To Rent or Buy? There’s More to It Than Money

After you have thoroughly researched the financial issues of the rent-versus-buy decision, let’s look at the issue from a different perspective, one involving emotional factors and personal preferences that collectively determine the impact of your decision on your quality of life. These “non-financial” issues are based on your personality, abilities and values.

They require careful consideration, beginning with this question: what attributes about the place you live in are most important to you? (If you haven’t yet researched the rent-vs-buy decision, see To Rent or Buy? The Financial Issues – Part 1.)

Environment: City Vs. Suburbs

The environment you choose to reside in plays a major role in your quality of life. Consider your personality. Do you like the character of the city, with its nightlife, quaint cafés and diverse cultures, or do you prefer the safety, conformity, green space and free parking in suburbia? Do you prefer to walk to work, take the subway or ride the train? How important is privacy, and how far do you like to live from your neighbors?

If you can afford only those properties in environments that do not fit your preferences, you need to think about whether you are willing to forgo these preferences for the sake of owning a place.

Amenities versus Customization

Dollar for dollar, renting generally offers a substantially greater number and variety of amenities than buying. Consider, for example, the number of homes that come with an Olympic-sized swimming pool, clubhouse, tennis courts, basketball court and on-site gym. If you’re looking to have these amenities in your private residence, get ready to spend a lot of money. Upscale apartment buildings, found in nearly every city, offer such options at a comparatively lower monthly rent than a mortgage for a property with the same attributes. On the other side of coin, there are affordable homes with private outdoor spaces that you can customize to your liking. There aren’t many apartment buildings that come with acres of property in the country that will let you do your own landscaping, keep horses or grow a garden.

Flexibility Vs. Stability

Renting a place to live gives you significantly more freedom to get up and go at a moment’s notice. The financial consequences of breaking a lease are minimal and can be addressed by simply writing a check. Homeowners wanting to leave their current residence face the much more complicated process of selling their property. The mortgage still needs to be paid and the grass still needs to get cut while you are waiting to find a buyer. Unless money is no object, the transition to a new place of residence is likely to take months, not days. On the other hand, with the flexibility of renting comes also some instability. The landlord can always raise the rent or ask you to move before you are ready to do so. If you own a house and make the payments, you can stay as long as you desire.

Personalized Aesthetics Vs. Less Work

Buying a house gives you the opportunity to choose a unique and distinct architectural style and to personalize it. But this freedom comes with the responsibility of keeping up with maintenance and repairs. Homeowners simply can’t avoid the need to cut the grass and fix leaky faucets. If you prefer to spend your weekends relaxing in the park instead of wandering the aisles at the local hardware store, you might want to think twice about buying a home – unless of course you can budget a substantial amount of money to hire some help.

Although renting gives you no control over exterior aesthetics, you don’t have to worry about dealing with wear and tear on your residence or problems resulting from bad construction. Renting still gives you plenty of opportunity to choose furnishings and decorate your interior environment in a manner that suits your style. And, as a renter, all you have to do when something goes wrong is notify your landlord.

Emotional Satisfaction Vs. Less Worry

Homeownership is often called “the American dream“. There’s just something emotionally appealing about putting down roots, getting involved in the community and having a place to call your own. Of course, homeowners also need to worry about the long-term character of the neighborhood and keep up with maintenance in order to sustain property values. If you’re simply looking for a place to rest between days at work and nights hitting the town, renting may be the perfect answer. Just keep paying the rent and let somebody else do all the worrying.

A Personal Decision

Unlike the financial aspects of homeownership, the aspects that have a bearing on your lifestyle and values cannot be calculated online with some mathematical formula. If you can make the rent payments or qualify for the mortgage, you can live anywhere that you want to live. But buying a home is a decision you should take some time to consider, determining how its location, amenities and need for repairs will affect your lifestyle and general emotional satisfaction.

Steven Banass

Director of Quality Control

truerate partners

350 Pfingsten Suite 103 l Northbrook, IL l 60062

DIRECT:  (224)-374-1470www.trueratepartners.com

10 Must-Know Money Moves for 30-Somethings

Your thirties… it’s a time when the stresses of life become real. You’re probably dealing with a new family, balancing a career, while memories of your partying days are fading fast.

It’s unavoidable that certain financial responsibilities come with this next chapter in your life, and we’ve highlighted ten of the most important.

1. Understand the retirement vehicles

While many twenty-somethings may have overlooked socking money away for retirement (as they’ll never get that old!), it’s extremely important to start thinking of your golden years in your thirties. Most Americans aren’t saving enough for retirement, and starting early is the surefire way to grow your nest egg.

Knowing the different retirements accounts(e.g., traditional IRA, Roth IRA, 401(k), etc.) at your disposal will help to maximize how you save for your future.

2. Forget spontaneous spending

Remember the time you booked a flight to Mexico on a whim? Most likely, you didn’t save for the trip and it cost you a pretty penny.

It’s time to hunker down and create savings goals (see number three below), instead of putting everything on your credit card and worrying about paying it off later.

3. Maximize the savings

Growing up with a passbook savings account as a child was a great way to start learning to save at a young age. As a 20-something, the savings account did not get much attention because the active lifestyle left little to be saved in the first place. But now, as the savings start to accumulate, you’ll see that the big bank isn’t paying much interest on your deposits.

It’s time to look at online savings accounts, certificates of deposit (CDs) and other deposits accounts to grow your savings. Don’t forget strategies such as CD ladders to put these deposit vehicles to greater use.

4. Realize debt is a big deal

By this time, if you haven’t paid off your college loans, it’s time to increase your payments. Paying just enough to cover the interest is not an option anymore, as you have many other financial responsibilities to think about.

Paying more than the minimum payment is a requirement to eliminating credit card debt. For larger loans such as student loans, car loans and mortgages, you’ll be surprised how much an extra payment per year can reduce the lifetime cost of the loans.

5. Identify the money leaks

You’ve heard it before from financial experts on TV and online: create a budget! There’s a reason why this advice is so strongly advocated — tracking where you are spending your money is extremely important, as it can pinpoint spending problems.

Cutting back on certain expenses, like eating out or clothes shopping, can help curve spending. The goal is to find the problem areas and fix it, so you can save more. Withpersonal financial management tools, you don’t have to do much work to keep a close eye on your spending habits.

6. Investment-portfolio rebalancing

If you were reluctant to open an investment account in your twenties, now is the time to start one. Time is the one important factor in building a nest egg, so the earlier you start, the better.

Over time, your investments will rise and fall in value, causing a change in the risk of your overall portfolio. If stocks were doing well recently, you’ll find that stocks will make up a larger percentage of your portfolio. You’ll want to rebalance that risk by selling some stocks and buying more bonds.

Take a look at your portfolio every quarter or every six months to see if you need to rebalance. You can eliminate this financial task by investing in target-date (or life cycle) funds, which automatically rebalances themselves.

7. Minimize unnecessary fees

Fees on financial accounts can add up over the long term, and if you’re in your thirties, paying for unnecessary fees should be a thing of the past. Overdraft fees, late fees, brokerage fees, mutual fund fees and ATM fees are just some of the costs that can be avoided by creating account alerts, looking for account alternatives and automating payments.

Review each fee that you incur and research the available options to mitigate or eliminate that fee.

8. Create an emergency fund

As life gets more hectic, it also gets more expensive. Not saving for an emergency fundcan really hurt you financially. Even if you only put aside $100 a month, be sure you’re making this a priority.

Many Americans are left to deal with a mountain of debt after being hit with an unforeseen accident, emergency or tragedy.

9. Think about ways you can make more money

Whether it’s supplementing your income, or being savvy enough to ask for a raise — it’s time to think about how you can increase your take-home pay.

When it comes to a choice between cutting out the things you love (your daily cup of coffee, those expensive haircuts), most people would probably rather increase their income.

10. Learn how to negotiate

Whether it’s negotiating lower closing costs for your first home, a higher salary or your cable TV subscription, brush up on this important skill.

Most people accept the fact that they must pay a certain price for items, when in fact you can just about negotiate anything. Someone responding with a strong “no” is probably the worst that can happen.

Steven Banass

Director of Quality Control

truerate partners

350 Pfingsten Suite 103 l Northbrook, IL l 60062

DIRECT:  (224)-374-1470

www.trueratepartners.com

What to Know Before Refinancing a Mortgage

There are many good reasons to refinance a mortgage, but it’s not right for everyone. Several key factors need to be considered to determine if refinancing is a viable way to meet financial goals.

First, you need to determine your goals for refinancing. Are you looking to reduce your monthly payments, or simply the amount you will pay over the duration of the loan? Is the goal to shorten the term of the loan? Other reasons to refinance include getting out of an adjustable rate mortgage (ARM) and into a fixed-interest loan, or to get into an ARM with better terms. Obtaining cash out from equity is another reason many homeowners choose to refinance.

Refinancing can be a way to achieve one or more of these goals, but generally only if you intend to stay in the home over a long term. If the plan is to sell in a few years, the cost of refinancing may not be recovered when the house is sold. It also may not be a sound economic choice if you've been paying on the current mortgage for a long time.

If your credit score is higher or your debt-to-income ratio is better than when the original mortgage was signed, it might be a good time to refinance. And to protect your credit score, it’s wise to hold off on applying for any new credit cards as soon as you decide to refinance and until after you close.

Like a mortgage, refinancing costs money. There are loan origination fees, application fees, a charge for activities like an appraisal or title search, and potentially other fees, and your current mortgage may stipulate a prepayment penalty. All of these costs need to be wrapped up in the refinancing package, along with the loan amount, even with so-called “no cost” refinancing. Once interest in calculated, the terms and total cost may not help you meet your goals.

If the primary reason to refinance is to pay down more of your loan, remember you can do this simply by increasing your payments. If a lower interest rate can be obtained, then refinancing to a 10- or 15-year mortgage may be a good choice if the payments fit your budget.

If payment reduction is the motivating factor, then a long term loan such as a 30-year fixed mortgage may be a smart choice, especially if you’re planning on staying in the home for a very long time. However, equity in the home will grow more slowly and the total cost of interest over the term of the loan may be very high. Take a look at the total numbers. For example, a Federal Reserve publication shows a fixed-rate loan of $200,000 at 6 percent for 30 years will carry a $1,199 monthly payment and the total interest paid will be $231,640. Meanwhile, a fixed-rate loan at 5.5 percent for 15 years will have monthly payment of $1,634, or about $435 more, and the total interest paid will be substantially less at $94,120.

If getting out of an ARM is the goal, it’s important to compare the annual percentage rate (APR), not just the quoted rate, to your current APR to see if you will really save money either over the term of the loan. If the difference isn’t at least one-half point, paying less over the course of the loan is unlikely.

Cashing out equity in the home may be another motivation to refinance, but you’ll want to compare the terms to a home equity line of credit (HELOC) or home equity loan. Also known as a second mortgage, this allows you to borrow against the equity in the home, meaning the portion of the home you own.

If you believe you might be underwater with your mortgage, meaning you owe more than the current value of the home, you may be able to refinance under the Home Affordable Refinance Program (HARP). An appraisal isn't required for HARP loans, which are designed to help homeowners with good payment history get into stable, affordable loans.

Shop around with lenders for terms and negotiate but also work with your current lender as some fees may be waived to keep your business with them. Less paperwork may also be required with your current lender, but you’ll have more leverage if you get several quotes in writing.

Steven Banass

Director of Quality Control

truerate partners

350 Pfingsten Suite 103 l Northbrook, IL l 60062

DIRECT:  (224)-374-1470

www.trueratepartners.com

8 Things You Don’t Ever Need to Buy New

It’s sometimes a hassle to try to get the best values out of purchases without putting a dent in your wallet.  

If you’re strapped for cash or just love getting a good deal, consider making your next purchase through secondhand options such as consignment or buying used goods. Many high quality items can have a hefty life span even after they were bought used.

We highlight eight purchases that you should consider buying used to get the most value for your buck!

Steven Banass

Director of Quality Control

truerate partners

350 Pfingsten Suite 103 l Northbrook, IL l 60062

DIRECT:  (224)-374-1470

www.trueratepartners.com

Keep this Hand Guide to Mortgage Types - Truerate Partners Northbrook, Il

Keep this Hand Guide to Mortgage Types, and call me when you are READY! - Steve@truerate.us

Loan type/terms	Fixed rate mortgage 30 years	Fixed rate mortgage 15 years Fixed rate mortgage 20 years	Hybrid ARM	Traditional ARM	Balloon Mortgage
Rate changes	Never; fully fixed for entire term	Never; fully fixed for entire term	Usually after fixed period of 3, 5, 7 or 10 years, then annual change typical	Fully variable, typically changing at one-year intervals; some have shorter change intervals	Never; fully fixed for entire term
Benefits	Low, stable payment; usually easiest qualification	Stable payments; builds equity faster; lower total interest costs than 30-year term	Lower rates than fully fixed-rate mortgage; can sometimes borrow larger loan amount for same income	Can have lowest interest rates, but qualification may not depend upon today's interest rate	Often has lower interest rate/monthly payment over balloon period than fixed rate; similar to hybrid ARM
Drawbacks/Risks	Can have highest total interest cost over time; user may "buy" more rate stability than actually needed, increasing cost	Requires higher income to qualify; less affordable monthly payment; funds commited to payment cannot be used elsewhere	Stable payment for a number of years, then unpredictable; rates can jump by as much as 6 percentage points at first adjustment	Payments fluctuate at each rate change; unpredictable, rates can change as much as 2 percentage points at each adjustment	Loan fully due and payable when balloon period ends; must be paid off or refinanced in unknown market conditions
Alternative strategy	Consider Hybrid ARM with appropriate fixed period	Consider 30-year term and prepaying loan to preserve cash-flow flexibility	Consider Fixed rate mortgage or longest possible fixed period, if loan hold period not known	Consider Hybrid ARM to ameliorate rate and payment risks for a given period	Consider Hybrid ARM to ensure continued loan availability
These may be useful for…	Purchasing a home; first-time homebuyers; refinancing to improve cash flow/lower payment	Refinancing to lower total interest cost; retiring mortgage more quickly; building or rebuilding equity more quickly	Purchasing or refinancing when time horizon is seven years or shorter, and where borrower can handle increase in monthly payments	Purchasing or refinancing when interest rates are near top of cycle, and are likely to fall, or sale or refinance is anticipated within three years	Purchasing or refinancing when time horizon is three years or longer and home will be sold prior to end of balloon period
Consider if	Buying or refinancing a home and planning on owning for longer than 10 years	Buying second home; refinancing to build equity; paying off mortgage before life event (retirement, etc)	Buying a home and expect to move before fixed period ends, or know income will rise to offset payment risk, even in worst-case scenario	Buying or refinancing when income can handle frequent payment changes and worst-case scenario for rates over a four-year period	Buying a home and expect to move before balloon period ends, or have resources to pay off mortgage if refinance not available
When shopping, ask about	"Full cost" vs. "No cost" refinances, prepaying loan to shorten term if desired	If 20-year term makes payment too high, whether 25-year term is available	Interest rate caps, for first and subsequent adjustments, worst-case scenario	A history of the Index the loan is keyed off, margin and caps	Whether or not there is any built-in refinancing option when the balloon period ends

Time to Get Over these 5 Credit Myths

Credit and credit cards can be intimidating to manage, but having credit (good credit most importantly) is vital in today’s economy. Given the events that have transpired during the last few years, lenders are stricter. Fortunately, as the market is rebounding, so is lending optimism. Now is the time to understand your credit and where you stand. You may not agree that three-numbers should decide your credit faith, but lenders have been using this score as a determinant for a long time.

It is important to remember that your score doesn't reflect whether or not you are a good person, but whether or not you are a responsible person when it comes to the ability to manage credit. Again that does sound daunting; however, getting your credit in a manageable place and keeping it there can be simple.

The only thing that impedes this possibility is our own hang-ups about credit. Therefore, we need to find some sticks, build a bridge, and get over it.

Starting with these five myths: