Math Skills Key to Protecting Your Home

Maybe when you were in school you were one of those kids who dozed off in math class and always thought, “When will I ever use this stuff in real life anyway?”

And maybe if the subject was algebra, you were partly right. But in the world of homeownership, math matters. One study proves it in rather sobering terms.

Homeowners with poor math skills, the study found, were five times more likely to default on their loans and end up in foreclosure, according to the study which included input from economists with the Federal Reserve in Atlanta.

“Whether you’re good with numbers predicts how likely you are to default,” said of the study’s authors.

Let’s dig a little deeper into the study, which was highlighted in Cnnmoney, but before we do let me make a couple of things clear. A lot of smart people aren’t good at math. I know many. The smartest of those smart people also understand math isn’t their best subject and seek guidance with their finances when necessary.

Your REALTOR® may not have won his or her high school math award, but your REALTOR® will understand how mortgages work. This is yet another area where a REALTOR® can be of immense help to you.

As for the study, it examined hundreds of borrowers who held mortgages in 2006 and 2007. Or right before a lot of the problems in housing started (fortunately, we are in a much better place now). Researchers found that 25 percent of borrowers who scored the lowest in math skills had defaulted on their mortgage payments within five years of taking out a loan.

But of the homeowners who scored in the highest tier in math skills, only 5 percent had defaulted on their loans. Furthermore, researchers discovered the type of loan did not matter. “Those lacking (math skills) will still get in trouble later on even if they pick a plain vanilla mortgage,” one of the economists said.

This study and others also confirmed that people with poor math skills typically do a poor job of budgeting, may misuse credit cards, and react badly to even temporary disruptions in their income.

None of this news, however, needs to be scary. Rather, it’s a free lesson in understanding that if math is not your strong suit you should take advantage of the assistance in this area that your REALTOR® can provide. Or think of it this way: Two heads are better than one.