Live now and pay tomorrow
Marcis Gasuns
April 07, 2008
Most people want to live well not in the end of their working career but rather at the beginnings. It is cool to have your own condominium or even your own house, have a nice car, be able to provide your children with excellent education and enjoy life while you are young.
Modern economies offer plenty of options for young and ambitious individuals to live now and pay tomorrow. One way how people do it is getting loans. In most cases it should be easy. The organization that gives out loans will check your credit history and the credit history of your spouse. If in the past you did not run into trouble with your bank, getting a nice rate of credit will not be much of a problem.
When people want money to buy a house, mortgages are the most often selected tools of finance. The financial institution that gives you the mortgage has reduced risks as credit is secured with real estate. And for the borrower the rate will be a lot more comfortable in comparison with other ways of getting money.
One more advantage of mortgages in a growing market is that you can make money on them. For example, you would like to get a house which costs $200, 000. You apply for a mortgage which costs you $30,000 up front and for the next 30 years you will have to pay to the bank around $1,000 in the principle and interest. If in 4 months the costs for houses go up, and the market price of your home is no longer $200,000 but rather $250,000, you can sell your mortgage and make around $50,000 net profit.
This model of business was so attractive that many serious financial institutions around the world started investing in the real estate market of the US. Unfortunately for them, recently the growth in the homes market slowed and the prices started falling. As a result, some companies and banks went bankrupt.
For regular shoppers banks offer one more convenient instrument of getting short term loans. The name of the instrument is credit cards. The advantage of credit cards for the user is that if you do not miss the repayment day, you can use the loan for free. Depending on your solvency, the credit line from you bank may be from $500 to $50,000 and more.
The disadvantage of credit cards is that it makes going over your budget very easy. People start to spend more than they earn. And when you are in the red, the interest is extremely high. If you are not careful with your expenses, using credits with your credit cards can get you into a very weak financial position.
Modern economies offer plenty of options for young and ambitious individuals to live now and pay tomorrow. One way how people do it is getting loans. In most cases it should be easy. The organization that gives out loans will check your credit history and the credit history of your spouse. If in the past you did not run into trouble with your bank, getting a nice rate of credit will not be much of a problem.
When people want money to buy a house, mortgages are the most often selected tools of finance. The financial institution that gives you the mortgage has reduced risks as credit is secured with real estate. And for the borrower the rate will be a lot more comfortable in comparison with other ways of getting money.
One more advantage of mortgages in a growing market is that you can make money on them. For example, you would like to get a house which costs $200, 000. You apply for a mortgage which costs you $30,000 up front and for the next 30 years you will have to pay to the bank around $1,000 in the principle and interest. If in 4 months the costs for houses go up, and the market price of your home is no longer $200,000 but rather $250,000, you can sell your mortgage and make around $50,000 net profit.
This model of business was so attractive that many serious financial institutions around the world started investing in the real estate market of the US. Unfortunately for them, recently the growth in the homes market slowed and the prices started falling. As a result, some companies and banks went bankrupt.
For regular shoppers banks offer one more convenient instrument of getting short term loans. The name of the instrument is credit cards. The advantage of credit cards for the user is that if you do not miss the repayment day, you can use the loan for free. Depending on your solvency, the credit line from you bank may be from $500 to $50,000 and more.
The disadvantage of credit cards is that it makes going over your budget very easy. People start to spend more than they earn. And when you are in the red, the interest is extremely high. If you are not careful with your expenses, using credits with your credit cards can get you into a very weak financial position.
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