Baltimore Mediation Services

Sheila Russian

Know Risk: Financial Planning > Interest Rates and Loans

 Mortgage interest. Credit card interest.  Student loan interest. Home Equity Line interest. These 4 types of Interest are part and parcel of loans and finances.  People need to understand the different kinds of interest in order to create realistic budgets. Interest rates are an important part of the financial puzzle that clients piece together during divorce mediation.

Clients need to understand the interest rate on each account.  Annual interest may be as low as 0% or as high as 30%.  The interest may be fixed, meaning that it remains constant for a long period of time, or it may periodically change.  Interest may be simple interest or compounded daily.   Even if the interest rate is low, it is important to understand if there are any additional fees.  For example, if a payment is late, there may be a late fee; if a customer receives cash at an ATM, a different interest rate might apply.

Credit card companies frequently offer consumers very low interest rates and/or bonus points to entice people to acquire a card and to transfer balances from another credit card.  However, these offers are for a limited amount of time; once the prescribed time is over, the interest may skyrocket. 

Interest may have tax implications.  For example, the interest on a home mortgage or a home equity loan is often tax deductible.  This tax deduction may substantially decease a person’s income taxes.   When people are trying to figure out if one person can afford to remain in a home, it is important to understand how the mortgage interest will affect income taxes.

Loans may have special features.    Loans come in all shapes and sizes.  For instance, student loan payments may be correlated with a percentage of a person’s income; some student loan balances may be reduced or eliminated if the payments are promptly made for a certain period of time or if the person has a particular kind of employment.   Some loans can be prepaid or assumed.  It is important to understand these special features, in order to make the best financial decisions.

A financial planner, an individual attorney, or an accountant can help people understand complicated financial decisions.

Mediation provides a place for people to share financial information and to create a list of options.   Sheila Russian makes sure that each person has time to share his/her ideas, and that there is ample time to ask and answer questions.   Only then can people make informed, realistic decisions.




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