Financial awareness is crucial to economic independence

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There should be more classes on financial awareness. Most business experts assert that financial awareness is one of the most important concepts both children and adults need to learn. This training should begin immediately, with no age restrictions, as financial awareness is what determines economic success in the form of independence and accountability.

If one were to look at the major personal financial challenges, lack of funds, bad credit, and poor accounting are the most common. There are, of course, unforeseen circumstances leading to these that must be acknowledged: a sudden death, global recession, etc., but these are few and far between. For the most part, these challenges are preventable outcomes given proper training and diligence.

 

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In the financial world, it is not true that everyone is born equal. Depending on parentage and background, an individual may be born into debt (quite literally). Nevertheless, everyone has equal opportunity to remedy their financial situations. This begins with a proper understanding of finance or developing financial awareness. Different strategies can be applied in order to get out of debt (if ever) or simply maintain a proper standing among banking institutions. This helps when applying for a bank loan or credit card.

The goal of financial awareness is achieving economic independence. This is determined when one is in full control of spending and can easily see where funds are being allocated.

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REPOST: Will Higher Interest Rates Crush Real Estate?

 How does interest rates affect investments in real estates? Justine Kuepper of Investopedia discusses this issue in the article below.

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Real estate has been a solid performer over the past several years. For instance, the Wilshire U.S. Real Estate Investment Trust Price Index — a measure of the price performance of real estate investment trusts (REITs) — has jumped nearly 15% over the past year and about 50% since the beginning of 2011. These growth rates were driven largely by the improving economy and sustained low interest rates.

The big question on investors’ minds is: When the Federal Reserve inevitably hikes interest rates, how will it affect the real estate market?

HIKING RATES

The Federal Reserve has kept its benchmark interest rate near zero since the 2008 economic crisis, but recently, it has begun preparing the financial markets and consumers for a return to normal interest rates. While many economists believe it’s unlikely the central bank will act until September, it left open the possibility of hiking rates as early as June in its most recent meeting. (For more, see: The Impact of Interest Rates on Real Estate Investment Trusts.)

There’s no doubt that higher interest rates will damage real estate investments, given that almost all real estate relies on financing costs. In fact, many real estate indexes have already trended lower over the past month amid speculation that the central bank would act to increase interest rates. The weakness in the economy has helped form a base, however, since interest rates won’t rise quite yet.

Potential Offsets
When interest rates are eventually hiked, the upshot is that other factors could help offset the impact. The constriction of new developments and the transfer of supply/demand dynamics in favor of current landlords, for example, could help boost real estate net operating income and valuations over the long-term, provided they have stable financing in place to ensure long-term project viability. (For more, see: 4 Key Factors that Drive the Real Estate Market.

Occupancy rates at many REITs aren’t necessarily oversupplied either, which could amplify these effects. According to a recent Citigroup report, Q4 2014 occupancy rates across all REIT sectors stood at a record high 94.5%. Many experts believe that these occupancy rates could become a major driver of income and valuation when interest rates rise and constrict the ability to increase the supply side. (For more, see: Invest in REITs with This ETF.)

Other Considerations

The catch is that not all REITs are created equally and it’s important for investors to differentiate between the sector’s performers. For instance, residential property and healthcare REITs were top performers that generated more than 30% returns in 2014, while free-standing retail and timber REITs came in with returns below 10% over the same period — a significant difference by anyone’s measure. (For more, see: How Interest Rates Affect Property Values.)

Investors may also want to shift their mindset to view REITs as long-term income investments, designed to replace record-low bond yields as a way to generate some retirement income. In these cases, the potential for capital gains should be weighed against the reliability of the income when determining what REITs or REIT sectors may be the best investments for individuals or funds. (For more, see: The Tangled Web of Interest Rates, Mortgage Rates, and the Economy.)

The Bottom Line

The Federal Reserve isn’t likely to raise interest rates until at least September, but real estate investors shouldn’t ignore the pending risk. While higher rates will likely hurt the sector in the short-term, the long-term economics remain very compelling when looking at things like occupancy rates. But, investors should consider what REIT sectors represent the best opportunities for their situations. (For more, see: Simple Ways to Invest in Real Estate.)

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Investing in real estate: Where to begin?

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Even as the long winter has delayed the start of the spring housing market frenzy, this season remains promising. While the period from April to July is traditionally the busiest for home buying and selling, this season is the first in a while that has the housing market clearly in recovery.

Those looking to venture into real estate as an investment might be encouraged by persisting low interest rates and the high demand for rentals that are clear signals for opportunities waiting to be seized. Beginners to this investment type have two basic options:

First, REITs are perfect for starter portfolios. REITs are publicly traded companies that invest directly in real estate with properties and mortgages. By law, these companies must pay at least 90% of their income to shareholders in dividends. Adding a REIT to the portfolio can complement stock and bond funds.

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The second option is to directly buy a real estate property. Contrary to popular belief, however, this type of investment is not easy money. Managing properties requires a lot of work to ensure that profits come in. This will involve managing tenants and the regular maintenance of the property. Gaining profits from property ownership requires finding a good balance between tenant needs and the owner’s interests.

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The Remada Company is headed by real estate investor and banker Steve Liefschultz. For more resources about investing in real estate, visit this Facebook page.

REPOST: Is now the time to refinance your mortgage?

Falling mortgage rates could mean it's time to consider refinancing—again. But before deciding, find out whether it's a good option for you. Learn more from this article.

Refinancing may make sense since mortgage rates are at historic lows. | Image Source: usatoday.com

Interest rates on home loans are historically low. That means now is the time to dig out your mortgage loan paperwork and consider whether refinancing is right for you.

Five years ago, the government started injecting trillions of dollars into the U.S. economy. Conventional wisdom suggested that rising interest rates were soon to follow. Some even predicted the collapse of the dollar and hyper-inflation. Instead, inflation is down, the dollar is the strongest it's been in 10 years, and interest rates have fallen to the lowest levels in decades.

When refinancing, you take out a new, lower-interest loan to pay off the old one. Here's how to find out whether it's a good option:

First, check the current interest rate on your mortgage loan. Let's assume you have a balance of $200,000, with monthly principal and interest payments of $1,013 at a rate of 4.5%.

Next, shop around. Call two or three mortgage brokers and find out the interest rate you can obtain on a new loan. They'll ask for your household income, the value of your house and the current balance on your mortgage. If you don't know how much your home is worth, contact your local property tax office for an assessed value.

Ask the brokers to give you the interest rate and payments on a mortgage similar to the number of years left on your current loan. Also ask about a shorter-term loan, which usually has a lower interest rate.

When shopping for a new mortgage, you may be tempted to reduce your payments even more by lengthening the term of your new loan. While the benefit is more spending money per month, you can end up paying more in interest. I strongly suggest obtaining a new mortgage that is equal to or less than the number of years remaining on your current loan.

Then, get an estimate of all other costs, including title insurance, an appraisal and a closing fee. Lenders sometimes charge "points," or origination fees, which are also part of your closing costs. One point equals 1% of the loan's value. Mortgages described as "no-cost" or "zero points" do not carry this cost, but the interest rate may be higher.

Now, calculate how long it will take to recover your refinancing costs. Getting a new loan makes financial sense if you are able to break even soon.

Let's assume you find out you can obtain a new loan with a similar term at 3.65%. The monthly payments are $915, and the closing costs are $1,900. The new payment is $98 less than your current $1,013. Divide the $1,900 closing cost by the $98 monthly savings. The answer, 19, is your break-even point, the number of months you need to keep the house to recoup the costs.

If your break-even point is 24 months or more, or if you intend to sell your home in the next two years, refinancing may not make sense. No one knows what curves life may toss us, and looking two years ahead is my comfort level.

Remember that a lower rate doesn't automatically mean refinancing is in your best interest. How much you save monthly, your closing costs and how long you plan to live in your home are key variables in determining whether you should refinance your mortgage.

Visit this The Remada Company blog for more tips on mortgage application and other related articles.

REPOST: U.S. mortgage applications rise in latest week: MBA

There is a significant increase mortgage applications in the U.S. according to the seasonal survey by the Mortgage Bankers Association (MBA). Read more about it from this Reuters article below:

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(Reuters) - Applications for U.S. home mortgages edged up last week as interest rates dipped, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 0.1 percent in the week ended Feb. 27.

The MBA's seasonally adjusted index of refinancing applications rose 0.5 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 0.2 percent.

The refinance share of total mortgage activity was unchanged at 62 percent of applications compared with the week before.

Fixed 30-year mortgage rates averaged 3.96 percent in the week, down 3 basis points from 3.99 percent the previous week.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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Three most common types of mortgages for homebuyers

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A mortgage is a financial instrument for buying commercial or residential properties without paying the entire amount all at once. It is a legally binding contract; buyers have to be careful in choosing the mortgage that suits their current circumstances to avoid any action from the seller or lender.

For individuals buying property, here are the three most common types of mortgages to choose from:

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• Fixed-rate mortgage or FRM. As the name implies, the interest and the monthly payment are fixed for life. Conventional loans protect the buyer from inflation, meaning that even if the rates go up, your rates will stay the same. FRM usually takes 15 to 30 years before the loan is fully paid, and is ideal for people who are planning to stay in the same home for a very long time.

• Adjustable-rate mortgage or ARM. The interest rates in this kind of mortgage will remain fixed for a period of time, and then will fluctuate periodically depending on the market. This can be quite beneficial to buyers with short-term plans on their property.

• Federal Housing Authority or FHA. Loans insured by the government offer lower down payment rates to people who do not qualify for a conventional home loan.

Mortgage choices are not limited to these three, but before deciding on which loan to get, homebuyers should understand the advantages and disadvantages of each and speak with a qualified mortgage professional for advice.

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Steve Liefschultz is the chief executive officer of The Remada Company. For more topics about real estate and mortgages, subscribe to this blog.

Startup financing: A guide to getting a small business loan

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Most startups get their initial funding from friends, relatives, and close supporters, but before that money runs out, and in order to support greater growth, small business owners usually consider taking out a small business loan.

There are numerous financing options available to small business owners. The following are some of them.

Bank loans

Small businesses may stand a better chance of securing a loan if they approach a community bank in their area. Community banks focus on providing loans to local businesses and individuals. However, they do not have enough cash reserves to grant very large loans. In this case, a big bank chain is a good option.

Small Business Administration (SBA) loans

If unable to secure financing from a bank, an entrepreneur can approach the SBA for assistance.

The SBA itself does not grant loans, but it does endorse small business owners to lending institutions that offer loans guaranteed by the SBA. These loans are structured according to SBA standards. Business owners interested in this type of loan should visit the SBA office in their community for more detailed information on requirements and terms.

Other types of financing include lines of credit, short-term and long-term loans, and equipment loans.

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Small business loan requirements

Lending institutions require numerous documents. These include:

• Personal background information
• A detailed business plan that includes financial statements on profit and loss, cash flow, projected revenue, and the like
• A personal resume
• A comprehensive marketing plan
• Personal and business credit reports
• Personal and business income tax returns
• Legal documents, such as franchise agreements and articles of incorporation

Finance and business specifics aren't the only factors that lenders consider when screening loan applicants. Personal character, attitude, and demeanor also come into play.

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Steve Liefschultz is the chairman and CEO of The Remada Company. Subscribe to this blog to learn more about business financing.