Mortgage Meltdown
The crisis in the credit market is serious, and there's a good chance it will touch your life in very real ways -- from the economy to your job (17,000 jobs were lost in January alone!) to your buying habits. But the most significant impact will be its effect on your most valuable possession: your home.
Let's talk for a minute about how this mortgage meltdown may affect your home, and we'll give you some important tips to help you make the smartest moves with your money.
Here's the root of the problem: Many homeowners have mortgages that they can't afford (and shouldn't have taken out in the first place!), and they are being squeezed out of their homes by higher interest rates. We just got fresh evidence of this as foreclosures in September more than doubled from last year.
Many homeowners in 2004 and 2005 took out adjustable-rate mortgages (ARMs) with those "once-in-a-lifetime" low teaser rates. With interest rates higher now, the bigger mortgage payments are biting millions of Americans in the butt. We've seen cases where the monthly payments are increasing 30%... and even more! That's a significant financial blow that a lot of folks can't absorb, and many will lose their homes because they are not able to keep up with payments.
RealtyTrac, a California-based company, estimates that there will be four MILLION foreclosures this year across America. Already, 43 states are experiencing more foreclosures this year than last, and recent data showed that late mortgage payments also continue to climb.
This crisis is a long way from being over, so we all need to understand it and know how to deal with it. In many parts of the country, it may get worse before it gets better because billions of dollars of ARMs are expected to adjust upward in the months ahead on more of these crazy "subprime" mortgages that should never been made (and would not have been approved if the mortgage companies weren't so loose with their credit).
What It Means for You
You may say, "Hey, Dolans! We're OK… making our payments on time… no sweat. How does all this stuff affect us?"
Glad you asked.
Let's look at three scenarios that really bring it home (pardon the pun):
Insurance
College
Family & Money
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Child Savings AccountsWhen opening a savings account for your child, make sure their Social Security number is used as the account's tax identification number. That way, as long as your child is under age 14, interest earned will be taxed at your child's lower tax rate, not at your tax rate. This rule holds true as long as your child earns less than $1,300 a year in interest. |
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