Money Management

Modifying a mortgage isn’t the same thing as refinancing. Read on to see what mortgage modification entails. 

There may come a point when your mortgage loan becomes difficult to keep up with. That could happen when your income shrinks or when other bills of yours increase. It may even be that you’re having difficulty paying your mortgage because you’ve been hit with a string of home repairs, a property tax increase, or another bill related to your home itself.

Refinancing a mortgage can, in some cases, be a good solution when your mortgage is no longer affordable. Of course, based on where mortgage rates are sitting today, refinancing may not pay for many borrowers. But during periods when mortgage rates are more attractive, refinancing could be a good way to lower the payments on your mortgage.

However, in some cases, modifying a mortgage could achieve the same goal and can be an easier route to take. Here’s why.

What is mortgage modification?

When you modify a mortgage, you don’t get a new loan the same way you do with a refinance. Rather, what you’re doing is simply changing the terms of your existing mortgage.

Often, mortgage modification will come into play when you’re struggling to keep up with your payments. What’ll commonly happen is that your lender will agree to extend your loan repayment period. Doing so will usually lower your individual monthly payments so each one is more affordable for you.

Why mortgage modification may be preferable to a refinance

Refinancing a mortgage can lower your monthly payments by virtue of a lower interest rate on your loan. You can also refinance from a shorter-term loan to a longer-term one — for example, go from a 15-year mortgage to a 30-year loan. That, too, should result in lower payments.

A big reason mortgage modification might make more sense for some borrowers is that you’re not changing the interest rate on your loan. So at times like this, when borrowing rates are expensive, sticking with the same loan can be preferable.

Plus, refinancing a mortgage is a process. You have to apply for a new loan and hope your application is approved. If your credit score isn’t all that great, you might get rejected. In fact, it generally takes a credit score of 620 to qualify to refinance a conventional mortgage. So if your score isn’t so great, mortgage modification may be a better option because you’re not applying for a new loan.

How to modify a mortgage

Modifying your mortgage is generally a matter of reaching out to your lender or loan servicer and discussing your financial situation. If you’re worried about keeping up with your monthly payments, it’s important to see if mortgage modification is an option for you.

Falling behind on your mortgage could have serious consequences. At a minimum, it can result in major credit score damage. And if you fall too far behind, you could risk losing your home altogether. Rather than run that risk, it pays to reach out to your lender when you find yourself struggling and talk things through.

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It’s illegal to drive without car insurance. Read on to see what you can expect if you let your policy lapse. 

It could happen to anyone. Life happened, and you didn’t stay on top of your auto insurance policy. Now it’s lapsed, and you don’t have car insurance.

All drivers need auto insurance, regardless of where they live. (Yes, the state of New Hampshire doesn’t legally mandate auto insurance, but it does require drivers to demonstrate their ability to pay for a car accident that they are found to be at fault for, so it’s a much smarter move to just get an insurance policy even if it’s not legally required.)

In most states, if you are pulled over by the police or get into an accident and are found not to be insured, there will be consequences. If this happens to you, here’s what you can expect.

You could face legal consequences

Since driving without insurance is illegal in most states, you can expect legal consequences if you let your insurance lapse. These will depend on where you live. In New York State, for example, you could be arrested or ticketed, your car could be impounded, your registration could be revoked, and you may even lose your driver’s license.

This is going to mean a lot of paperwork to go through, and a lot of fees to pay. And if you find yourself without a vehicle because it was impounded, or unable to drive because you are without your driver’s license, other aspects of your personal finances will likely be impacted. How are you going to get to work if you normally drive there?

You’ll have to pay out of pocket for any damage you cause

In an even worse scenario, if you get into an accident or have another vehicle-related mishap, the consequences will be even more severe. Again, what you’ll face will depend on your state. In New York, you’ll lose your license and vehicle registration for at least a year, and could face a fine of $1,500. It stands to reason that if it’s not a first offense, you’ll get in worse trouble.

And if you get in a wreck without insurance and you’re found to be at fault for it, all the financial burden could fall to you. Think about how much vehicle repairs and medical bills could cost, and it might just be enough to remind you to keep up with your auto insurance premiums.

Your rate is likely to go up

When you do try to get your insurance policy reinstated, or purchase a new one, you will likely find that rates are more expensive. This will depend on how long your policy has been lapsed; per Value Penguin, you could be looking at just an 8% increase if it’s been fewer than 30 days, but a jump of 35% if it’s been longer.

It’s best to contact your current insurer as soon as you realize the policy has lapsed (although, the insurer will likely reach out to you if you can be reached; more on that below). This way, you can see what you need to do to get back on track. If you need to get a new policy, take the time to shop around with other insurers for the best rate.

Don’t let this happen to you!

It’s a really good idea to stay on top of your auto insurance and make sure you don’t let your coverage lapse. You can avoid problems by making these moves:

Keep your contact information current: If you move, you should be reaching out to your insurer about address and other contact info changes.Mind the gap: Between cars and policies, that is. If you get a new vehicle after a period of not owning one, canceling your old policy could count as a lapse, according to U.S. News & World Report. And if you change insurers, make sure your coverage dates ensure you’re not left uninsured.Sign up for autopay: Autopay makes me nervous (too many years of living paycheck to paycheck), but having my auto insurance on it means I have one fewer bill to remember to pay.

A lapsed auto insurance policy can have expensive consequences, so it’s best to keep it from happening in the first place. And if it does happen to you, now you’ll know what to watch out for and how to right the situation as quickly as possible.

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You may think your credit score matters only if you’re planning to borrow money, but read on to learn why that’s not the case. 

If you are not planning to borrow money any time soon, such as for a mortgage or a car loan, you may think your credit score doesn’t matter that much.

But that’s simply not the case. Your credit impacts many aspects of your financial life and you need to care what your score is, even if you aren’t a fan of credit cards or other debt. Here are five big reasons why.

1. Landlords will look at your credit if you want to rent

If you are planning to rent an apartment, or rent office space or any other type of property, you will likely have to undergo a credit check. If you do not have a good credit score, your rental application will likely be turned down. Or you may need a cosigner or a larger deposit, which can push the property out of your price range.

You do not want to restrict where you can live and work just because you aren’t interested in borrowing.

2. Utility companies look at your credit to determine your deposit

When you get water, sewer, or electricity turned on, or when you sign up for a cellphone plan or cable TV service, you will often be required to undergo a credit check. If you have a low credit score, this is a cause for concern for your provider.

As a result, you may be asked to make a large deposit, sometimes totaling hundreds of dollars or more. Or, in the case of cellphone service, you may be denied the ability to get a contract altogether.

Having to pay extra money just to get basic services is not something that anyone wants to deal with.

3. Your insurance rates are affected by your credit

In a small number of states, auto insurers are not allowed to consider your credit history when setting premiums for a policy. But, that’s not the case in the majority of the U.S. In most places, if you have a low credit-based insurance score, you are considered a riskier person to insure and your premiums will be higher as a result.

Home and auto insurance are essential purchases that can’t be avoided. Why get stuck paying more to insure your assets just because you don’t think you need to care about your credit?

4. Potential employers may review your credit report

When you apply for a job, you may have to undergo a background check that could include a review of your credit history. This could be especially important if you’re working with money or in a finance-related business. If you don’t have a solid credit history, this could be a red flag to potential employers that makes it harder for you to get a job.

5. You may need to borrow some day

Finally, the reality is, even if you don’t plan to borrow money any time soon, there could come a day when you have no choice. Your car might break down when you don’t have money saved for a new one, for example — and you may need a car loan so you can get to work on time.

You don’t want to put yourself in a position where you’re limiting your future options and get stuck with high-interest subprime debt if a day comes when taking out a loan isn’t optional.

The bottom line is, not caring about your credit score will undoubtedly limit your future opportunities and could likely make you poorer. So, take steps to try to build your credit, including maintaining a good mix of different kinds of debt and paying all of your bills on time. You won’t regret it.

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Your mortgage loan servicer won’t always stay the same. Read on to see what happens when your loan is moved to a new servicer. 

When you sign a mortgage, you may decide to enroll in automatic payments to make the process of keeping up with your loan easier. That way, you don’t have to worry about forgetting a payment and being dinged as delinquent, which could negatively affect your credit score and result in late fees.

In time, however, it’s possible that your mortgage might be transferred from one loan servicer to another. This is generally not something you have a say in, and it shouldn’t impact you other than needing to send your loan to a new payee.

But it’s important to pay attention to any notices you get about your mortgage changing hands. That way, you’ll know where to send your future payments. And if your payments are set to pay automatically, you’ll need to redirect them to your new loan servicer.

A fairly common occurrence

It’s pretty common for your mortgage loan servicer to change in the course of you paying off your home. That change won’t impact the terms of your mortgage or your monthly payments themselves — you’ll still owe the same amount each month. You’ll just need to send your payments to a new loan servicer.

If you have your payments set up to go out automatically, you’ll need to update the information on your bank account so your payments start going to the right place. That may be an annoying step to have to take, but once you make it, you should be all set.

You’ll get notice

You should expect to receive a notice from both your old and new mortgage loan servicer letting you know your loan is being transferred. Generally, your old servicer should send you this notice at least 15 days before your mortgage is transferred over to a new loan servicer. And your new loan servicer should generally send you a notice within 15 days after the loan is transferred. In some cases, you’ll get a joint notice letting you know all of the details of the transfer, including where to send future payments.

It’s important to note the date that your loan moves from one servicer to the next so you know where to send your payments. That said, you should know that if you accidentally send a mortgage payment to your old loan servicer within 60 days of the transfer to a new one, your new loan servicer cannot report you as delinquent or charge you a late fee.

If you experienced great customer service from one loan servicer, you may be disappointed to see your loan transferred. But unfortunately, it’s really out of your control.

It might happen repeatedly until your home is paid off

All told, there’s not much to do when your mortgage loan servicer changes other than redirect your future payments. For better or worse, your mortgage might change hands several times before it’s paid off, so you may have to repeat the process of setting up automatic monthly mortgage payments a few times. But other than that, there’s really nothing to stress or worry about.

The simple act of having your mortgage loan transferred should not impact your credit score in any way. It also should not affect your ability to refinance your mortgage should you decide that’s an option you wish to pursue.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Don’t lose sleep over a recession. Read on for one easy way to protect your portfolio. 

Are we headed into a recession in 2023? There seem to be some mixed signals on that front.

The Federal Reserve has warned consumers to gear up for a downturn, albeit a mild one. But unemployment is still low and jobs are still getting added to the economy. That indicates that we’re not about to see conditions deteriorate too badly.

Still, it’s best not to get too cocky about the state of the economy — especially if you have money invested in a brokerage account or IRA. It’s hard to say when things might take a turn for the worse. And if a recession hits, it could impact the stock market. That could lead to lower portfolio values — and a world of stress for the people who own them.

The good news, though, is that there’s a simple step you can take to protect your portfolio from a recession. And if you follow one basic rule, you may not lose so much as a dime if economic conditions worsen.

It’s all about thinking long term

Some people who invest in stocks do so with the intent of getting rich quickly. If you adopt that same attitude, you might easily end up losing money in stocks — either during a recession or otherwise. But if you take what’s known as the “buy and hold” approach to investing, you’ll put yourself in a better position to get through a recession unscathed.

The “buy and hold” strategy is simple. Add quality stocks or ETFs to your portfolio. Hold them for many years, and only dump them along the way if they begin underperforming in a major and unrecoverable way. That’s really it.

Let’s say your portfolio is loaded with different stocks whose total value at present is $10,000. If a recession were to hit, you might see your portfolio value drop down to $8,000. But if you don’t unload any of your stocks, then in a year or two, your portfolio value might come back up to $10,000. And a year or two beyond that, it might rise to $12,000. And so forth.

Prepare to be patient

You may be inclined to start selling stocks during a recession to minimize your losses. But often, selling stocks when their value declines means making your losses official rather than just hypothetical.

Rather than go that route, commit to a long-term investing strategy. You may have to wait longer to reap the rewards, but you’ll better protect yourself from losses.

That said, for your “buy and hold” strategy to work well during a recession, you’ll need to make sure you have money to access outside of your portfolio in case you experience job loss and need help paying your bills. So make sure your savings account is in good shape before economic conditions decline. That means having enough cash to cover at least three months of essential bills. If you have a solid emergency fund to tap, you may not need to liquidate stocks while they’re down out of desperation.

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Budgeting is not something I find to be fun. Rather than setting a budget, I’ve taken a different approach by automating my finances. Find out more. 

I want to grow my net worth and end up with a large brokerage account balance. I also want to have plenty of money to do the things I value. But, I really do not enjoy budgeting. While I tried to live on a budget for years, I just ended up getting frustrated. I’d find myself often going over the spending limits I’d set for myself in certain categories and just give up.

Rather than continuing to fight a losing battle, I decided to take a different approach. I’ve stopped budgeting altogether, but I haven’t given up on accomplishing my financial goals. Here’s what I do instead.

Automating my finances works better than budgeting for me

Instead of budgeting, the approach I take is a simple one. I’ve made sure that my fixed expenses stay below a set percentage of my income, and I’ve committed to saving 20% of the amount that I earn.

All of these expenses are taken care of automatically. When my paycheck comes, on the day the money hits my bank account, I have arranged for it to be transferred to where it needs to go.

Typically, my first paycheck goes mostly to cover the monthly bills, like my mortgage payment and insurance premiums. I also autopay my utility bills, cellphone, internet, kids’ activities, and membership and streaming fees from my first check. My second one goes toward saving, including investing for retirement, saving for vacations, saving for big purchases, as well as a few other miscellaneous expenses.

All of this money to cover the basic essentials and to hit my savings target disappears as soon as I get it. I don’t have the option to spend it because it’s just gone. While I theoretically could opt to cancel my autopays, I have never actually done that because it’s a lot of work — and because I want to make sure my money is going where it needs to, so I’m not going to go to the trouble to undo something I’ve set up to make sure I do the right things.

Once my money has gone to cover the stuff I absolutely need it to, including savings, then I know I can spend what I have left in my account. Since I’ve already accomplished my financial goals before those funds become available to me, I don’t need to worry about budgeting them. I just spend them as I want over the course of the month based on what I want to do at the time.

Sometimes, this may mean dining out more or splurging on vacation or buying fancy clothes to dress my kids up for the holidays. Other times, it may mean putting some extra money into my vacation savings account. It doesn’t really matter, because what I do with this money isn’t going to affect my long-term stability, as that’s all taken care of.

I don’t need to think about budgeting any more, or limit my spending in any way, other than to check in once and a while and make sure I’m not exceeding what’s left over in my bank account.

Do you really need to live on a budget?

My approach enables me to avoid budgeting, and it can work for anyone who hates the “b” word like I do — as long as a few things are true.

You need to know how much to save for your financial goals and how much to set aside for fixed expenses, and you need enough money to accomplish that and still have funds left over to spend. You also need to be able to keep your spending on discretionary purchases to the amount you have left in your bank account, and you must commit to not turning off your autopays or getting into debt.

If you can do that, you may be able to avoid budgeting too. Just set up an automated system to get your money where it needs to go and enjoy spending the rest.

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