Facts and Questions on Credit Cards

Facts and Questions on Mortgages

What are high cost borrowing practices to watch out for?

Facts and Questions on Credit Cards

What is an unsecured debt?
Most Visa and Mastercard debt is considered unsecured debt. With unsecured debt, your creditors cannot take anything from you if you do not pay them. However, an overdue account stays on your credit record for about 7.5 years.

I'm having trouble making my credit card payments. What should I do?
You should try to deal with your credit problems before they get turned over to a debt collector. If you have not already done so, you should contact your creditors and try to work out another payment schedule that is manageable for you. Sometimes this may involve switching due dates to one that comes closer to the dates you receive your own paycheck, so that you can better budget the payments you need to make when you have money. Or, it may mean agreeing to stop using a particular credit card and making a series of scheduled payments to satisfy past debts. These may be at lower payment amounts than your original payments, but creditors are generally interested primarily in being paid, and any initiative on your part to pay them goes a long way in obtaining their cooperation. It is usually a good idea to have in mind what kind of payments you can afford to make on each account and to write it down, so that when you call the creditor, you can explain to them that while you cannot make payments in the current amount, you ARE able to make them in the suggested amount.

I have a mortgage and credit card payments. I can't pay both, which should I choose?
Your mortgage payment. If you make your mortgage payments, you are not in danger of losing your house. Should your other creditors sue you on your other debts, such as your credit card debts, they would have to try to collect the judgment from you, and under Texas law, your home would be considered "exempt property." "Exempt property" is property that creditors cannot take in trying to execute a judgment against you. The only creditors who can take exempt property are those who have a security agreement covering that property, in this case your mortgage lender. As long as you are able to pay your mortgage, you will not lose your house.

I'm having trouble paying the minimum payment on my credit card payments. Should I take a home equity loan to pay off my credit cards?
It depends. Not everyone’s situation is the same. Home equity loans can be helpful for some. It is important to remember that you would be switching from an unsecured debt to a secured debt if you take out a home equity loan. If you do not make your new home equity monthly payment, you could lose your home. Some factors to consider when making the decision are:

1. How you will change your credit card usage.
2. Whether you will have more than enough consistent monthly income to make the monthly payments on the new loan.
3. Whether you are on a fixed income.
4. Whether you have already finished paying off your home.

I'm behind on credit card payments. How can I get my debts under control?
To get your debts under control, you should carefully choose between your basic needs like food, electricity and medication, and things you can live without like satellite TV, cable TV, or a cellular telephone. To better manage your existing debt, make a list of everything you owe and figure out what kind of debt it is. You might want to get help in learning to manage your debts and to rebuild your credit. You can call Consumer Credit Counseling Service at 1-800-878-2227 or look at our Partners page to find out what local agencies offer credit counseling.
The first thing you should do is stop using any credit cards if you cannot make the required payments on them. You should not add to your existing debt burden if you cannot afford to do so. Non-payment and late payments may affect your credit rating and your ability to get credit in the future. Although creditors usually consider a number of factors in deciding whether to grant credit, most creditors rely heavily on your credit history.

My credit card account has been referred to a collection agency. Can I stop a collection agency from contacting me?
If you are being contacted by a collection agency, write a letter to request that they stop calling you. Even if you do not dispute the validity of these debts you can send a written letter to each collection agency and tell them: 1) you are unable to pay the account right now and if you are able to do so in the future, you will (if you like, you can explain why you are unable to pay right now); 2) you are asserting your rights under the Federal Fair Debt Collection Practices Act and demand the collection agency to stop communicating to you regarding this debt. You should send the letter by certified mail, return receipt requested to each collection agency.
     Once a collection agency receives your letter, it is prohibited from communicating with you regarding the debt except to: 1) make one last attempt to settle the account; 2) notify you that they have received your letter and they will not communicate with you, or 3) notify you of the filing of a lawsuit against you.

Can I get sued if I owe a credit card debt?
Yes. However, if it has been over four years since you last made a payment on your account, you have a valid defense to the lawsuit. If you do get sued, you can easily represent yourself and explain why you cannot or should not pay.

What happens if I lose the credit card lawsuit?
The creditor company would get judgment against you. A judgment is an order by the court to pay but a judgment does not force you to pay the debt if you do not have the money. In addition, the companies CANNOT take your home, your household goods, or your automobile. You should not sacrifice your basic needs such as food, housing, utilities, medicines, transportation, etc. attempting to pay a judgment.

Can I get put in jail for not paying a credit card debt?
No. You cannot be put in jail.

Facts and Questions on Mortgages

What is a mortgage loan?
A mortgage requires you to pledge your home as the lender's security for repayment of your loan. The lender agrees to hold the title to your property (or in some states, to hold lien on your title) until you have paid back your loan plus interest. If you do not repay your mortgage loan, the lender has the right to take possession of your house and sell it in order to satisfy the mortgage debt.

What is a fixed-rate mortgage?
You may want a fixed-rate mortgage that will ensure that your interest rate will remain the same for as long as you have your loan. If you decide that you like the stable, predictable payments of a fixed-rate loan, then you must choose from a variety of repayment terms - 15 years, 20 years, and 30 years are the most common loan terms.

What is an adjustable-rate mortgage (ARM)?
If you're confident that your income will increase steadily over the years, or if you plan to move in a few years and you aren't concerned with potential rate increases, then you may want to consider an ARM. ARMs feature an interest rate that moves up and down as market conditions change. Although an ARM usually offers a lower initial interest rate, your mortgage payments change periodically (usually once or twice a year, sometimes more) after the introductory period. Interest rate changes typically are subject to two caps, one for each adjustment period and one for the life of your loan. For example, a typical ARM that adjusts annually may have a per adjustment cap of 2 percent and a lifetime cap of 6 percent. Caution should be used when venturing into this type of mortgage since you cannot foresee what the market will bare in the future and/or if you wish to refinance, you cannot be certain what your credit will look like in the future.

What is a balloon mortgage?
Balloons offer lower interest rates for shorter term financing-usually five, seven, or ten years. At the end of this term, they require refinancing or paying off the outstanding balance with a lump-sum payment. Again, caution should be used when venturing into this type of mortgage since you cannot foresee what the market will bare in the future and/or if you wish to refinance, you cannot be certain what your credit will look like in the future.

What are government-insurance loans?
You may want to consider the mortgage plans offered by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). Properties purchased under these programs must meet certain minimum standards and eligibility requirements.

What is a prepayment penalty?
This is a fee charged to a borrower if the borrower makes an additional principal payment or pays off the loan more quickly than the prescribed payment schedule. These prepayment penalties will be described in your mortgage loan note.

What is included in a mortgage payment?
A mortgage payment could have up to six features in the total payment. The first four are the most common:

P -  Principal
I  -  Interest
T -  Taxes
I  -  Homeowner's Insurance

The first feature is the mortgage principal, which is the actual amount of money you borrow. The second feature is the mortgage interest, which is the cost you pay for use of the money you borrow. If the lender requires collecting for your taxes and insurance then the third feature included in your mortgage payment may include 1/12th to 1/14th of your annual property taxes. You may be required by the lender to obtain additional insurance-flood insurance-if your property is located in a flood zone. If this is the case, the monthly flood insurance amount could be included in your mortgage payment. The fourth feature is mortgage insurance. If you put down less than 20% of the total cost of the home as down payment, the lender will require you to purchase mortgage insurance to protect the lender in the event that you default on your mortgage. Sometimes people take out first and second mortgages to avoid paying mortgage insurance. For example, a person might take out a first mortgage that represents 80% of the total cost of the home and a second mortgage that represents 20% of the total cost of the home. Finally, there may be a homeowner's association fee involved in your monthly housing expense if the property that you are buying requires you to be part of a homeowner's association.

What are escrow accounts?
Lenders typically collect 1/12th to 1/14th of the annual payments due on property taxes plus hazard and mortgage insurance premiums. These monthly payments are placed in an escrow account, from which the lender draws the tax and premium payments when they fall due.

What are closing costs?
Closing costs are fees required by the lender at closing. The fees can vary among lending institutions, but may include the application fee, origination fee, points, appraisal fee, title search, title insurance, appraisal fee, survey, etc. If you are unsure about any of the fees, ask for clarification.

What are prepays?
The lender may collect certain expenses at closing in advance of when they are due, such as collecting one full year's premium for mortgage insurance and/or hazard insurance, and two months of property taxes to set up the escrow accounts.

What are points (aka loan discount points)?
Points are a one-time charge by a lender to lower the interest rate on a loan. Each point is equal to 1 percent of the loan amount. For example, one point on a $100,000 mortgage would cost $1,000.

What is closing (or settlement)?
A meeting at which time the sale of a property is finalized. Typically the buyer and seller, closing agents, and attorneys attend a closing. At the meeting, all fees and commissions are paid, the loan is advanced, legal documents are signed and all transaction expenses are paid out of funds supplied by the buyer and seller. After closing and funding, the buyer is the owner of the property.

Do I have to pay an application fee?
Not all lenders charge application fees and application fees vary from lender to lender. Each lender may call the application fee by another name. Caution should be in order when the application fee is quoted as a "non-refundable" fee. This may mean that you do not get your money back if the loan falls through. Never give any money upfront, especially cash, without getting a receipt.

What kind of paper work should I get if I am shopping around for a mortgage?
When you apply for a mortgage loan, you are required to receive two very important documents within 3 days of applying for the mortgage loan: the Good Faith Estimate (GFE) and the Truth-in-Lending (TIL) disclosure statements. These documents allow the consumer to check the itemized fees being charged and the annual percentage rate (APR). Requesting and/or receiving a GFE/TIL does not obligate you to go with that lender for your mortgage loan.

Where do I look for a mortgage loan?
Mortgage loans are available from a number of sources, including:

• Credit Unions
• Banks
• Mortgage Companies

• You give your diamond ring ($1,000 value)
• You get $300.00 as a loan (30% of the value of the diamond)
• You pay weekly installments of $25.00

1. E-File with Direct Deposit.
   File your tax return electronically to speed up your refund. Tell the IRS to deposit the refund directly into your bank account. You provide your account number right on your tax return. You can get a refund in about 10 days this way-without paying one cent extra for a loan. Some of the free tax preparation programs (called "VITA" sites) can file taxes electronically. If you have internet access, you may be able to get free tax preparation and electronic filing at www.icanefile.org.
   
   
2. Get a bank account.
   If you don't have a bank account, open one up to take advantage of direct deposit. You can use a savings account to receive your tax refund, and maybe save some of it for a down payment on a house or a car, or to build a nest egg.
   
   
3. Wait just a bit longer.
   Do you really have to get cash from your tax refund today? Can you wait a few weeks to save almost $100? If you have an urgent bill to pay, ask for more time until the tax refund check comes from the IRS. Don't take on a new expensive debt to pay an old bill.
   
   
4. Avoid check cashers.
   Check cashers charge an extra fee to cash RAL and tax refund checks. Some check cashers charge up to 7% to cash a RAL check-the average is about 3%. So if you receive a $2,000 refund, it would cost you an average of $60 to cash the RAL check-on top of the RAL and tax preparation fees. A smarter move is to use a bank account.
   
   
5. Use a VITA site.
   A great way to save money at tax time is to go to a Volunteer Income Tax Assistance (VITA) site. These sites provide free tax preparation to low-and moderate-income taxpayers. VITA sites are sponsored by the IRS and can be found in libraries, community centers, and other locations during tax time.

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