As your children continue to age, it is vital to start familiarizing them with critical financial concepts that will impact their future lives. One area that you should consider educating them in are mortgages and how they can help someone to buy a home. There are several tips that someone can follow that can help them to teach their kids more about mortgages, and set them up for financial security for the rest of their lives.
Explain What They Are
To start, you will need to explain to your kids what a mortgage is. A mortgage is a long-term loan that can be used to purchase a home. You should carefully explain that mortgages are designed to be used by people that are settled and committed to staying in a house for a long time. It is essential to convey the gravity of a mortgage and how they can be used to help improve your equity if they are used appropriately. A good way to demonstrate this is to consider offering small loans to your children in exchange for something they want.
Explain How to Use Them Appropriately
When it comes to explaining mortgages to your kids, you also need to tell how they can use them appropriately. Mortgages are great financial tools that can help someone reach their ultimate financial goal when they are used wisely. However, if they are not used wisely, they can be very damaging to someone’s personal finances and credit history. It is essential to explain that they are a debt that needs to be repaid and that you should avoid using your home as a piggy bank when your property value increases. This is a valuable skill which will allow your child to avoid the common pitfalls of many homeowners.
How to Get a Great Rate
While it is important to explain to a child how a mortgage can benefit someone to purchase a home, you also need to explain that no two mortgages are the same and some provide better terms than other. You should also teach them about the benefits veterans get because of their service. For example, you should explain how a bank will use a credit score to determine if a loan is approved and what the rate will be and how having a down payment of at least 20% could save you a lot of money. You could explain it to your child as if it were a matter of trust. Explain that banks need to know they can trust you to repay the loan, and that paying a bit more in advance will make them more likely to trust you.
How Refinancing Works
When you are explaining how mortgages work, you should also explain how refinancing a loan works. A fun way to explain refinancing to a child can help to make the process seem much more straightforward and memorable. This part of the process should highlight all the ways that someone could benefit from refinancing their loan. You can explain it by making a chart with their own “credit” score based on chores or other things they have done to improve it. You can let them take out little loans for things they want, based on their score, and even let them cut down on the cost of their little loans later as long as they behave and show good behavior.
Since mortgages are such critical financial tools, you should look to explain to your kids how they work. Explaining mortgages and other complicated financial processes will make them more educated about money in the future, and allow them to be prepared for life. Home ownership can be one of the most challenging aspects of life, and the more prepared they are the better off they will be.
References:Tags: financial education, mortgage, refinance