Saturday, July 27, 2013

Car Rent

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Friday, July 5, 2013

Adjustable Rate Mortgages: Buyer Beware

Remember when your mom told you that if it sounds too good to be true, it probably is?  The same could be said about Adjustable Rate Mortgages (or ARM in industry lingo).  These guys can be a wolf dressed in sheep's clothing and if you aren't careful they are going to huff and puff and take your home away!

An Adjustable Rate Mortgage works like this.  Initially, you are probably going to be paying anywhere from 2 - 3 % below the current market interest rates on your mortage.  For many people, this allows them to buy a bigger house, one that would normally be outside their price range.  The normal reasoning is that by the time the loan adjusts - which could be a year from now, or as much as 7 - 10  years from now - they will be earning more, the economy will be better, etc.

The problem they run into is that as good as we hope the future is - sometimes it isn't.  Lives change, the economy fumbles or we change jobs.  Suddenly, we went from two incomes to one or we just aren't making as much as we were a few years back.  Even worse, interest rates rise and when it comes time for our ARM to adjust it goes up - way up. 

Some ARM's adjust every year and are based off current interest rates set by the Federal Reserve.  Sometimes, this can be a good thing as interest rates may have fallen and you could end up paying in interest than you were at the start of your loan.  However, as is most often the case, the exact opposite is true - interest rates have risen, and you end up paying more each month.  The budget starts to get stretched a little thinner.

There are other ARM's that adjust after a specified number of years - say 7 to 10.  When they finally kick it, it can be a real sticker shock for the homeowner.  If they haven't planned for this financially it could mean the difference between them keeping or losing their home.  In some cases, monthly mortgage payments could double in size depending on how low your interest rate was before the adjustment and what current interest rates are.

So what's the smart move for most home owners?  Stick with traditional mortgages that have a predefined interest rate that is locked in over the life of the loan.  If market conditions warrant sometime down the road, you can always look into refinancing your mortgage and getting a lower interest rate. 
Adjustable rate mortgages are good for those who like to gamble - and some argue they are good for families just starting out who know they will need a bigger house in the future and will have larger incomes in the future as well.  However, as we all know, nothing is as certain in life as change and sometimes the smart homeowner knows when to play it safe and keep a roof over his or her head! More Adjustable Rate Mortgages

Tuesday, July 2, 2013

How to Avoid a bad Mutual Fund

We have all heard the advantages of investing in a mutual fund over trying to pick individual stocks. First of all mutual funds hire professional analysts that are market experts and devout many hours of study to the various stocks. Unless you want to devout a large portion of your free time to the study of the financial reports, you probably won't have as much information to make a decision as a mutual fund manager.

How to Avoid a bad Mutual Fund

Then there is the well documented advantage of diversification. Risk is reduced by holding several non correlated investments. Put simply, some go up, some go down and combined, the return levels off the fluctuations, or risk.

Finally, a mutual fund offers smaller investors a chance to invest in small increments rather than having to save a large chunk of cash to purchase 100 shares of stock.

Given the above advantages, it's no wonder that mutual funds have become a very popular form of investing. Now there are thousands of mutual funds to choose from, so how does one make a selection? 

Here are a few tips:

1.    Do not be seduced to jump on the recently performing best fund. It may seem like the safe and rational thing to do, but like individual stocks, you want to buy low and sell high, not buy high and pray for more growth.
2.    Even good funds may not be able to overcome the force of the overall market. You should be looking for funds that can exceed the broad market without increasing risk. Each fund has certain risk parameters that it is required to follow. Read the prospectus closely to understand what these are.
3.    Limit the number of funds that you own. Unless you are trying to simply achieve the same returns as the broad market, diversifying into many mutual funds will not reduce your risk or increase your return by much.
4.    Funds that become too popular and too big tend to slip in performance. There are several reasons for this.

Find more valuable mutual fund resources at

One final point to keep in mind is that the type of fund will totally depend on your investment objectives. There are certain funds that are designed for your objectives be they retirement, income, growth, funding the kids college, etc.