Protecting your family's liabilities

3 December 2016
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Category Family
3 December 2016, Comments 0

 The most common liability of all that people will have in their lives is a mortgage. A mortgage is a loan that you take from a financial institution but instead of being just any type of loan with a repayment term, the bank has the security of holding the title deeds to your house for as long as the loan is not fully serviced. This security was necessary from the bank perspective because the loan is so large compared to a persons salary and they need to hold some collateral in order to protect themselves.

This collateral gives the bank the right to take control of the property and even sell it to get their money back if certain conditions are breached. So effectively your home is at risk if you fail to keep up with the mortgage payments.

So what are the risk involved and how do you manage them

Do not overstretch

First thing to consider is that you should not overstretch your finances. Remember that if you are unable to meet the mortgage payments the bank will come after you make demands for the mortgage arrears. If you ever get to this situation it will be very stressful as you are unable to make ends meet.

Making mortgage payments is only one part of your family finances. You are likely to have other forms of debt such as car loan and consumer credit cards or instalment plans for furniture etc If you are already stretched for your mortgage you a candidate for being financially stretched in other areas of your budget too.

Consumer credit such as credit card is very expensive and if you are not making these payments too then the insurance cost and financial penalties you are facing will give you big problems

If the bank comes after you to repossess your house so they can sell it to repay the loan then where will you live? Basically at that point of your life you will have a very poor credit rating that no lender will take the credit risk of giving you another loan at the time that you are desperate and need it the most.

If the bank declares you a bankrupt because you cant even pay off the loan after selling your house, then your problems are worse as bankruptcy might preclude you from getting employment in many companies.

The message here is to exercise financial prudence and spend within your means. In other words do not overstretch yourself.

Insurance coverage

So what kind of circumstances would mean you are unable to make your loan obligations? There are a number of different reasons that could lead to this

You can lose your job.

The global economic situation is weak. Commodities prices are currently very low. Banks are scaling back their activity. China is no longer growing at the rate it was in recent years and general demand is much lower than before. All of these macroeconomic factors have a bearing on a persons ability to maintain employment. With more retrenchment occurring around the world it is becoming increasingly difficult to find employment and maintain the income levels that we may have gotten used to.

It may be possible to find mortgage protection insurance that will pay your mortgage in the event that you find yourself jobless. This would need to be jobless through retrenchment as opposed to jobless through your own resignation though. After a stipulated time period, the mortgage insurance may pay out for you to tie you over until you find alternative employment.

Disability affects your ability to continue in your current job.

If you had an accident that unfortunately left you disabled this would likely impact your ability to continue in the same role as you did. This change in your life would also impact your financial situation.

It may be possible to find an insurance policy that protects you against such scenarios

 

Other events that impact your finances have been covered in the numerous articles in this website. Everyone has a budget and will make their own financial decisions on their own budget. If anything changes it will most likely have a knock on impact in other areas such as the ability to keep up with the most important payment of all, your mortgage.

Summary

protecting-your-familys-liabilitiesWhen planning your finances it is recommended that you do this in partnership with a professional financial advisor. He or she will be able to sit with you and ask the difficult questions that you need to answer on how much you need to pay for all the things that you want in life. Once you have done the detailed analysis he will be able to assist you in your planning and recommend a strategy to meet your long term objectives and keep you protected from unforeseen events. If you take this approach you will leave less to chance and have more peace of mind to face what is really important in life and look after your family

 

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