Is it Expensive to Build Credit?

Building credit doesn’t have to cost you money. In fact you can save money in the process.

There are two kinds of goods that we buy: consumer goods and durable goods. Consumer goods are used up shortly after purchase. Durable goods are used over a matter of years. In the vast majority of cases durable goods are more expensive, and you need to borrow to get them.

Some goods are nearly always bought with credit. Real estate is the perfect example. When was the last time that you heard of someone buying a house with cash? It’s so rare that too much equity in a first home purchase is flag for the bank to check for money laundering. New cars and business start-up expenses are usually financed, too.

Consumer goods, however, can be bought with cash or credit. If you’re thrifty, you’ll save up the money for a purchase rather than racking up a balance on your credit cards. Paying with cash keeps you on budget, saving on interest charges and reducing your stress. (more…)

When Does a Variable Rate Mortgage Make Sense?

When you expect interest rates to drop in the next five years, because you borrowed a time machine and checked.

When you are house shopping, you often look at the price of the monthly payments faster than the cost of the house. After all, it is hard to wrap your head around paying tens or hundreds of thousands of dollars, even over the course of many years. Chances are you won’t even live in the house that long. So the monthly payments are a much more applicable number.

Yet this is a way of decreasing your monthly payments that leads you down a dangerous path. A variable rate mortgage may decrease your payments in the short term, but will shoot them to the stars
should rates go up. This is of particular concern in an environment where rates are at record lows. (more…)