Jeremy Fulton, Financial Wellness Coach

Tag: rates

  • 6 reasons why now is the perfect time to buy a home

    6 reasons why now is the perfect time to buy a home

    Its a new year.  Things are going to be different this year!  You have set goals for yourself, your family, and your career.  But there is one thing that is still bugging you.

    You feel like you are still throwing money away every time you write out that rent check.

    “I could be building equity in my own home, not having to live in this crowded apartment building, and not having to worry about the rent going up, again.”

    If this is you, now could be the perfect time to buy your first home!

    1. 2.93% APR
    Rates can’t drop much more than that for a 15 year fixed rate mortgage!  Many analysts think that the rates will be increasing in the next 3-12 months.  Why didn’t I quote the 30 year rate? Because you should stay away!  Not only is it a point higher, but you will end up paying a LOT more in interest charges over the life of the loan.  And besides, who wants to be in debt for 30 years?

    2. Weak housing market (at least in CT)
    Home prices are still down, but the market is improving!  This could be unlike any other time in history or the future for prepared homebuyers!  Opportunity favors the prepared!

    3. You’ve lived in the area you want to buy in for a while
    Learn from my mistakes, don’t pick an area to buy in until you know the area a bit.  Where will you be spending your time?  Are there areas you want to live at a distance from? Close to?  Where do you work and socialize?  If you live too far, you can end up feeling isolated, or end up spending more in fuel than you anticipated driving all over.

    4. You have a down payment saved
    After the housing debacle a few years ago, it’s almost impossible to get a 0% down loan (a few options, such as VA, are much more expensive than conventional loans); most banks require at least 10%, but 20% is still the magic number!

    5. You are debt free
    And I mean all debt (including so-called good debt)!  Becoming debt free is a much higher priority to reaching financial peace then owning a home.  Once your income is freed from the burden of debt, you can maximize it’s wealth-building capabilities, including building equity in a home.

    6. You have a fully funded emergency fund
    When you own a home, you are liable for ALL maintenance and repairs!  No landlord to call at 4 am when the heater quits in February!  You need to have that 3-6 month reserve to cover whatever Murphy throws at you.  Also, what happens if you lose your job?  You’ll still need to pay the mortgage!

    Bonus:
    Now how do you determine how much house you can afford?  It’s a very simple calculation; no need to find an online calculator.  Don’t spend more than 25% of your after-tax pay on a 15 year, fixed rate mortgage.  Being house poor is no fun, better to have a modest home and money to spend, invest, and give.

    Double Bonus:
    When figuring out your payment, don’t forget to include property tax and homeowners insurance!  Depending on where you live, those can add $400-600 a month to your payment!

    Not ready to buy yet?  Lets develop a plan and get you ready, together!

  • What is a Bond?

    Last week we answered the question, “What is a Stock”.  This week lets look at Bonds.  You’ve heard of them, I’m sure as an investment, “stocks and bonds.”  But what is it?

    A bond is considered a “debt investment.”  When you purchase a bond, you are loaning a company (issuer) your money.  It’s the opposite of your mortgage or auto loan; you make money off of them.  Though bonds rarely pay the same interest rate that you pay on your debt.

    Because a bond is a loan, it pays a fixed interest rate (coupon), usually every 6 months, and after the loaned money is paid back (on the maturity date).  Because they pay a fixed rate, they are also referred to as a type of fixed income security.

    Also because the payment is fixed/predicable, they are considered a lower risk investment than stocks (we’ve all heard stories of people loosing money in stocks).

    This lower risk comes at a price, though.  Bonds rarely have the earning potential of stocks or mutual funds (we’ll learn about mutual funds in a future post), and as such, having any significant amount of them in a portfolio can limit your ability to grow it for retirement (this is contrary to most financial advisors’ recommendations).

    The bond’s coupon is a function of credit quality of the company and the duration of the maturity.  You’ve probably heard of “junk” or high-yield bonds; when you invest in those, you are loaning a company money that may not be around long enough to pay you back, and as such, they pay the highest rates, whereas companies such as GE pay very low rates.

    It is possible to sell a bond before it’s maturity date; in fact, the first exchanges (think NYSE) were to buy/sell bonds!  The Venetians were exchanging them as far back as the 1300s!  In 1531 the first exchange was started in Antwerp, The Netherlands, long before stocks existed.

    An interesting fact you may not have thought about is that Savings Bonds are debt instruments of the US Government.  The national debt is nothing more than our government issuing bonds to pay for things that tax revenue doesn’t cover.  If you want to read a little bit more on bonds and bond markets, check out Investopedia .

    Well, what did you think of this article?  Do you have any questions or comments?  I’ll answer and address anything you post in the comments below: