Lower loan, interest rates can make a big difference
If you’ve ever pondered the mystery of how your next door neighbor manages to live so much better on an income no higher than yours, you might be interested in what a few percentage points can do. Over the life of a 30-year. $75.000 mortgage for instance a two percentage point difference can add up to $40.000 or-so equal to about 1 Vz years income for today’s median-income household. In the same span, a two point difference in a $2.000-a-year Individual Retirement Account could amount to $7 7.000. By reacting to such seemingly small differences, and by avoiding the impulse to buy unneeded items, some people get considerably more kick for their buck than their neighbors. Seldom have such decisions been more critical in personal affairs. pennystocks
The reason: Homeowners and IRA holders must consider whether to continue with plans developed several years ago or make changes to fit the times. It is especially pressing for those with variable rate mortgages and lowyield IRAs. Millions of homeowners now enjoy the benefits of variable-rate mortgages. Interest rates have fallen, so monthly mortgage payments have shrunk. For some homeowners, the decline amounts to hundreds of dollars a month. But will rates stay low or get lower? Many variable rates are now down to 8.75 percent — even lower. How much lower can they go Assuming a mortgage of $75.000 a two-point rise from 8.75 percent would add about $100 to the monthly payment, and $23.660 over a 20-year period. Three points higher, which is a possibility, puts the difference at $36.000. The question then is whether to switch the variable rate loan to a fixed rate, assuring no increases in the future. The decision, while difficult to make, can help the homeowner avert future payments problems, but at a cost. That is, a $75.000 fixed-rate loan might cost no less than 9.5 percent today after inclusion of points and other up-front costs. What must be considered is whether the additional payments are worth the insurance. The time factor also must be considered. A 9.5 percent fixedrate loan on $75.000 costs about $86.000 more over a 30-year period than it would if held for only 15 years. But the monthly payments are about $150 higher for the shorter term. It is also true that while a variable mortgage might rise several points during a 20-year period, it isn’t likely to remain there for more than a few years. But in those few years the higher bills could, conceivably, cause the house to be lost. IRA holders have a similar predicament. Interest on savings generally was much higher several years ago, when many IRAs were started. Many were founded on investments in certificates of deposit that returned 12 percent or more. CDs now yield about half that rate, provoking the question: Is it smarter to continue buying CDs for the IRA account, or might it be wiser to switch to utility shares, some of which still have dividend rates in the double digits? The return on CDs could rise. again, and the dividend rate of utility stocks could fall. But meanwhile, the spread is so large that an individual concerned about building a retirement f u nd cannot ignore it. At 6 percent, a $2.000-a-year IRA builds to $27,943 in 10 years. At 8 percent it grows to $31,291; at 10 percent it reaches $35.062; at 12 percent it accumulates to $39.309 in a 10-year period. With time and compounding, the differences become magnified. Over a 30-year period of $2.000- a-year investments, an IRA averaging 6 percent grows to $167.603. Add just two percentage points and it totals $244.692. At 10 percent, the f u nd reaches $361.887 at 12 percent it builds to $540.585. The decisions are difficult to make. The consequences are vast – vast as the difference in lifestyle that can exist between neighbors living on identical incomes.pennystocks
Related Posts :
Lower loan, interest rates can make a big difference
10 tenants lease at Marauette
Staley sues investment firm; says stock sale undermined
Stock market mixed but Dow falls
Penny stocks often bad pennies
GE offers employees new deferred pay option
pennystocks 