a Manufactured Home

Manufactured homes are often appealing because they can cost less than a comparably sized and appointed stick-built house. Since they are factory-made en masse, the production costs are lower. Some of that savings is passed on to the buyer.

Many of the construction materials used are also similar to other kinds of houses. Depending on the requirements in your area, the building codes may be equal to, or even more stringent than, stick-built homes, too.

At times, buying a manufactured home may even cost less than being a renter in certain areas. To include if you have to purchase land. However, this isn’t universally true. So it’s important to examine the costs on both fronts before committing to a manufactured home purchase.

The Drawbacks of Investing in a Manufactured Home

There are some drawbacks that come with purchasing a manufactured home. Usually, if it isn’t on (or being placed upon) a permanent foundation. You may not be able to get a traditional mortgage to buy one. Similarly, if you don’t own the land – or aren’t in the process of buying it as well – most mortgage lenders won’t finance the purchase.

Even if you do buy land and want to put down a permanent foundation. You may not be able to place a manufactured home just anywhere. Local zoning laws may prohibit them in certain areas. If that’s the case, getting an exception can be incredibly challenging, and may not even be possible.

There can also be insurance concerns. Manufactured home insurance is generally more expensive than typical homeowners’ policies. They may not be at risk of greater damage during certain kinds of catastrophic events, such as fire, high winds, and floods. In some regions, manufactured houses have a higher rate of theft claims, something that causes elevated insurance rates for all owners in the area.

Negative Opinions About Manufactured Housing

Additionally, while some people are beginning to view manufactured homes more favorably, others still have negative opinions of them. This harms their resale value significantly. Even when they are on permanent foundations and can qualify for mortgage loans. When they aren’t on permanent foundations. The situation is usually worse.

Now, local market conditions, maintenance and upkeep, and similar factors can help manufactured homes retain value. Similarly, the value of the land can rise. Thus, offsetting some losses. However, this is almost universally an uphill battle. So it’s important to keep that in mind.

Finally, if you don’t intend to purchase land, that means you’ll have to rent a property. With this, permanent foundations usually aren’t an option. Plus, renting plots at mobile home parks can be costly, and some neighborhoods may not be the nicest options.

It can also put you at the mercy of the property owner. Especially, since moving a manufactured home once it has been set in place can be costly, structurally devastating, or both. As a result, you may not have a choice but to deal with plot rent price increases, neighborhood quality declines, or other potential issues that could arise.

Are Manufactured Homes a Good Investment?

As you can see, whether a manufactured home is a good investment depends on your goals. Paying for a manufactured house (even with land) may cost less than renting a comparable-sized space. Additionally, the value of your land may rise. Which is one aspect that could work in your favor.

However, the structure itself will typically decline in value. This is something that doesn’t always occur with stick-built homes. There can also be issues with obtaining a loan. As most don’t qualify for traditional mortgages. Not only can this be troublesome for would-be buyers, particularly when it comes to finding a reasonable interest rate. It also means you’ll face hurdles if you ever want to sell.

Additionally, while many may call them mobile homes, moving them may not be an option, or may be incredibly costly. If you were considering placing a manufactured home on a rented lot, you could be making a long-term commitment to that arrangement, and that may not work in your favor over time.

Do you think that a manufactured home can be a good investment? Why or why not? Share your thoughts in the comments below.

Is My Credit History Important During a Job Search?

August 31, 2020 by Tamila McDonald Leave a Comment

While the average FICO credit score is around 703, an estimated 68 million people have scores below 601. Which gives them a poor or bad rating. That is dependent on exactly where they fall. Plus, about 45 million adults have no credit score. Either because their credit history is insufficient or there is nothing on record. As a result, many people worry that their credit history will hold them back. And not just when they need a financial product. They may wonder if their credit history can hurt their chances of getting a new position. If you’re trying to figure out if your credit history matter during a job search. Here’s what you need to know.

Do Employers Check Candidates’ Credit Reports?

While it isn’t universal, some employers do check the credit reports of job candidates. However, they won’t see a job seeker’s credit score. That’s usually unnecessary.

Usually, companies are looking for signs of financial trouble, mainly because they believe it could demonstrate a higher theft or fraud risk. Additionally, certain facts from a report could indicate a candidate lacks certain skills. For example, a slew of missed payments may mean a job seeker isn’t particularly organized or isn’t good with deadlines. It may also suggest a person doesn’t take their commitments seriously.

At times, a poor credit report could indicate a candidate isn’t ideal for financially-oriented positions. Employers may believe that if they can’t keep their financial life in order, asking them to manage a client’s file or money-related tasks might not be a good idea.

The Kinds of Jobs That Check Credit Reports

Not all jobs will require credit checks. Typically, this kind of background check is only needed in certain scenarios.

If a job requires a security clearance, a credit check is more likely. Similarly, if the role means handling large sums of money, directly accessing financial accounts, working with sensitive customer data, or using confidential information, one may be part of the hiring process.

What Information Do Employers See?

When an employer runs a credit check, it’s not the same report that a bank may receive when trying to determine if you’re eligible for a credit card. For employment, a credit report usually won’t contain information that could indicate certain kinds of statuses or belonging to specific demographics.

Account numbers also aren’t displayed. However, your payment history, amount still owed, and available credit amount are visible.

Will an Employment Credit Check Hurt My Score?

Generally, no, an employment credit check doesn’t hurt your credit score. Usually, it is listed as a “soft inquiry,” which is different from the hard pull most lenders use when determining if you qualify for credit.

Further, it won’t necessarily hurt your chances with other employers, either. Your report doesn’t show any other soft inquiries. If you apply to multiple companies, and they all require a credit report, they won’t know that other employers are also taking a look.

A Job Seeker’s Legal Rights

There are rules governing when and how an employer can use a credit check as part of their hiring process. Above all else, you must be notified that one is going to take place, and you have to give your written permission. Additionally, the company must tell you in advance how the information impacts its hiring decision, as well as give you a pre-adverse action notice, where they outline that information as well as cover any rights you have legally.

You also have to be given adequate time to explain any potential red flags or have errors corrected with the credit bureau that provides the data. Usually, that’s about three to five business days.

Additionally, if there is an adverse action, you have to be given a notice. Within that document, the contact information for the credit agency and your rights to get a copy of the report have to be outlined.

It is important to note that some states and cities bar the use of employer credit checks entirely, or highly restrict how any discovered information can be used. If you’re interviewing for a job that requires a credit history check, review your local laws to make sure it is being done correctly and in accordance with any mandates.

How to Prepare for an Employment Credit Check

If you know a credit check could be on the horizon, it’s wise to review your reports first. You can head to AnnualCreditReport.com to get a free copy from each bureau every year. That way, you can review the content and dispute any errors if the need should arise.

Otherwise, good financial habits can help you ensure your credit report is strong. Pay your bills on time whenever possible, use your available credit responsibly, and only take out new credit when absolutely necessary.

You may also want to use a free credit monitoring service. Whenever someone accesses your report or opens a new line of credit, you’ll be notified. If the activity is legitimate, you’ll know that it is now on your report. If it isn’t, you can act quickly to remedy the issue, increasing the odds you can preserve your credit.

Finally, if you put a freeze on your credit reports, you’ll need to lift them (at least temporarily) when your employer runs their check. Many people put freezes in place after the major Equifax breach in 2017. Those prevent anyone from check your credit report, even if you give permission. If you froze your reports, make sure to temporarily lift the freeze, or the prospective employer won’t be able to complete the check.

Has your credit history ever impacted your job search? Share your thoughts in the comments below.

Is There Any Recourse for an Eviction Due to Job Loss?

August 24, 2020 by Tamila McDonald Leave a Comment

Due to COVID-19, millions of Americans lost their jobs. While moratoriums were put in place to protect them from eviction, time is running out. The protection offered by the CARES Act ended on August 24, leaving many renters vulnerable if their state didn’t extend protection beyond that date. Additionally, the CARES Act requirement didn’t apply to all properties, meaning some renters were experiencing trouble before that help came to an end. As a result, it’s normal to wonder if there is any recourse for an eviction due to job loss. If you’re concerned about being forced out of your home, here’s what you need to know.

[Read more…]

Should You Add Your New Spouse to the Deed of Your Home?

August 17, 2020 by Tamila McDonald Leave a Comment

When you get married, it’s common to merge the majority of your financial lives. After all, when you live together, it’s normal to both be involved with handling expenses and planning for the future. However, if you owned your home before you wedding. Figuring out if you should add your new spouse to the deed of your home isn’t always easy. Ultimately, there are advantages and disadvantages to adding them. As well as leaving them off. If you’re trying to decide which option is right for you. Here’s what you need to know.

[Read more…]