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Household Finances Notes Budgeting, Credit and MortgagesBudgetingPlanned spending of income in a sensible way. AdvantagesReduce family worriesSecurityPrevents over-spendingEssentials catered for (bills)Encourages savingGood example for children Preparing a budgetList all expected net incomeList planned expenditure (mortgage, internet, electricity.) Overestimate rather than underestimate.Add up totals – divide by 52Allow for discretionary spending – Christmas, birthdays, holidaysMake provision for personal spendingMake provision for saving – future education, pension etc.Avoid impulse buyingLiving on a Low IncomeVery difficult – particularly if there are children.Good budgeting practises are essential.Help from:F.I.S.- Family Income Supplement M.A.B.S. – Money, Advice and Budgeting Service, Department of Social, Community and Family Affairs manage M.A.B.S.Help with budgetingHelp with clearing debt – adviceNegotiates with creditorsCreditCredit ‘Buying Now, Paying Later’Credit allows consumers to buy goods or services and to repay the money along with interest and other charges on a regular basis.Types of creditPersonal and term loans, overdrafts, credit unions, charge cards, credit cards, store cards, hire purchase, licensed moneylenders, house loans.Advantages of creditUse of goods while paying for themHelp to meet costs of emergenciesCan buy large expensive items e.g. home, carCan buy luxury items e.g. holidayDo not need to save, low initial costDisadvantages of creditGoods can be repossessed if repayments are not madeGoods not owned by consumer until final instalment is paidExpensive as interest rates are highEasy to overspend when buying on creditEncourages impulse buying and overspendingBorrowers might not be able to maintain the repaymentsOverdraftCheapest form of credit – but only with permission of bank.Charge of 25.00euro to set up O.D.Current account – short term.Not for weak willed, impulse buying or for large purchases (car).Hire PurchaseCombination of hiring and buying.Has possession.Must make repayments and interest.Goods can be repossessed.Only yours when paid for.Credit CardCredit free period but high interest (18-20%) if not cleared.Annual fee and stamp duty (Govt.)Not for long term borrowingCharge CardsDiners Club/American ExpressMust be cleared at the end of the monthStore AccountBig stores – Marks and Spencer and Brown Thomas.Monthly payment fixedGet credit of approx. 8 times monthly payment.Interest not too high but must buy in one storeLegislation (for Credit)Hire Purchase Act (1946 – 1960)Hire purchase agreements must identify the agreement as ‘hire purchase’. The act states that hire purchase agreements must give;Names and addresses of the parties, Description of the goods, Cash price of goods, Details of hire purchase price, APR – rate of interest being charged. Instalment arrangements, information on termination of agreement, Recovery of goods (repossession) and details of penalty clauses and cooling off period.Consumer Credit Act 1995The Consumer Credit Act, implemented by the Office of the Director of Consumer Affairs, deals specifically with credit. It provides protection for consumers (the borrowers) in relation to consumer loans and credit agreements, hire purchase and leasing agreements, housing loans and moneylenders.All credit advertisements must give the following information:Rates of APR and how it is calculated, Amount needed for deposit and instalments, Current restrictions in place (if any), Security requirements e.g. deposit, cash price, total cost of credit, instalment information.All credit agreements must:Be in writing, Show the names and addresses of all parties, Be signed by all parties involved, Outline costs and penalties that apply, Contain the ten-day ‘cooling-off’ period arrangements.Housing FinanceMortgage- a loan to buy a house, usually paid back over a term of 20 to 30 yearsConsider - Can you afford to buy or rent?80% Home ownership in Ireland so a mortgage is a reality for most people.Types of MortgageFixed Rate – no fluctuation in interest rates for a period –1 year/3year/5 years.Variable Rate – fluctuations in rates. May want the security of fixed rate for a few years.Tracker Mortgage- No longer available, but existing customers can hold on to them. Cheapest mortgage type as rates drop or rise with ECBFactors when choosing a mortgageHow much? – 3.5 times applicant’s income How much is the initial payment? - Usually 20% (legislation form Jan 2015)Accelerated payment or early clearing of loan – is there an extra fee?Can you take a break? (Accident etc.).Can you carry mortgage to new property?Costs involved in buying a houseSolicitor’s feesDeposit (20%)Surveyor’s feesValuation feesInsurance (house)Mortgage protection policy (optional)Types of MortgageLow start mortgage – pay very low rate or no interest for 3-5years.Annuity mortgage - traditional type (80% are this type)Endowment mortgage – life assurance policy and interest paid. Two payments every month-one to insurance co. And 2nd (interest) to lender.Pension mortgage – linked to pension. Need a substantial pension. Usually self-employed/can make large contribution at year end/can use 25% to pay off mortgageConditions of borrowing from: Local Authority -Borrower can’t borrow from any other institution.Takes both incomes into account. Will give up to 95% of cost of home up to a certain maximum Subject to repayments not exceeding 35% of net income. No longer available from most local AuthoritiesShared Ownership may be an option.40% owned by occupant and 60% by local authority.This 60% must be bought out in 25 years.Banks & Building SocietyAmount borrowed (usually 2-3 times joint income)Regular saver (credit record)Lender holds Title Deeds.Mortgage agreement shows amount of each instalment, interest rate, due date and length of loan.Purchaser pays for surveyor.Purchaser pays house insurance.Purchaser pays Mortgage Protection Policy. Other factors to consider Deposit, Length of mortgage, Proof of Income (P60), Condition of propertyMortgage Protection Policy -Decreasing Policy. As mortgage is paid off amount goes down. Pays off mortgage if a person dies.May be linked to Life Assurance.There is no obligation for the customer to take out policy with company recommended by bank. Amount paid depends on:AgeState of healthSmoker?Joint or single applicationAmount of loanHousing Choice Factors Affecting Housing ChoicesSocio- economic factorsLife circumstances e.g. income, age, life-cycleBuying, renting, sharingMoney available (cost of housing)Type and size of home, maintenanceLocation, community, environment, amenitiesEase of access to services e.g. public transportSuitability for people with special needsProximity to work, family, friendsPotential resale valueNational Housing PolicyGovernment policy to:Provide proper housing for all Good environment In place of choiceHow is this achieved: Overseeing a national housing programme and facilitating home ownership support of social housing projects, low cost housing sites, tenant purchaser schemes, disabled grants and ensuring good private rented accommodation.Trends in housing developmentsImprovements to inner cityDeveloping a commuter beltDeveloping satellite townsDevelopers must have green areas, etc.Smaller estatesSmaller houses on estates with small gardensSocio-Economic Factors affecting Housing ChoiceIncome level Rent/buy (cost/area)Is Local Authority Housing available?Area where house might be bought/rentedOccupation of neighboursNumber of OccupantsNo longer acceptable to have overcrowding.Should have garden for children and playground.Teenagers may need individual bedrooms.Elderly will have different priorities – single storey dwelling, accessibility to shops etc. LocationProximity to shops, schools etc.Does the community offer extracurricular activities?Will you need a car for all transport?Aesthetic (view)Quality of area ................
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