Q: Do credit reporting bureaus deal with American debts or foreign debts? Before I contact them, are there any pointers you can give me?
A: I'm not quite sure I understand what you mean by American debts, unless you're referring to credit card debts charged to credit cards issued in America, and mortgages for properties located in the U.S.
Equifax, Experian and TransUnion are the three largest credit reporting bureaus in the U.S. There are a few smaller ones as well.
Credit reporting bureaus are essentially huge repositories of each individual's financial data. So if a credit reports an on-time payment, late payment, or collection of an account that's tied to your Social Security number, that information is collected by the credit reporting bureaus.
Currently, the credit reporting bureaus focus solely on U.S. citizens, permanent residents and anyone else who has an American credit card or credit account or other debts and credit issues that arise in the United States.
So, if you are a U.S. citizen living in a foreign country and fail to pay a utility bill in that foreign country, the U.S. credit reporting bureaus will not end up gathering that information. But if you are a foreign national living in the U.S. and fail to pay a utility bill or other payment, that information may be gathered and used by the three big credit reporting bureaus.
If you need help paying off your credit cards or improving your debt, each of the credit reporting bureaus maintains a free education site on its Web site that will guide you. The Federal Trade Commission has additional information on paying down debts at www.ftc.gov.
Q: We have a seven-year adjustable rate mortgage (ARM) that resets in July 2011. I am (ever so gingerly) considering repayment options and a financial strategy that looks out beyond that time frame.
My question is this: When my ARM resets and the balance due on the mortgage is recalculated for the new period, will the loan recalculate on a regular 30-year repayment track, or will it be recalculated based on 23 years I have left to repay the loan. Or, is there some other recalculation that is done?
If the mortgage resets to a much higher level, which is likely, then the new rate will impact us less if we get another 30-year amortization schedule.
A: If loans were recalculated in the method you suggest, you'd never pay them off. Every time the loan resets, you'd have another 30 years in which to pay down the loan.
Adjustable rate mortgages are recalculated as follows on a seven-year adjustable mortgage: The balance that is due (which is presumably lower than the balance you started off with seven years ago) at the end of the seventh year is recalculated for the new interest rate and amortized over the remaining 23 years of the loan. If the loan is a yearly adjustable loan thereafter, the following year, it will amortize whatever balance is on the loan over 22 years.
Even if the interest rate adjusts up 2 percentage points (most ARMs can adjust upwards by a maximum of 2 percentage points per year, with a lifetime cap of 5 or 6 points), you should still be paying the same amount you are now, or even less, depending if you have prepaid the loan or not. You might be surprised to find out that your interest rate could actually go down, depending on the terms of your mortgage.
You should look at your loan terms to determine first whether the increase in your interest rate is capped when your loan adjusts. Some loans have a 2 percent cap, but others have a 5 percent cap on the first year of readjustment.
Next, you should look and see what index your interest rate is tied to. In some cases, the index is the one-year Treasury Rate, while in other cases it's the one-year London Inter-Bank Offered Rate (LIBOR). In either case, you should know that the one-year rate for either of those two indices is around 1 percent as of this writing.
If your loan adjusted today, your loan would not be 1 percent, but would be tied to either index plus a margin. That margin is spelled out in your loan documents. If your margin is 3 percent, your new interest rate would adjust from where it is now to 4 percent.
If 4 percent is less than what you pay now, you would find out that your monthly mortgage payment should go down considerably.
As far as options go, you could refinance to a 5/1 adjustable rate mortgage now, which would be tied to Treasuries or LIBOR. And the Federal Reserve has indicated that it will hold the Federal Funds rate where it is for awhile, so its possible interest rates will stay low.
You might do better by keeping the loan you have. But it you need the peace of mind, you might want to refinance to a 30-year loan, particularly if you believe you will live in the home for the next 10, 20 or even 30 years.
Q: I borrowed money from someone who recently died. We never signed loan documents. Am I obligated to repay the loan?
A: Are you legally obligated to repay money that you've borrowed? I'm not an attorney, so I can't give you a legal opinion. But I'd certainly say that you're ethically bound to repay these funds, and maybe legally obligated as well.
If the executor of the estate finds proof that funds were lent to you and not repaid, you may have trouble going forward.
The real question is not whether you legally owe the money but rather why you wouldn't come forward and repay a debt that you know you owe.
Please talk to an attorney for further guidance.
(Ilyce R. Glink's latest eBooks are "Save Your House From Foreclosure" and "Divorce and Your Finances," which can be purchased at www.thinkglink.com. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST or contact her through her Web site, www.thinkglink.com.)
A: I'm not quite sure I understand what you mean by American debts, unless you're referring to credit card debts charged to credit cards issued in America, and mortgages for properties located in the U.S.
Equifax, Experian and TransUnion are the three largest credit reporting bureaus in the U.S. There are a few smaller ones as well.
Credit reporting bureaus are essentially huge repositories of each individual's financial data. So if a credit reports an on-time payment, late payment, or collection of an account that's tied to your Social Security number, that information is collected by the credit reporting bureaus.
Currently, the credit reporting bureaus focus solely on U.S. citizens, permanent residents and anyone else who has an American credit card or credit account or other debts and credit issues that arise in the United States.
So, if you are a U.S. citizen living in a foreign country and fail to pay a utility bill in that foreign country, the U.S. credit reporting bureaus will not end up gathering that information. But if you are a foreign national living in the U.S. and fail to pay a utility bill or other payment, that information may be gathered and used by the three big credit reporting bureaus.
If you need help paying off your credit cards or improving your debt, each of the credit reporting bureaus maintains a free education site on its Web site that will guide you. The Federal Trade Commission has additional information on paying down debts at www.ftc.gov.
Q: We have a seven-year adjustable rate mortgage (ARM) that resets in July 2011. I am (ever so gingerly) considering repayment options and a financial strategy that looks out beyond that time frame.
My question is this: When my ARM resets and the balance due on the mortgage is recalculated for the new period, will the loan recalculate on a regular 30-year repayment track, or will it be recalculated based on 23 years I have left to repay the loan. Or, is there some other recalculation that is done?
If the mortgage resets to a much higher level, which is likely, then the new rate will impact us less if we get another 30-year amortization schedule.
A: If loans were recalculated in the method you suggest, you'd never pay them off. Every time the loan resets, you'd have another 30 years in which to pay down the loan.
Adjustable rate mortgages are recalculated as follows on a seven-year adjustable mortgage: The balance that is due (which is presumably lower than the balance you started off with seven years ago) at the end of the seventh year is recalculated for the new interest rate and amortized over the remaining 23 years of the loan. If the loan is a yearly adjustable loan thereafter, the following year, it will amortize whatever balance is on the loan over 22 years.
Even if the interest rate adjusts up 2 percentage points (most ARMs can adjust upwards by a maximum of 2 percentage points per year, with a lifetime cap of 5 or 6 points), you should still be paying the same amount you are now, or even less, depending if you have prepaid the loan or not. You might be surprised to find out that your interest rate could actually go down, depending on the terms of your mortgage.
You should look at your loan terms to determine first whether the increase in your interest rate is capped when your loan adjusts. Some loans have a 2 percent cap, but others have a 5 percent cap on the first year of readjustment.
Next, you should look and see what index your interest rate is tied to. In some cases, the index is the one-year Treasury Rate, while in other cases it's the one-year London Inter-Bank Offered Rate (LIBOR). In either case, you should know that the one-year rate for either of those two indices is around 1 percent as of this writing.
If your loan adjusted today, your loan would not be 1 percent, but would be tied to either index plus a margin. That margin is spelled out in your loan documents. If your margin is 3 percent, your new interest rate would adjust from where it is now to 4 percent.
If 4 percent is less than what you pay now, you would find out that your monthly mortgage payment should go down considerably.
As far as options go, you could refinance to a 5/1 adjustable rate mortgage now, which would be tied to Treasuries or LIBOR. And the Federal Reserve has indicated that it will hold the Federal Funds rate where it is for awhile, so its possible interest rates will stay low.
You might do better by keeping the loan you have. But it you need the peace of mind, you might want to refinance to a 30-year loan, particularly if you believe you will live in the home for the next 10, 20 or even 30 years.
Q: I borrowed money from someone who recently died. We never signed loan documents. Am I obligated to repay the loan?
A: Are you legally obligated to repay money that you've borrowed? I'm not an attorney, so I can't give you a legal opinion. But I'd certainly say that you're ethically bound to repay these funds, and maybe legally obligated as well.
If the executor of the estate finds proof that funds were lent to you and not repaid, you may have trouble going forward.
The real question is not whether you legally owe the money but rather why you wouldn't come forward and repay a debt that you know you owe.
Please talk to an attorney for further guidance.
(Ilyce R. Glink's latest eBooks are "Save Your House From Foreclosure" and "Divorce and Your Finances," which can be purchased at www.thinkglink.com. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST or contact her through her Web site, www.thinkglink.com.)
