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Monthly Archives: April 2017
4 reasons to buy a home instead of renting
The financial benefits of buying a home compared with renting have yoyoed over the years, especially of late. If you’re sitting on the fence, here are four circumstances in which it may be a better bet to buy.
If interest rates remain low
From a financing perspective, if this isn’t the best time to buy a house, it’s pretty darn close.
The average interest rate on a 30-year fixed mortgage, the most common variety, has hovered below or near 4% for several months now. For comparison’s sake, if you bought 10 years ago, the average interest rate was 6.41%. In 1996, it was 7.81%, and in 1981 it was a whopping 16.63%.
Although the Federal Reserve has begun to inch rates upward, it is likely that it will do so slowly and that it will be a while before the cost of borrowing to buy a home stops being historically low.
If home prices level off
Home prices rose steadily in the 1970s, ’80s, ’90s and 2000s before plunging around 2007, and in the past few years they have been climbing again. Different markets have seen different trends, of course, but generally what’s at play is supply and demand: More potential buyers than houses available means sellers can dictate terms and get top dollar.
But something interesting is happening: The oft-told story that millennials are renting for longer or living with their parents nowadays is not entirely accurate. No, people in this age group (born between 1981 and 1997) want very much to own a home, but they are putting it off because of real and imagined difficulties in affording it.
That could mean fewer potential buyers and a cooling of the upward surge in home prices. While others wait, you could pounce.
If rental costs continue rising
Real estate researcher Reis Inc. reports that apartment rents rose 4.6% in 2015. In hot housing markets such as California and the Pacific Northwest, rents are going up by about 14% per year. According to Zillow, the median asking price nationwide for a rental was $1,575 per month in early 2016.
The monthly payment on a $200,000 mortgage — about the average in the U.S. — with a 4% interest rate would be just over $950. Even with taxes, insurance and maintenance, it’s tough to make a financial case in favor of renting.
If you want to save money
Home values over the past 70 years have generally tracked with inflation. Yes, you could make more money in the stock market. But we’re talking real life, not investment advice. Consider two things:
- Your rent is locked in for a year or two, then will go up. Your mortgage payment can be the same for 30 years.
- If you are raising a family, it seems all but impossible to save money. But when you sell the house after 30 years (or 20 or 10), someone will hand you hundreds of thousands of dollars, money that could put the kids through college or finance your retirement.
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Are points really worth it?
Are rewards programs worth the hassle- or the cost? That depends on you, and the types of rewards you’re working towards. For instance, airline miles are notoriously difficult to redeem…blackout dates, limited seats, and inconvenient flight times are just a few of the challenges. In comparison, hotel and merchandise points are relatively easy to earn and redeem, as are cash back rebates.
The offers can be so tempting
You’re spending money, so why not get something in return? It’s a great option for consumers who love to travel, can be flexible and are organized enough to keep track of the offers and deadlines. Even better are the points that can be redeemed for cash. It sounds too good to be true, but is the opportunity for rewards worth some of the trade-offs? Should you even consider a higher interest rate or an annual fee in exchange for a seemingly lucrative points program?
The answer is in the details
The key is having a clear and detailed understanding of the rewards program. Many programs set minimum spending requirement each month before points can be earned while others have minimum redemption requirements. Miles might only be redeemed on one named airline. Big cash back advertisements may be for a limited time or restricted to specific shopping categories. Each program is different and unique so heed the small print.
There’s also the credit card terms to consider. If you’re not able to pay off your credit card balance each month, the cash back bonus won’t make a dent in the interest you’re accruing, and some credit card companies charge a hefty annual fee.
Maximizing your benefit
To get the most benefit from a rewards program, you should plan to use your credit card frequently. You should also have your debt management well under control and be able to avoid accumulating any revolving debt as a result.
Ask any group of people why they chose a given credit card, and a vast majority will say it’s the rewards that reeled them in. For some consumers, they work. For others, they sound too good not to work. Understanding the details and knowing your own spending habits are what will help you choose the card that best suits your needs.
Should you borrow to get an MBA?
If you’ve decided that an MBA is an important investment in your career, then your next step should be to determine how to finance your next two years of study. While many students rely on a combination of their own savings, help from family and other outside sources, other students have only to rely on the availability of grants, loans, and employment. If you’re a member of the latter group, don’t be discouraged. There are multiple resources that can help you overcome the financial challenges.
Start where the money is free. Grants, also called fellowships, fall into this category because they do not need to be repaid. A grant is awarded from the government, a foundation, or a trust and is typically given to an institution, a business, or an individual. The criteria for receiving a grant is not necessarily achievement based and can be more general in nature.
A business degree makes you a valuable asset to your employer, which is why your company may be willing to finance your post-baccalaureate education. They may already have a tuition reimbursement program in place. If not, submit a proposal that highlights the benefits of investing in you and your future at the company. Interviewing for a new position? Consider using tuition reimbursement as a negotiating tool.
Student loans, the most popular education financing tools, fall into the opposite category because they require repayment. Federal student loans can be either subsidized or unsubsidized, which determines whether the government or the borrower is responsible for paying the interest while you’re in school, as well as the generosity and flexibility of the loan repayment terms.
Private loans designed to meet the needs of an MBA student can also be attractive options when it comes to supplementing other sources. In fact, if you have excellent credit, a private lender may be able to offer a more competitive interest rate and friendlier repayment terms. Most private lenders don’t charge application, disbursement or origination fees and you can refinance your loan if interest rates go down or your credit score increases.
While they may not be your first choice, don’t cross private loans of your list quite yet. They do have their advantages, especially when you combine them with other sources to create a flexible and smart financing package.
Buying a home? Budget for more than just mortgage costs
Buying a home is one of the most important purchases you’ll make in your lifetime so it’s important to make sure you set realistic expectations about how it will affect your monthly budget. Your mortgage payment will make the largest impact, but there are additional costs you should consider before signing on the dotted line.
Bigger house, bigger bills
Chances are you’re living in an apartment or smaller accommodations before purchasing your new home. You probably have a good idea of the types of expenses you’ll incur, but with more square footage, expect those expenses to increase, like heating and air conditioning and gas and electricity. Will you have a luscious green lawn that needs watering? Count on a higher water bill, too. And if you’re looking forward to a second TV in your new man cave then even your cable bill will be bigger!
In the south, a termite bond is often needed. Pest control is recommended quarterly. You may pay homeowner association fees if you live in a subdivision or condominium, plus homeowner’s insurance and higher property taxes. You should also set aside a little cash each month for repairs and maintenance.
When you close on your home, you’ll also have to pay the moving company. Obviously not a monthly cost, but it could be a hefty one that you should consider. There’s also the cost of furniture or appliances that you’ll need…a refrigerator, washer, and dryer, lawnmower, or anything else you’ll need relatively soon. Will you use credit to purchase these items? They can easily turn into monthly expenses by way of a credit card bill, so be sure to account for those payments, too.
Knowing is the key
This list of expenses is not meant to deter you from home ownership. People manage their expenses every day living in their dream homes—and you can, too. If you are aware of the additional expenses you can make the necessary adjustments. Maybe you prioritize some other purchases or even consider a smaller sized home so financially you can live more comfortably within your budget.
Knowing what you can afford is the first step in making a smart, educated decision. By tallying up your monthly expenses along with your mortgage payment before you make a purchase, you’ll be better prepared for happily ever after in your new home.