Balloon Payment Mortgage – What It Is & How It Works

Mortgages come in many varieties. One lesser-known type of mortgage is the balloon payment mortgage, sometimes called simply a balloon mortgage. Often a mystery to home buyers, this type of mortgage comes with unusual terms, a potential for huge savings, and enormous risk.

What Is a Balloon Mortgage?

A balloon payment mortgage is a short-term home loan with low monthly payments where the bulk of the loan is due at the end of the loan period.

Unlike a typical mortgage, the balance of a balloon mortgage isn’t designed to fully amortize — reduce to $0 through debt payments — throughout the loan payment term. Instead, the borrower pays the majority of the loan off in one lump-sum payment at the end of the term.

How Does a Balloon Mortgage Work?

Balloon loans can be any loan with a lump-sum payment schedule, including auto loans, personal loans, and mortgages. The lump sum can be due at any point during the loan term, but it’s most often due at the end.

Balloon mortgage terms can be as short as 18 months, but they’re more typically five to seven years.

Monthly payments throughout the loan term are either:

  • Interest Only. You pay interest that accrues each month, so your payment at the end is the full amount you borrowed.
  • Balance and Interest. You’ll make payments toward the interest and principal, so your payment at the end is less than the full amount you borrowed.

If you make balance-and-interest payments, your monthly mortgage payment is similar to what you’d pay with a 30-year mortgage, except the balance comes due after just a few years.

If you make interest-only payments, your monthly payment is lower than what you’d pay with a typical mortgage, and you owe the amount you borrowed in one lump sum after a few years.

Balloon mortgage rates are often lower than those for longer-term mortgages, and balloon mortgages can be fixed-rate or variable-rate loans. Balloon mortgages tend to come with lower closing costs, so they may be easier to afford or qualify for than a typical mortgage.

Example of a Balloon Payment

Say you’re purchasing a house for $250,000. You make a down payment of $50,000 and borrow a $200,000, seven-year balloon payment mortgage at a 4.5% fixed interest rate.

If you make balance-and-interest payments of $1,013 per month for 83 months, you’ll owe a balloon payment of $175,066 after seven years, according to the balloon mortgage calculator from MortgageCalculator.org. You’ll have paid $59,176 in interest.

With the same mortgage on a typical 30-year term, you’d pay $1,013 per month. Over the life of the loan, you’d pay back the $200,000 you borrowed plus $164,680 in interest.


What Happens If You Can’t Pay a Balloon Payment?

Balloon payment mortgages present a risk for homeowners because you count on being able to afford a large payment five or seven years down the road. However, borrowers have options to get rid of a balloon payment.

How to Get Rid of a Balloon Payment

You have four main options to meet or eliminate your obligation to a balloon mortgage payment:

  • Pay It Off. The simplest — but maybe not the easiest — option is to stick to the original plan and make the balloon payment to pay off your loan.
  • Sell the Home. If you can sell the home for more than what you owe in a balloon payment, you can pay off the mortgage and profit from the home sale.
  • Refinance. Borrowers commonly refinance the mortgage before the balloon payment comes due. This can change the interest rate and extend the repayment term to set you up with ongoing monthly payments.
  • Reset. A balloon payment mortgage might come with an option to reset at the end of the term. These are sometimes called “convertible” balloon mortgages, and the lender writes the terms when you take out the original loan. For example, a 3/27 convertible balloon mortgage will start with three years at the original interest rate and then give you the option in year four to pay the balance or convert the loan to a fixed-rate, fully amortized 27-year mortgage with a new interest rate based on market rates.

Selling a Home With a Balloon Payment Mortgage

Homeowners who plan to sell quickly after buying a property often benefit from the low interest and low monthly payments of a balloon payment mortgage. You save money as long as you can sell the home at a profit before the balloon payment comes due.

This plan can benefit home buyers who plan to move within a few years, buyers who want to flip properties for a profit, and commercial developers who want to build on and sell property.

The risk in this plan is the timing. You could end up needing to sell a property in a down market when prices are low or buyers are scarce. You lose money or face foreclosure if you can’t sell for more than what you owe on the mortgage.

Refinance vs. Reset

Refinancing or resetting a balloon mortgage lets a borrower enjoy the initial low-interest, low-payment period while avoiding the balloon payment.

Accepting a convertible balloon mortgage now could put you at a disadvantage if you expect your credit to improve over the next few years. The lender sets the reset terms based on your current credit score, so interest and terms might be less favorable than you’d get by refinancing to a new loan.

Refinancing down the line when you’ve built better credit seems wise, but you risk needing to refinance during a period when market rates are high. Signing up for a 30-year fixed-rate mortgage in the first place could prove more financially beneficial.

Refinancing might be your best option, though, if you can’t afford to make the balloon payment when it’s due. In that case, even a higher interest rate is better than foreclosure.


Is a Balloon Mortgage a Good Idea?

Balloon mortgages come with risks and rewards that make them a good or bad fit for different types of buyers.

Pros

  1. Interest rates are often lower than with standard 30-year fixed-rate mortgages.
  2. This type of mortgage is often easier to qualify for.
  3. Closing costs are often lower.
  4. Monthly payments are lower, especially if you make interest-only payments.
  5. You pay less in interest over the life of the loan.

Cons

  1. You must pay back the bulk of the loan — potentially hundreds of thousands of dollars — in one payment.
  2. Counting on selling the home, refinancing, or resetting the loan risks unfavorable terms in a poor market.
  3. Interest-only payments don’t let you build home equity.

Who Should Get a Balloon Payment Mortgage?

Because of the risk for borrowers, balloon mortgages are more common in commercial real estate — where businesses can absorb ill-timed balloon payments — than for private home buyers. But some private home buyers can benefit from this type of mortgage too.

A balloon payment mortgage might be right for you if:

  • You Move Often. When you know you’ll sell your home within seven years — regardless of the market — a short-term loan might make sense.
  • You Flip Houses. When you buy a home intending to sell it in a year or so, a balloon mortgage could help you get started with lower upfront costs.
  • You’re Early in Your Career. If you expect to have significantly higher income within a few years and could afford a balloon payment or higher monthly payments after resetting the mortgage, the loan could be a good fit.
  • You’re Building Credit. If you expect to improve your credit in a few years, you may be able refinance the loan later to a longer term at a more favorable interest rate, depending on market rates in the future.

An adjustable-rate mortgage (ARM) — which starts with a period of three to seven years at a low fixed interest rate and then switches to a variable rate for the remainder of the loan term — can offer most of the same benefits with less risk than a balloon mortgage. However, an ARM might come with higher closing costs and be tougher to qualify for.


Final Word

When they first came on the market, balloon mortgages were only available to real estate investors. They generally make sense for home buyers who plan to flip a property quickly to ensure they have enough money to make the balloon payment. These mortgages offer the benefit of low closing costs, low interest rates, and low monthly payments, making home investment more affordable.

Now that balloon mortgages are available to home buyers for any property, you have the option to use one for your primary residence. But the benefits largely disappear if you plan to stay in your home beyond the length of the loan.

Lenders might promote balloon mortgages to borrowers with poor credit as a way of getting a favorable interest rate, but beware the risks. If you can’t afford the balloon payment when it’s due, you could face foreclosure. Or you’ll have to refinance the mortgage and risk less favorable terms. Consider an adjustable-rate mortgage or other options for low-income home buyers to get similar benefits without the risk.

Source: moneycrashers.com

30% of Americans Are Pro-Union for All Workers

Labor unions have been around since the late 18th century. But in recent years, industries not typically known for union membership have seen an uptick in interest in employee activism.

Gawker Media became the first digital media company with a ratified union contract in 2016, ushering in an era of labor organization in the industry that included HuffPost, Salon, Slate, VICE, BuzzFeed, Vox Media, Bustle Media Group, and The New Yorker. With unionization efforts in progress at both Google and Amazon, it looks like big tech is likely to be the next industry to see a significant organizing movement among employees.

Many people still associate the word “union” with stereotypical images of manual laborers and factory workers. For them, organizing was the only means to avoid abuse, physical harm, and even — in cases like the famous Triangle Shirtwaist Factory Fire — death. However, union efforts can also be beneficial in contemporary workplaces, helping workers in all industries negotiate better benefits, greater job security, and higher salaries.

To find out what most Americans think about labor unions today, we asked 1,500 people whether they’re for or against unionization in different employment scenarios.

How Do Unions Help Workers?

Unions can protect and benefit workers in all sorts of industries and in many different ways. The most well-known benefits of a union include protection against unsafe or hostile work conditions and bad or abusive bosses.

But the main benefit unions provide is collective bargaining power, which enables workers to negotiate with a company’s owners and managers. This power to negotiate can help achieve:

  • Higher wages
  • Better benefits
  • Accommodations for parents, caregivers, and people with disabilities
  • More equitable treatment for minority workers
  • Protections in case of layoffs

Some unions even offer health care, allowing workers to access insurance even if they’re unemployed.

Nearly 1 in 3 Support Unions in All Cases

We found that 29%, or nearly a third, of respondents said they’re pro-union in all cases, not just in blue-collar industries or companies with bad management.

Do You Believe Labor Unions Are Beneficial

Just 12% said they’re flatly against unions, while another 10% said they’re for unions only in particular circumstances. Just under half (49%) said they were neutral, neither for nor against unions as a concept.

The breakdown differed a fair amount between male and female respondents. Among women, just 7% said they were anti-union, while 32% said they supported unions for all workers. By comparison, 18% of men said they were against, and 25% said they were for unions in all situations.

If the general population were a workforce, these results would be nearly enough for it to unionize. The National Labor Relations Board conducts a union vote once 30% of a workforce has signed union cards or a petition to organize.

10% Believe Unions Are Only Necessary Under Harsh Working Conditions

Two responses were designed to identify how many people subscribe to the belief that unions are only necessary or beneficial when workers face harsh conditions. About 6% said they believed unions were only necessary for blue-collar workers, while 4% said they’re only beneficial in situations plagued by bad management.

In reality, unions aren’t designed just to fix hostile work conditions. They’re also meant to help improve upon existing positive elements of a company environment and protect workers in unexpected situations like sudden layoffs or major unemployment events (like COVID-19).

Pro Union Americans

12% Are Anti-Union in All Cases

While the benefits of unionization are plenty, many people believe the negatives outweigh the positives. Among respondents, 12% said that they’re anti-union regardless of the scenario.

Anti Union Americans

Managers, executives, and owners are most likely to hold a negative view of unions since unions have the power to force bosses to compromise. Even bosses who treat employees well and pay them fairly may hold reservations about unions, concerned about worst-case scenarios like impossible demands and contentious communications.

How to Respond Positively When Your Workers Want to Unionize

No matter how you feel about your workers organizing, keeping your response measured and positive is key to maintaining open communication, morale, and productivity in the workplace.

If you don’t want your employees to unionize, you can tell them that — as long as you don’t do or say anything to try to prevent their organization effort from moving forward. (That’s illegal.)

However, you can communicate the company’s position on the issue while making clear that each employee is free to make their own decision without fear of retaliation. You can also open a dialogue with workers about what they would ask for with a union’s help, then discuss how you can create a workplace where employees don’t feel the need to organize.

Note that unions provide lots of benefits to bosses that might put you on the pro-union side. Organizing efforts can result in better communication, increased productivity, and improved morale among employees.

Final Word

Whether or not your company has a union or is considering forming one, there’s no denying labor organization and employee activism are becoming more prevalent topics of discussion in the United States. Topics like universal health care, COVID-19 relief, minimum wage laws, infrastructure, and even the Green New Deal are all closely related to employee rights.

A better understanding of what unions are and how they work can benefit everyone, from workers to bosses to politicians to activists and beyond.

Source: moneycrashers.com

7 Ways to Get Credit When You Don’t Have Any

Credit is one of those things you don’t want to be without. But, as we all know, the credit game is definitely a Catch-22. You need a good credit history to snag the best deals on loans, yet it’s very difficult to get credit without a borrowing history.

1. Become an Authorized User

If a friend or family member has exceptional credit and faithfully pays their bills on time each month, request to be added as an authorized user to that person’s credit card.

Afraid that your prospect will say no out of fear that you will rack up an excessive amount of debt and bail out? Inform them that you are only requesting to be added to the account; the magic plastic does not need to be in your possession.

While this is a simple way to start building your credit as long as the original cardholder maintains stellar credit habits, the weight given to accounts in which you are an authorized user varies by lender and it might not be as effective as you hope.

2. Get a Co-Signer

You can also request that a close friend or family member with good credit co-sign a loan with you.

Keep in mind that’s asking a lot, because the co-signer becomes responsible for making the payments if you don’t pay. It’s generally advised that people avoid co-signing loans for other people because of the risk involved.

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3. Apply for a Secured Credit Card or One that Doesn’t Require Credit History

Lots of lenders offer secured credit cards to those who are new to credit. They mandate a deposit be used as collateral and typically have a credit limit of that amount.

Some lenders refund your deposit and convert the card to an unsecured card after you show your ability to handle debt responsibly for a time.

Before you apply though, ask about the creditor’s reporting practices. If they don’t report to all three major credit bureaus, account activity won’t have any effect on your credit profile. Also, avoid secured cards that have a lot of fees, keep your outstanding balance under 20% of your credit limit, and always pay the bill on time.

4. Diversify Your Debt

Although the types of debt you have accounts for only 10% of your FICO score, it can have a significant impact if there isn’t a lot of other information present in your profile.

In lieu of revolving debt products, such as credit cards, you may want to apply for some sort of installment loan — a car loan, perhaps, or a personal loan — because it can demonstrate your ability to handle credit responsibly over time. Potential creditors will also be interested in your experience with different types of debt.

5. Check With Your Financial Institution

You may have read the last point and thought, “How in the heck am I supposed to go about obtaining an installment loan when I don’t have any credit?”

The first step is to contact your bank or credit union, explain your situation, and see what options you have. Many offer both secured and unsecured personal loans to existing customers in good standing.

6. Apply for a Store Credit Card

This option definitely requires self-discipline.

Store cards aren’t as difficult to qualify for as standard credit cards, but they may be accompanied by higher interest rates and excessive fees. Also, store cards may be exclusive to the retailer and can’t be used elsewhere.

If you take this route and quickly max out the card, you will do more harm than good to your credit profile. So before you sign on the dotted line to apply for a department store credit card, take all those factors into consideration and don’t get sucked in by the enticing introductory offer.

7. Ask Companies to Report on Your Behalf

I’m almost certain you’ve constantly been reminded about the importance of making timely payments because this factor accounts for 35% of your FICO credit score. Assuming you have recurring expenses each month, such as rent, utilities and a cellphone bill, request that the service provider report your account activity to the three major credit bureaus. But do so only if the accounts are current and you have a stellar payment history.

Before you actually move forward and seek credit, you have to ask yourself if it’s something you really need. It doesn’t make sense to purchase an item on credit that will end up costing you an astronomical amount of cash in the long term because of interest and fees. The smart credit card user pays off the entire balance each month.

And by no means am I an advocate of obtaining new credit accounts and making purchases just for the sake of establishing credit — unless you were going to buy those items anyway.

This post originally appeared on Money Talks News.

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This article was previously published, and has since been updated by another author.

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Coronavirus Travel Restrictions, Airline & Hotel Cancellation Policies

The ongoing COVID-19 pandemic is wreaking havoc on the global travel industry, upending millions of travelers’ lives, and threatening countless livelihoods in the process.

It’s likely the pandemic will affect many travelers, either directly or indirectly. Because this is a fluid situation that changes by the day, bookmark this list to refer to frequently so you can get new information as it becomes available. The list includes:

  • A running tally of countries and regions with coronavirus travel restrictions
  • Guidelines for determining when to cancel planned travel and how to get a refund or credit if you do
  • A list of cancellation and change policies for major airlines, hotels, and cruise operators.

Countries & Regions With Coronavirus Travel Restrictions

Due to the fast-moving nature of this situation, this summary does not necessarily reflect all current restrictions. Before booking international travel, refer to your destination countries’ English-language government websites for up-to-the-minute details and check the U.S. Department of State’s list of country-specific travel advisories.

Entry Restrictions for U.S. Travelers

Many countries remain closed to U.S. citizens and nationals who don’t meet certain narrow exceptions, such as holding dual citizenship, having close family members in-country, or traveling on qualifying “essential business.”

The good news is that most countries and territories that continue to permit entry to U.S. travelers lie on this side of the Atlantic, within a few hours of the mainland United States by air. They include Mexico, the Dominican Republic, Ecuador, and most Caribbean island nations and territories, though some Caribbean nations impose arrival restrictions that can impede free movement. Farther-flung countries that remain totally open to U.S. travelers include Turkey, Maldives, and several Balkans nations.

The United Kingdom and Cambodia, among a few other popular tourist destinations, allow U.S. citizens to enter but generally require some combination of quarantine upon arrival, confirmed negative COVID-19 test result, ongoing health monitoring and check-ins for up to 14 days after arrival, and a sometimes hefty financial deposit to ensure compliance.

CNN has an up-to-date list of countries that allow Americans to enter and what restrictions or entry requirements, if any, American travelers face. The U.S. Department of State (State Department) maintains a more comprehensive and technical list of country-specific restrictions and requirements.

Because the situation remains fluid, neither this list nor CNN’s or the State Department’s should not be considered comprehensive. Refer to both before booking and commencing international travel but also check with local immigration authorities to determine whether you’ll even be permitted to complete your journey or required to quarantine on arrival for it renders travel impractical.

U.S. Department of State Travel Advisories

The State Department is closely watching the COVID-19 situations in other countries with an eye to keeping U.S. national travelers and expats safe abroad. Four travel advisory levels denote the relative danger of travel to each country and subcountry region:

  • Level 1: Exercise Normal Precautions. These are low-risk countries.
  • Level 2: Exercise Increased Caution. These areas often present an elevated risk of property crime or exposure to novel illnesses not common in the U.S.
  • Level 3: Reconsider Travel. Travel to these areas is unusually risky due to political instability, widespread violence, disease outbreaks, and other dangerous conditions.
  • Level 4: Do Not Travel. The State Department does not advise travel to these areas, and U.S. persons already in Level-4 areas should leave as soon as possible. The State Department has little or no effective presence in some Level-4 countries.

On March 31, 2020, the State Department issued a global Level-4 travel advisory for the entire world outside the United States, effectively discouraging any international travel for the foreseeable future.

The State Department’s global advisory expired in early August 2020, but certain countries remain at Level-4 due to severe coronavirus outbreaks or other potential health risks. Again, because many international jurisdictions effectively prohibit entry by Americans and others require lengthy quarantines upon arrival, planning nonessential international travel remains difficult at best.

Depending on your home base, you might have trouble completing internal U.S. travel plans as well. Some states have (or had and may reimpose) strict quarantine-on-arrival or pre-arrival testing requirements. For example, New York State requires travelers from noncontiguous states and countries where COVID-19 is widespread to quarantine for up to 10 days, promptly take a COVID-19 test, or both upon arrival.

Check with your destination state’s tourism and health authorities for up-to-date information before making nonrefundable bookings.


Cancellation & Change Policies for Major Airlines & Hospitality Companies

This running list of coronavirus cancellation and change policies includes major airlines and hospitality companies, many of which are waiving change fees and dispensing credit for rebookings many months into the future. Refer to each company’s website for more details and cancellation or rebooking information specific to your destination.

Airline Cancellation Policies

All major U.S. airlines and budget carriers have coronavirus-related cancellation and change policies. Unless otherwise noted, rebooked flyers must pay the fare difference between the original and new fares, if any. If you’re flying with a smaller carrier, check their website for details.

Also, be aware of any airline-imposed hygiene requirements, as most major airlines now require passengers to wear masks or face coverings on flights and in boarding areas.

American Airlines

American Airlines’ policy waives change fees for passengers booked before Sept. 8, 2020, for travel between March 10, 2020, and March 31, 2021, to rebook and complete travel by Dec. 31, 2021. The policy applies to all airports served by American and allows changes to destination and connecting cities.

Separately, American Airlines now waives change and standby fees for all domestic and short-haul international flights (primarily within North America, Central America, and the Caribbean) booked after Oct. 1, 2020. This policy applies to paid and award fares in all fare classes.

United Airlines

United Airlines’ policy waived change fees for all international passengers booked before March 2, 2020, for travel between March 9 and Dec. 31, 2020. The rebooked itinerary must begin within 24 months of the original ticket date. This policy applies to all airports served by United.

Beginning Jan. 1, 2021, change fees may still apply to international itineraries originating and terminating in non-U.S. territories.

For domestic U.S. passengers traveling from a U.S. airport (including Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands) to any domestic or international destination, United no longer charges change fees on most new economy and premium cabin bookings. Per United, this change complements several other passenger-friendly updates to the airline’s ticketing policy. However, the policy may not apply to Basic Economy fares.

Separately, all electronic travel certificates issued for flight cancellations are now valid for 24 months from the booking date. United has not specified an end date for this policy. United also waives change fees on all new bookings for 12 months from the booking date, though this waiver will likely end at some point.

Delta Airlines

Delta has permanently eliminated change fees and award redeposit fees for most fare classes on flights from North America to anywhere in the world. This policy may not apply to Basic Economy fares.

Delta also waives change fees for all other flights booked after March 1, 2020, for travel through March 31, 2021. Affected travelers have at least until Dec. 30, 2022, to complete travel.

Alaska Airlines

Alaska Airlines’ policy waives change fees for all flights to and from all airports booked on or before Feb. 26, 2020, for travel through Dec. 31, 2020. The airline also waives change fees for all flights booked from Feb. 27, 2020, to March 31, 2021, for travel through February 28, 2022.

In both cases, rebooked travel must commence one year from the original travel dates.

Southwest Airlines

Southwest never charges change fees for rebooked travel. Under normal circumstances, travelers who cancel flights at least 10 minutes before scheduled departure receive credit equal to the fare for rebooked travel within a year of the original reservation date.

However, Southwest has made two important but temporary exceptions to this policy:

  • Beginning Sept. 8, 2020, any accumulated fare credits expire on Sept. 7, 2022.
  • Through Dec. 15, 2020, Southwest Rapid Rewards members can request to convert fare credits set to expire on Sept. 7, 2022, into Rapid Rewards points, which never expire.

JetBlue Airways

JetBlue has permanently eliminated change fees on most fares, beginning on April 1, 2021. Changes to Blue Basic fares may still incur change fees as high as $100 per ticket, however.

JetBlue’s existing temporary change fee waiver continues to apply on all flights booked through March 31, 2021, for travel at any time. Rebooked travel may commence at any time (provided JetBlue has scheduled flights far enough out). Canceled flights produce a travel credit good for 24 months from the original travel date equal to the original fare.

Spirit Airlines

Spirit allows passengers who change their travel plans due to coronavirus to make one free fare modification (to change the destination city or travel dates, for instance) for travel at any point in the future.

Passengers who choose to cancel rather than change their flights receive travel credit equal to the original fare for use within six months of the original travel date or a full refund of the fare.

Frontier Airlines

Frontier Airlines’ policy waives change fees for any booking, provided the change is made at least 60 days before the first date of travel. Later itinerary changes cost up to $119 per change.

Hawaiian Airlines

Hawaiian Airlines offers fee-free changes for all flights to all markets. The waiver applies to all flight dates. Tickets purchased through Dec. 31, 2020, for travel at any time, are valid for two years from the ticket purchase date. Tickets purchased through March 31, 2021, are valid for one year from the ticket purchase date.

Check with Hawaiian health and travel authorities before booking or commencing travel, as Hawaii has had stricter arrival restrictions than most other states.

Hotel & Resort Cancellation Policies

These major hospitality operators have coronavirus-related cancellation and change policies. If you’re staying at an independent property or with a smaller chain, refer to the operator’s website for more details.

Hilton

Hilton no longer has a coronavirus cancellation or change policy in place. However, the chain has made some important modifications to its loyalty program:

  • Extended 2020 Hilton Honors members’ status through March 31, 2022
  • Extended expiration on all unexpired Weekend Night Rewards issued until Aug. 30, 2020, through Aug. 31, 2021
  • Paused Hilton Honors point expiration through Dec. 31, 2021
  • Rolled over all status-eligible nights earned on stays through Dec. 31, 2020, into the 2021 calendar year, keeping them eligible for 2021-2023 tier status

Marriott

Marriott waived cancellation fees for all bookings worldwide (refundable and nonrefundable) through June 30, 2020. This policy was not extended past June 30, 2020, and it’s unclear whether it continues to apply on a case-by-case basis. Check with your destination hotel or Marriott’s customer service hotline for more information.

Separately, Marriott has extended 2019 elite status awards through February 1, 2022, for all Bonvoy loyalty program members, according to an October 2020 release from the company. In February 2021, Bonvoy members who earned elite status in 2020 were eligible for a one-time bonus equal to 50% of their 2020 tier’s annual Elite Night Credit requirement.

Hyatt

Hyatt is waiving change or cancellation fees for all bookings worldwide (refundable and nonrefundable) through July 31, 2021. Limited exceptions apply for certain Hyatt brands, including MGM Resorts.

Additionally, Hyatt is suspending loyalty point forfeiture through at least June 30, 2021. In other words, you won’t lose loyalty points or status due to canceled or deferred travel or because you simply didn’t travel as often as usual during the pandemic, as would normally be the case.

Other loyalty program changes include extending program members’ status tiers as of March 31, 2020, through Feb. 28, 2022, without requiring any additional stays or other qualifying activities.

InterContinental Hotels Group

InterContinental Hotels Group (IHG) has relaxed its reservation change and cancellation policies indefinitely. IHG also instituted a new rate class (“Book Now, Pay Later”) that allows guests to change or cancel reservations up to 24 hours before arrival, with limited exceptions.

Choice Hotels

Choice Hotels offered fee-free cancellations to travelers booked worldwide (refundable and nonrefundable) until Sept. 30, 2020, after which local market policies resumed.

Additionally, Choice Hotels has paused points expiration for Choice Privileges members through at least Dec. 31, 2020. Further loyalty program changes may be on the horizon as well.

Airbnb

Airbnb is broadening its extenuating circumstances policy, which provides compensation when guests need to cancel for extraordinary reasons, to all markets it serves through Oct. 31, 2020. Qualifying bookings must have been made prior to March 14, 2020.

Bookings made after March 14, 2020, are subject to the host’s normal cancellation policy unless the guest or host is sick with COVID-19 on the scheduled check-in date.

Vrbo

Vrbo doesn’t have a global coronavirus cancellation policy, other than a promise to refund its Traveler Service Fee on successful cancellations. The platform encourages guests and hosts to heed travel and health warnings from the World Health Organization and work together to reach a solution when guests must cancel. Vrbo always encourages guests to purchase travel insurance.


When & How to Cancel Planned Travel for a Refund or Credit

Use these guidelines to determine whether to cancel planned travel to affected areas and how to get your money back (or credit toward future travel) if you do.

If you’re still not sure whether the pandemic impacts current travel plans or if you’re not sure you’re eligible to cancel for a credit or refund, check with your carriers, hotels, or tour operators.

When to Cancel Planned Travel Due to the Coronavirus Pandemic

Seriously consider canceling planned travel due to the coronavirus pandemic if you’re a member of a high-risk group, taking high-risk travel methods, or traveling to a high-risk region. Other considerations also apply.

  • You’re Planning International Travel. As the State Department’s global Level 4 warning suggests, international travel is extremely high risk and vulnerable to disruption in a pandemic environment, even when the destinations involved don’t appear to be hotspots. Moreover, the risk works both ways. Even if you’re healthy and relatively unlikely to become seriously ill from COVID-19, you could become a carrier and spread the disease to higher-risk people. Remember, due to the high incidence of COVID-19 in much of the U.S., many international markets require U.S. travelers to quarantine on arrival or prohibit them entirely.
  • You’re a Member of a High-Risk Group Who Has Not Yet Received a COVID-19 Vaccine. That includes people over age 60 and those with underlying health conditions, such as immune system disorders, diabetes, and hypertension. The risk of serious or fatal complications of COVID-19 is much higher for these groups.
  • Your Trip Includes a Cruise. If you’re booked on a cruise anytime soon, you should closely monitor developments and seriously consider rebooking at a much later date, especially if you’re a member of a high-risk group. Communicable diseases spread quickly on cruise ships and many cruise lines have yet to resume normal operations.
  • You Can Get a Refund for Any Reason. If you’re not going to be out money for canceling your planned trip, the calculus is a lot more straightforward. You can cancel altogether or rebook for a later date.
  • You Have “Cancel for Any Reason” Travel Insurance Coverage. Standard travel insurance policies don’t cover cancellations due to concerns about becoming sick. They only apply if you’re actually ill. More generous policies with “cancel for any reason” riders are a bit more expensive but allow you to cancel without penalty no matter what. If you were fortunate enough to purchase such a rider, now is the time to use it.
  • Your Destination or Transit Countries Are Considering Travel Restrictions. You don’t want to get stranded in a foreign country due to sudden travel restrictions. Check reputable local news sources in your destination and refer to English-language government websites for signs of pending restrictions.
  • Your Trip Is Not Essential. Canceling a trip abroad to visit an elderly relative you haven’t seen in years is much more difficult than canceling a destination bachelor party that’s easy to reschedule for after the wedding.

How to Cancel Planned Travel for a Refund or Credit

To get a refund or credit toward future travel if you need to cancel due to the coronavirus pandemic, you must likely rebook your flight, hotel, or tour within a period designated by its operator. Other steps could be necessary as well, including:

  • Checking the Operator’s Coronavirus Rebooking Policies. Check the list of cancellation and change policies in the preceding section and contact each operator for information specific to your booking or destination. When operators allow fee-free changes and rebookings, you could end up paying nothing out of pocket to reschedule.
  • Determining Whether You Can Cancel Without Penalty. If you prefer to cancel without rebooking, read each pertinent travel company’s cancellation policy. Unless you purchased a nonrefundable booking to get a lower rate, there’s a good chance your hotel or resort will allow you to cancel without penalty up to a week before your arrival (and sometimes even closer). If you’ve booked a short-term homestay through Airbnb or another rental platform, your host’s cancellation policy usually determines how much of your booking you can recoup, with options ranging from a full refund to total forfeiture. However, Airbnb has broadened its extenuating circumstances policy, which makes exceptions to host cancellation policies in times of crisis, for the countries hardest hit by the pandemic. Most airline bookings are nonrefundable after 24 hours, though you can pay more for a refundable fare if you’ve yet to book. Without a protection policy, which adds to the cost of the voyage, cruise fares generally aren’t refundable — but many cruise lines are making exceptions during the pandemic.
  • Buying Travel Insurance. If you booked less than three weeks ago, you could still be eligible to purchase “Cancel for Any Reason” insurance that’s valid for your trip. Policies vary by insurance carrier, but it’s worth a shot. You’ll be out the one-time insurance premium but not the full cost of your nonrefundable travel.
  • Calling Customer Service to Ask for a Refund. Expect to sit on hold for longer than usual, but the effort could be worth it. Even if your booking is nonrefundable, extenuating circumstances could curry favor with the rep you speak with (or their manager). For instance, if you’re flying with an elderly relative at high risk for COVID-19 complications, your decision to travel could literally have life-or-death implications.
  • Rebooking Within the Allotted Time Frame. If you can’t cancel your reservation for a cash refund, learn how long your rebooking credit remains in effect. Most airlines allow fee-free rebookings (less the difference in fare, if any) due to COVID-19 well into 2021, and a growing number of airlines now entirely waive change fees on most or all fares.

Final Word

The coronavirus pandemic is the most serious public health challenge caused by a communicable respiratory disease in living memory. Although the final toll is not yet known, this ordeal could well come to rival or exceed the Spanish flu crisis of 1918 to 1919 — the benchmark by which we judge all other modern pandemics — in its toll.

Until everyone who wants a COVID-19 vaccine can get one, we all need to do our part to slow the spread of the virus and protect the most vulnerable among us. If that means canceling the international vacation you’ve been looking forward to for years, so be it.

Source: moneycrashers.com

Dividend Payout Ratio Formula & Definition – Analyzing Blue Chip Stocks

Dividend investing is one of the most common forms of income investing. The idea is to look for stocks that pay high dividends and offer stable growth. In doing so, not only does the investor enjoy growth in share prices, they receive a quarterly or annual dividend payment that transfers some of the company’s wealth back to their shareholders.

With the opportunity to cash in and enjoy value growth, dividend investing is popular, not only among expert investors, but also to the greenhorns of the investing community.

Beginner investors often make the mistake of chasing high dividends without understanding exactly what they are, and the dangers of a high dividend payout ratio can be a warning sign of.

What Are the Dividend Payout Ratio and Retention Ratio?

Investors often use various ratios as a way to determine the quality of an investment. Two key ratios for investors focused on stocks that provide dividend payments are known as the dividend payout ratio and the retention ratio.

Dividends are paid out of net earnings. After all, if dividend payments accounted for more than the company generated in profits, it would have to tap its cash reserves or go into debt in order to pay declared dividends to investors.

The dividend payout ratio and retention ratio give investors an at-a-glance view of how the company divides its income. The percentage of earnings the company pays to investors is the dividend payout ratio, and the percentage of earnings kept in order to fund the future growth of the company is the retention ratio.

For example, if company XYZ generated net income of $100 million and paid $20 million to investors — choosing to hold $80 million in retained earnings to fund growth — the dividend payout ratio comes to 20% and the retention ratio is 80%.

Pro tip: You can earn a free share of stock (up to $200 value) when you open a new trading account from Robinhood. With Robinhood, you can customize your portfolio with stocks and ETFs, plus you can invest in fractional shares.


What Is a Good Dividend Payout Ratio?

As an investor, you want the highest amount of dividends you can get your hands on, right? Well, not exactly.

Investing is all about putting your money to work, allowing time to pass and compound gains to work their magic. It’s important to keep in mind that dividends are a transfer of wealth, not free money.

When a company pays a dividend to its investors, its stock becomes less valuable. A stock with $100 million in cash on its balance sheet is generally more appealing than a company with $80 million.

So, dividends are a give and take, and focusing solely on high dividends can cost you tremendous value in the long run.

So, what exactly is a good dividend payout ratio?

The answer to that question has more to do with your financial goals, comfort with risk, and investing strategy. For most dividend investors, a dividend payout ratio somewhere between 30% and 55% is compelling. Payout ratios below 30% are considered low and above 55% are considered high.

Nonetheless, there are pros and cons to both low payout ratios and high payout ratios.

Low Payout Ratio Pros and Cons

Who wants a low dividend payout ratio? Aren’t you investing to earn money? You might be surprised at the benefits a low dividend payment may have on your investment portfolio’s total returns.

Pros of a Low Payout Ratio

There are several benefits to a lower payout ratio. There are several good reasons for a company to retain more of its income rather than paying our large dividends to shareholders. Some of the most important to consider include:

  • It Costs Money to Make Money. At first glance, seeing a company’s earnings either not being shared at all or only being shared in a small way seems like a bad thing for investors. However, it costs money to make money. Publicly traded companies on the leading edge of innovation in their fields spend massive amounts of money on research and development, which results in higher-value assets and a higher probability of market dominance ahead. As a result, seemingly costly innovation often becomes the goose that lays the golden eggs down the line.
  • Balance Sheet Improvements. A strong balance sheet is important for any publicly traded companies. By choosing to make smaller dividend payments, or choosing not to make dividend payments at all, companies have the ability to bolster their balance sheets. Building up cash reserves or paying down costly debts improves the company’s ability to weather a downturn, which leads to stronger investor interest and ultimately higher stock prices.
  • Acquisitions. Acquisitions are a costly but potentially valuable proposition. By purchasing smaller companies in the same field, larger companies have the ability to use their connections to reduce costs at the smaller company while bringing their products, technologies, and audience in house, greatly expanding revenue potential. Money held back from a company’s earnings that’s used for accretive acquisitions is often money well placed.

Cons of a Low Payout Ratio

Although a low payout ratio comes with its perks, there are a couple of drawbacks to a company’s dividend payout ratio being low.

  • Low Dividend Payments. Low payout ratios generally relate directly to low dividend payments. If you’re investing with the goal of earnings stock dividends, a low payout ratio may not be a good prospect for you.
  • Possible Sign of Financial Struggles. Dividend payments aren’t a requirement among publicly traded companies. In fact, there are plenty of them that simply don’t pay dividends at various levels of success. Oftentimes, companies have a low payout ratio because they’re investing the majority of their net earnings back into growth. In other cases, companies simply don’t make enough money to afford to pay dividends. As such, before investing in a company with a low dividend payout ratio, make sure to research its balance sheet, cash flow statement, and other financial statements to ensure the company is built on a strong financial foundation.

Pro tip: Before you add any stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Stock Rover can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.


High Payout Ratio Pros and Cons

There are obvious benefits to a high dividend payout ratio. After all, a high payout ratio means that you’ll enjoy high dividend payments. But you’ll find thorns on every rose, and a high payout ratio could lead to similar pain.

Pros of a High Payout Ratio

There are several reasons investors get excited about a high payout ratio. Some of the most significant include:

  • High Dividend Payments. The most obvious reason some investors look for high payout ratios is that high ratios directly equate to high dividend payments. If your primary goal is to generate dividend income, a high payout ratio is appealing.
  • Financial Stability. In most cases, a high dividend payout ratio is a sign of financial stability. The company doesn’t have to pay dividends to its investors at all. So, if it chooses to pay a high dividend, it usually has the strong balance sheet and compelling cash flow to back it up.
  • Potential for Reinvestment. Old school investors will tell you to buy dividend stocks and reinvest your dividend payments in order to achieve compelling total returns on long-term investments. The larger percentage of total net income you receive in dividend payments, the more money you’ll have for dividend reinvestments.

Cons of a High Payout Ratio

Although a high dividend payout ratio is appealing for many reasons, it’s also concerning in some cases. There are a few red flags to watch out for before investing in a stock that offers a high payout ratio:

  • Market Saturation. Oftentimes the leaders of a saturated market will make seriously high dividend payments, offering up the vast majority of their net earnings to investors. Once a company comes to dominate a market that it largely has control of, it is comfortable sharing its wealth with shareholders in a big way. Sure, that’s exciting — but market saturation also means tapped growth potential. If you already control a market so completely that you can’t find a compelling use for reinvesting your excess income, there’s not more market share to take from competitors. You only take part in overall market growth, so you don’t have the momentous growth opportunities smaller companies have. As such, a high payout ratio generally comes with little opportunity by way of share price appreciation.
  • Failure to Innovate. If a company doesn’t hold enough of its net income back to fund innovation, its failure to stay ahead of the curve could lead to its demise. Even established companies fall when innovation is lacking. Think of BlackBerry — the smartphone pioneer has become nothing more than a lagging tech stock, losing tens of billions of dollars worth of market capitalization over the past decade. A high dividend payout ratio may be a sign that a dominant company is getting too comfortable and may soon lose its position as a leader in its market.
  • Recessions Happen. Economic recessions and bear markets have been commonplace throughout history. Past earnings aren’t always indicative of future earnings, and economic fluctuations often play a major role in that fact. If a company fails to hold enough of its net earnings back during the good times, its balance sheet may not be strong enough to make it through a recession without significant losses to its stockholders.

Other Considerations to Think of When Investing for Dividends

If your goal is to generate income by investing in dividend stocks, you’re on the right path. Countless people have followed that path to wealth in the past, and plenty more will do the same in the future. However, the dividend payout ratio isn’t the only number investors should focus on when investing for dividends.

Dividend Yield

The dividend yield is another ratio investors use to gauge the quality of dividend payments an investment in a stock will provide. The dividend yield compares the total amount of dividends over the course of a year to the price an investor pays for a stock.

High dividend yields are often the goal. However, a high yield can also be a warning sign. For example, energy companies are known for paying compelling dividends. When oil prices are up and these companies are doing well, their dividend yield shrinks as their stock price grows. Conversely, when oil prices are down and these companies are struggling, the dividend yield increases as the stock price shrinks.

At these points, many in the energy sector may struggle to keep dividend payments high in order to attract new investors. However, the high dividend yield could be a trap, driving new investors into a diving stock.

So, although you’ll want to be paid relatively high dividend yields, make sure to do your research to ensure that the high yield is not the result of economic inefficiencies in the company or declines in the sector as a whole.

Dividend Sustainability

Sometimes you’ll become interested in an investment opportunity because of high dividend payments, only to find that its dividends begin to shrink in the coming months.

Ultimately, dividend investing requires research, not only into the dividends provided by the company, but how sustainable those dividends are. The higher the dividend payout ratio and dividend yield, the higher the probability of dividend sustainability issues.

Do your research, not just by looking at dividend payout ratio and dividend yield, but by looking into the company’s saturation of its market, innovation, and other factors that will lead to continued growth and the continued ability to pay compelling dividends.

Total Rate of Return

A high dividend payment doesn’t always mean that you’ll experience a high return. For example, a dividend yield of 3.5% or higher on a stock is considered high. If that 3.5% is added to another 6.5% of stock price appreciation over the course of a year, the total annualized rate of return on the investment would come to 10%.

However, high dividend payments are often coupled with slow or no share price appreciation. If you invest in a stock with a high 3.5% dividend yield, but the stock price only grows 2% annually, your total annualized rate of return is 5.5%, lagging far behind the average market growth rates of the major benchmarks. You’d be better off investing in low-cost index funds.

Form of Dividends

Dividends come in two forms. They will be paid in either cash or stock. For example, if a company pays a cash dividend, the total amount of dividends will be divided by the total number of outstanding shares and paid accordingly.

If the dividend is a stock dividend, the company will announce how many shares will be given to each shareholder per share owned. For example, a company may offer a dividend of .05 shares per share owned, representing a dividend yield of 5%.

However, be careful with dividends that are paid in stock. Oftentimes, cash payments will not be offered for fractional shares. As a result, if you don’t own enough shares to earn a full share as your dividend payment, you may not receive a dividend payment at all.

Dividend Reinvestment

There are two purposes for investing in dividend stocks. Either the investor is seeking income, with dividends providing quarterly or annual payments they can count on, or they’re looking for long-term growth generated by reinvesting dividend payments.

If you don’t have an immediate need for the additional income that dividends provide, you have the opportunity to harness the power of compounding gains by reinvesting all or a percentage of your dividend payments into the purchase of new shares. Most brokerages allow you to do this automatically, turning cash dividends into additional shares with each payment, without you ever having to lift a finger.

Preferred Stock or Common Stock

Before following a dividend investing strategy, it’s important that you do your research to get an understanding of the benefits and drawbacks offered up by preferred stock and common stock.

Dividends are paid differently for different types of stock. For example, with common stock, dividends can fluctuate up or down or stop completely at the company’s discretion. With most classes of preferred stock, dividends are predetermined and will stay fixed as long as you hold the stock.

General Due Diligence

Regardless of how significant a company’s declared dividend is, it should not be the sole reason for an investment in any stock. Before making an investment, it’s important to do your general due diligence.

In other words, ask yourself this simple question, “Would I buy this stock if it didn’t offer dividends?” If the answer is “no,” move on and look for a better opportunity.

Dividend Investing Has Its Time and Place

Dividends are a give-and-take. Most stocks that are known for compelling dividend payments are known for relatively slow, steady growth. As a result, a high dividend stock allocation is great during bear markets.

On the other hand, during bull markets, dividend stocks don’t experience the dramatic growth seen in the overall market. So, when the market is hot and stock prices are on the rise, you may want to reduce your exposure to dividend stocks in order to free up funds to take advantage of the figurative running of the bulls on Wall Street.


Final Word

Dividends are an exciting concept. If a stock sees compelling share price appreciation and pays dividends, investors get to have their cake and eat it too. However, there aren’t many stocks on the market that are known for both compelling dividends and compelling price growth.

Although dividend stocks are a great option for a well balanced portfolio, only focusing on dividends could lead to stagnant growth — or worse, losses.

When making an investment, make sure to take a comprehensive look at the company, gauging its financial stability, its past and future pipeline of innovation, and its drive either to become the leader of its industry or to maintain its crown.

Dividend investing has made many millionaires, and will make plenty more in the future. Making educated investments and following a dividend investing strategy may be your ticket to being the next stock market success story.

Source: moneycrashers.com