The benefits of buying your own home

This was originally published on Monday, July 10, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Purchasing a home is one of the biggest financial decisions you will make in your life. It’s important to consider how buying a home will affect your finances and lifestyle before making the purchase.

When you think about purchasing a home, think about the following:

  • Do I really need to buy a home?
  • Is my income going to grow?
  • Will I stay in a home long enough to benefit from the purchase?
  • Do I have enough money saved?
  • Am I ready for the responsibility?

Homeownership can be a one of the greatest financial rewards. Here are some of the advantages:

  • Predictable monthly payments. Depending on the type of mortgage, you could have the same monthly payment for the length of your mortgage. Landlords can raise your rent at the end of a lease. If you are locked into a fixed mortgage your payments will not fluctuate.
  • Equity. Home equity is typically a homeowner’s most valuable asset. That asset can be used later in life. To calculate equity, subtract any outstanding loan balances from the property’s market value. Home equity can increase over time if the property value increases or the loan balance is paid down. When you rent, you won’t have an asset when your lease expires.  The equity in your house can be used for emergencies, funding home renovations and even help with your nest egg. If you own your house for a long time, the value probably increased. As you get older, you may want to downsize. Selling your larger home to move into a condo or an apartment will free up some money to enjoy retirement.
  • Tax advantages. Owning a home might qualify you for some tax advantages or credits. As a homeowner, you may be able to deduct all interest paid on your mortgage. In January, after the end of the tax year, your lender will send your IRS Form 1098, detailing the amount of interest you paid in the previous year. The money you pay in property taxes may be deductible too. If you pay for your taxes through a lender escrow account, you’ll find the amount on your 1098 form.
  • Freedom. You may have some restrictions if you are a part of a homeowner’s association, but for the most part, how you decorate your home or landscape your property is pretty much your decision. You may also be able to add a wall to give you more privacy. Home ownership allows you to set down some roots, and there is a certain security in living in a home that you own.
  • Sense of belonging. Research has shown people feel a sense of worth and are more involved in their community when they purchase a home. It allows you to have a voice in community matters and boost your self-confidence.
  • Security. When you rent, your landlord can give you notice of breach of contract and terminate or not renew your contract. With your home, as long as you make your mortgage payments, you have a place to live. It is comforting knowing that you have a roof over your head.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

 

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The advantages of renting a home

This was originally published on Monday, July 3, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I am considering purchasing my first home. I have been saving up and ensuring my credit score is good enough to be given a low interest rate. This is a big financial step and I want to make sure that I am making the right decision. Do you have any pointers to help me make a sound decision?

You are correct; buying a home is a huge financial undertaking. Homeownership is not for everyone and you have to be certain that you are ready for the long-term responsibility. There are always two sides to the coin — the pros and cons — which need to be taken into consideration before making the decision to be a homeowner. Before we get into buying a home, let’s first discuss a few advantages of renting a home:

Flexibility: In today’s economy, many people struggle to make ends meet. We are never sure where life will take us next.If you fall on hard times it is easier to pack up and move without the stress of breaking free of an expensive house. Renters have the option to downgrade into a more affordable living space at the end of their lease.

Repair and maintenance costs: One of the largest advantages of renting vs homeownership is there are no maintenance costs or repair bills. If your air conditioner stops working or your roof starts to leak, you do not have the financial responsibility for the repairs. You don’t have to spend your weekends fixing clogged pipes. As a homeowner, you are completely responsible for your repairs and maintenance – which can be quite costly.

Special amenities: If you rent an apartment or condo, and even some homes, you likely live in an area that is landscaped. As a renter you may have access to amenities such as a swimming pool, fitness center or playground. If a homeowner wants to match these amenities they can expect to pay thousands of dollars in installation and maintenance costs. Similarly, condo owners may need to pay monthly fees to pay for access to these amenities.

More cash on hand: Renters do not have to pay additional costs such as taxes, homeowners insurance, repairs and maintenance expenses.If a renter obtains renter’s insurance, it is much more inexpensive than homeowner’s insurance. Depending on the size of your rental unit, and the agreement you have with your landlord, your utility costs may be covered with your rent. Apartments and condos are smaller than homes and are usually less expensive to cool.

When purchasing a house with a mortgage, you may be required to have a sizable down payment. Renters however, do not have to have to save up a lot of money to move into a rental property. While the exact amount varies, the total amount is significantly less than you would need to buy a house.

Safety from market fluctuations: Property values go up and down. When the country went through the latest recession, many homeowners were left owing more than the value of their homes. Numerous experts believe that the market has recovered but the number of foreclosures still seems to be quite high.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

 

Three steps toward debt reduction

Three steps toward debt reduction

February 28, 2011

Getting out of debt can be overwhelming. You might feel like you’re in a deep hole looking up at everyone else walking by.

Paying off your debt can be a long process when you have many open accounts and credit cards that need to be paid. Where do you begin and what do you do?

Here are a few ideas on how you can consolidate your debt to help you control the payments:

1. Balance transfer

One way to consolidate debt is a balance transfer. You might have a credit card with a large credit limit and a low balance transfer interest rate. Move as much as you can to that credit card. If you have a card with a low limit but low interest rate, move as much as you can from the cards with the highest interest rate to the ones with the lowest. You will still have more than one card open, but you’ll at least be paying on the debt with the lowest interest rates.

Remember, before you do the transfers, make sure you’re saving money. There may be fees associated with the transfers that would make the transfer too costly. Confirm the interest rates and transfer fees more times before making the transfers.

2. Home equity loan or home equity line of credit

If you own your home, you might be able to borrow against the equity in your home to consolidate debt by using a home equity loan or home equity line of credit. There is a big difference between the two: A home equity loan is a closed-ended account that’s repaid over a set time. A home equity line of credit is an open-ended account similar to a credit card that you can borrow against and repay.

The good news is home equity loans and credit lines often have lower interest rates and higher borrowing limits. But there is another side. You’re transferring your credit card debt to the equity in your home. Don’t go and charge on your credit cards once you consolidate your loans into an equity loan or line of credit. This will complicate your problem more.

3. Debt consolidation loan

Debt consolidation loans are solely for combining all of your debts. These loans can be offered at banks or financial services companies. It is wise to seek the financial institution that can help you structure your loan so you can manage the payments within your monthly budget.

Before you consolidate debt, make sure you weigh all the options available to you. Understand the risks associated with your debt consolidation method. Finally, make sure you repay the loans you take out to consolidate debt. Remember, debt consolidation isn’t paying your debt. You still have to do that. When you consolidate debt, you’re just making it easier for you to pay. Consolidating debt could cost you some more money and could take you more time.

Any of the above methods might work for you. The trick is for you to free up enough income and pay as much of your debt as possible. What you’ll need to do is study each debt consolidation method to determine which one works best for you.

Seek advice from a knowledgeable source in the financial industry. Stay flexible and don’t rush into any one method. When you pick which consolidation plan you will use, stick with it until your goal is accomplished and your debt is paid.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.