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To Buy Or Rent A Home? The Answer Is Trickier Than You Think

Something really strange happened in the housing market over the last decade. Interest rates went down thanks to the massive stimulus of central banks, and suddenly mortgage payments were cut. People took home slightly more money at the end of the month, allowing them to pay off debts and spend a little more on other services.

The government achieved its goal: get the economy back on track (even if it did take a long time). But something strange happened in the housing market. Lower interest rates ultimately didn’t make paying the mortgage any cheaper. Instead, it allowed banks to lend more against property, forcing the price of homes back above their long-run price trend. The absolute value of loan repayments for the average family stayed roughly the same, despite the cut in interest rates, because the amount of money borrowed on the mortgage was much bigger.

The good news is that the mortgage market seems to be more sustainable overall than it was before the financial crisis. Although prices are still high, the average family is paying about the same proportion of their disposable income to service the debt as they were in 2000, which isn’t bad.

The question, though, is whether this situation will last forever. Should people be buying their homes and taking on mortgages? Or is renting a better option, given the precarious state of government policy?

Conditions In The Economy May Change …

The most significant risk to homeowners at the moment is a rise in the rate of interest. Central banks around the world, led by the Federal Reserve in New York, have hinted that interest rates will soon be returning to their historical norm, somewhere between 3 and 5 per cent. Currently sitting at around 2 per cent, central banks are already raising rates, hoping to calm inflation on the broader economy.

Rising rates may be bad news, at least in the short term, in the housing market. For starters, mortgages are large, about four times the average annual income, and therefore higher than the historical norm. Large mortgages mean that any increase in interest rates will lead to large increases in monthly payments on debt. Consumers, already struggling to get by, may need to foreclose to prevent bankruptcy. Existing homeowners who have already paid off their mortgage may also suffer if an increase in interest rates forces house prices down. House prices could fall if high-interest rates prevent banks from lending so much to borrowers.

Homeowners also need to keep an eye on inflation. Should inflation rise too high, perhaps because of a booming economy, central banks will have no choice but to use the policy levers at their disposal and try to prevent a boom by increasing rates still further.

Is Renting The Answer?

One way to protect against the fluctuations in the housing market is to rent. Sure, rents might go up or down following turmoil in the overall market, but these payments are usually fixed for a 12 month period and can be renegotiated. Importantly, there’s no debt involved when renting, so renters don’t need to worry about interest rates, at least not directly.

But renting may offer some other advantages over buying a house outright. It’s a widely held conception that purchasing a home makes more financial sense over the long run than does renting. But it turns out that renting can sometimes work out cheaper, especially when you consider the full cost of home ownership.

How many times have you heard somebody say “renting is money down the drain?” It’s often assumed that when you rent, you’re throwing your money away. However, that’s not entirely true. For starters, you’re getting shelter for yourself (and your family), which isn’t free. And secondly, even when you buy a house outright, you’re still “throwing money away” because you have to pay additional property taxes, interest on the mortgage, and other legal fees.

On top of that, there’s also the fact that homeownership comes with many expenses besides the obvious repayments on the mortgage. Homeowners must take responsibility for all the little costs associated with running a home whereas renters don’t usually have to bother. Data from Forbes suggests that these additional costs may sum to as much as 50 per cent of the overall cost of the mortgage, meaning that owning a home could carry a massive premium. Insurance costs, taxes, maintenance fees, and utilities can all make a severe dent in one’s finances.

Rent For The Short Term, Buy For The Long Term

Another reason people love to buy houses is that they see them as an investment. But there’s a problem with this idea: homes are not productive assets and, therefore, probably shouldn’t be considered an investment, especially if they aren’t being rented out.

Robert Schiller, famed macroeconomist and scholar of the property market, says that for most families, their home is not an investment. Instead, it’s a money sink: somewhere they pour the majority of their financial resources. He’s gone as far as to say that only a few wealthy people at the top of the income pyramid should own their own homes – the rest should rent.

There’s a rational reason for this. Schiller says that most people invest too much of their capital in property. Their overall portfolio of assets is skewed towards housing rather than other forms of investment, and they end up being overexposed to the volatile property sector. Renting, he says, is probably better, since it reduces overall risk, and allows people to spend their spare money on other investments that can generate returns over the long term.

With that said, some people can benefit from buying their own home: those who want to live in a specific location for a long time. Not only can they benefit from rising house prices, but they also reap the rewards of rent-free living once they pay off the mortgage.

Is Buying Too Risky?

Not all arguments are in favour of renting. In fact, there’s a lot that homeowners can do to reduce their risks when buying outright, making it more appealing.

First off, buyers can reduce their risks by insuring against default. As you discover more about owning a home, you soon find out that it can be a risky business. The primary income earner can get sick or die, leaving the rest of the family saddled with unaffordable repayments. Insurance products, however, can not only provide payouts if somebody dies but help to keep a family in their home by meeting mortgage expenses should the worst happen.

Second, buyers can reduce risks by sticking with fixed-rate mortgages. Although they have higher rates than variable mortgages, fixed-rate products protect homeowners against the seemingly inevitable interest rate hikes coming down the pike.

Calculating Costs

The only way to really find out whether renting is cheaper than buying overall is to use a “rent versus buy” calculator. These calculators take into account the basics, such as the cost of rent or mortgage over a fixed time interval, but also many of the costs involved in running a home. The best calculators provide a present value estimate of the total cost of renting versus ownership, giving you a figure in today’s terms for how much either option will cost you.

As with any calculator on the internet, renting versus buying calculators depend on accurate inputs. They need you to have a good grasp of the costs that you expect to incur when owning a home, some of which we’ve discussed here. If you don’t know these, then any estimates you get out of them will be nonsense.

Once you’ve got an output from the calculator, check to see how much the overall costs differ from one another. In theory, they should be reasonably close if the market is working correctly, but not always. Different areas can have different markups for renting and owning, so it’s still a good idea to check.

The Psychic Benefits Of Home Ownership

The biggest flaw in Schiller’s argument is that he assumes that people are only concerned with financial matters, and not with other psychological benefits. But for many, there are intangibles, such as social status, associated with home ownership, which may explain why so many people work so hard to achieve it.

People associate home ownership with success and raising a family: important life goals. And so the very notion of owning a home might have value above renting. It all depends on the kind of person you are. Owning a home might make you less mobile, but if you don’t mind about that and just want to settle down with a family, then it may be the right option for you. Yes, there will be hassles along the way, such as a broken down boiler, but renters have to face the same issues too. Homeownership might be riskier than renting, but it also gives a person a sense of belonging and purpose. And ultimately, that’s what makes for a fulfilling and joyful life.

Choosing Between Shopify & WordPress When Adding Ecommerce To Your Blog

As it currently stands, over a quarter of the world’s websites are built using WordPress. This system has long dominated the online world, with very few people realising quite how popular this blogging platform really is. Of course, though, just because something is the most prolific, it doesn’t mean that it is always the best. To give you an idea of the differences between the options out there, this post will be exploring Shopify and WordPress side-by-side, showing you exactly what makes each of them tick.

Shopify

Shopify is a little newer than WordPress, and this means that it benefits from an admin portal and UI which is a little easier for some people to use. It is designed mostly for people who want to sell things, forcing some of its other features to be a little stripped back compared to what you might be used to. This is a shame for bloggers, as it makes it hard to move all of your content to it without changing the way that you structure it. There are plugins available for Shopify, but you’re often only given one option for each job you want to perform, restricting you to working with tools which you might not like. You can’t host it on your own server, either, giving you less choice when it comes to the hosting being used.

WordPress

WordPress can’t handle ecommerce on its own, and will need the help of a dedicated plugin like WooCommerce to make it work. There are a lot of other plugins for WordPress, though, making it far easier to accomplish other goals with this system. Along with this, it can be installed on any sort of system, giving you the power to use your own hosting, while also enabling developers to work on your project without having to run the site online. WordPress was originally built as a blogging platform, and this side of it hasn’t been forgotten. The whole system is perfect for those who want to share content like this.

Which Is Better?

Choosing which of these platforms is better isn’t as simple as looking at them on their own. Shopify is better for some jobs than WordPress, and vice versa. For both examples, having a company like https://www.flewid.ca to help you with the development of your site will be a great idea, as neither of them are the easiest platforms in the world to get used to. If you’d like to get started on your own, though, you could consider taking one of the many online courses which surround this area. Whatever you choose to use, it will be worth making sure that the other parts of your site are being looked after, too.

With all of this in mind, you should have an easier start to the research you need to do before choosing the platform for your website. A lot of people neglect this area, choosing to jump onto the first option which they find. In reality, though, this is a serious market, and it is worth being in the know before making any big choices.

5 Mistakes To Avoid When Buying Your First Home

Buying your first home is a big step. Being such a complicated process, it’s not uncommon for first-time home-buyers to overlook things and make costly mistakes. Here are just several expensive blunders to avoid.

Not shopping around for mortgages

Many first-time homebuyers spend a lot of time shopping around for property, but very little time shopping around for mortgages. In fact, some homebuyers may settle for whatever their bank offers, without comparing other lenders. This could result in you paying much more in debt than you need to.

In many cases, you’re much better off using a broker than a bank. Why use a mortgage broker vs a bank? Brokers compare multiple mortgages for you and can give you expert advice helping you to understand complex terms and work within your budget. They may even have access to exclusive deals that you can’t find on the market due to having close relationships with lenders. Some mortgage lenders will charge a small fee for their services, but generally you’ll still save a lot of money by using them.

Only budgeting for the down payment

When saving up to buy a property, most people focus all their energy on being able to afford the down payment – this is the most expensive upfront cost. However, there are many other upfront costs that need to be budgeted for too such as conveyancer fees, surveyor fees, van hire/removals hire and first month’s mortgage payment. These extras can cost thousands altogether.

On top of budgeting for these upfront costs, it’s important to also not ignore your monthly mortgage fees – there’s no use taking out a mortgage with an affordable down payment if you can’t realistically afford the payments each month. Bills, home repairs and taxes are just a few other monthly expenses you’ll have to budget for too.

Failing to hire a surveyor

A property surveyor is always worth hiring because you commit to making a purchase on a property. Surveyors check the property for any hidden problems that could be costly in the long run such as signs of structural damage or subsidence. They can give you an idea of how much money you may need to put into repairs and whether it’s worth your while. Surveyors may charge few hundred dollars, but hiring them could save you thousands in many cases. It’s best shopping around to find a surveyor within your budget who also has a good reputation.

Allowing yourself to get rushed into a purchase

Buying a property is not a process that you want to rush – it could be the most expensive thing you buy in your life time. A lot of people within the trade may try to rush you into making decisions. Agents for example may often try to push buyers into a purchase by claiming lots of other people have viewed the property, whilst mortgage lenders may try to push you into taking out a loan from them there and then. It’s important to not let them pressure you into making a purchase until you feel confident that this is the right option for you. Of course, you don’t want to spend too long deciding whether to make a purchase on a property, otherwise it could get snatched up by someone else, however you shouldn’t ever make a decision there and then – give yourself enough time to compare multiple properties/mortgages and mull over the pros and cons of each one.

Not considering the future

Your future circumstances could change in which the case the perfect property for you now may not be the perfect property for you in a couple years. For example, if you’re a couple, consider whether you’re planning to have kids and whether the home has enough space. Also consider whether you’re likely to change job soon and whether this may affect your commute or your income.

It’s important to also consider what you may be able to do with a property in the future in terms of renovations. You may find a property that’s got a few imperfections, but it could be under your budget allowing you to make future improvements and fix up the property to your specs. You may be able to knock down interior walls or replace an ugly bathtub or change the layout of a kitchen – the beauty of buying versus renting is the fact that you can make these modifications.

When Should A Home-Based Business Move Into Its Own Premises?

In most cases, the decision to start a business from home is made primarily due to necessity. Home-based businesses are inherently flexible, offering the opportunity to keep costs low while still building a company that can thrive in the future.

If your home-based business has proven to be profitable, however, it’s worth considering the next step. Some home-based business owners prefer to retain the ability to work from home, and their business lends itself to this kind of arrangement.

On the other hand, some businesses don’t particularly lend themselves to remaining based in the entrepreneur’s home: for example, businesses that require high levels of stock can quickly crowd out a family’s living space. It’s also worth noting that running a business from home can have significant disadvantages, and now your business has proven to be viable, you may want to consider moving the company into its own space.

However…

Even if you have grown tired of working from home, or are well aware that your business could benefit from its own premises, the decision to actually move out is one that doesn’t come easy. There’s a familiarity and comfort to running a business from home, and the flexibility it offers you in terms of your lifestyle can be difficult to part with.

Ultimately, the decision becomes one of head versus heart. You can know, intellectually, that your business is ready to move into its own space; you can even want to stop working at home… but you still hesitate due to concerns and anxiety about such a huge change. As a result, you hover, wondering which route to follow.

Is there a right answer to this conundrum?

Realistically… no.

It would be easy to say that, if it makes sense for your business to move out of your home and you like the idea of doing so, you should go for it. Unfortunately, this kind of black or white thinking rarely produces positive results, and forcing yourself – despite ‘heart’ concerns such as anxiety – to move out before you’re ready could be genuinely disastrous.

So, let’s simplify:

  • If your business is profitable and you are entirely comfortable with the idea of no longer running it from home, then your business is ready to move into its own premises.
  • However, even if your business is profitable and you can see that moving out would be beneficial, you don’t have to move out until you’re 100 percent ready.

Is there any way to help yourself become 100 percent ready?

The issue that you are likely facing if you are hesitant about moving your business out of your home is a fear of the unknown. The move from home-based business to full-time premises is a big one, and no entrepreneur knows exactly how it will play out should they make this leap.

If you’re hesitating, then use the time to research everything about moving into dedicated business premises. You can view properties, talk to a commercial real estate lawyer about purchasing options, and even talk to business owners who have made the move themselves to see if they have any advice. Ultimately, knowledge is the best way to overcome your hesitation; after all, you needn’t fear the unknown if you ensure that very little about the idea is actually unknown.

In conclusion

The decision to move your home-based business into its own premises is incredibly difficult, so don’t force yourself to make the jump before you are ready. Instead, take your time, do your research, and wait until you feel certain that such a step is the right one for you.

How to Choose the Best Bank for Your Money

There are so many banks out there that finding the right one for you can be a nightmare. They offer different types of accounts, charge carrying fees for their services and some are more likely than others to help you out if you hit a bad patch. You have to consider what is most important to you before deciding which one to use.

Using One Or Spreading

Some people like to keep all their accounts with one bank, and others will search out the best on offer with different ones and use a spread of them instead. There is no limit to the number of accounts you can have, or how many banks you can use. This is a personal choice, although one thing many people look for these days is a good fraud management strategy. Knowing your money is secure is vitally important no matter which bank you use, and this has become one of the most important factors that people look at when making their choice.

Is Internet Banking Available

There are not many people who do not use Internet banking or an app on their smartphone. This technology has made paying bills and transferring money a lot easier and now you do not have to spend hours in branches waiting to be served.

It has made the scenario of having accounts with different banks easier to handle as well. Now money can be transferred from one to the other instantly, as long as both banks are in Canada It takes a day or two to arrive at an account in another country, but that will probably be changed in the future because of the blockchain technology that is being used more and more.

What Do They Charge?

Banks publish their rates and fees so it is easy for you to see which items will cost you. Some charge a small amount for every transaction, while other do some free but charge more for others. At the end of the day they are businesses and like any other business, they have to make a profit.

The secret is to look at what transactions you are likely to have more of, and then look at the bank that charges the least for those. Most banks charge less if you handle the transactions yourself through Internet banking or an app.

You should also look at what interest rates they pat you for saving with them. With interest rates as they are currently, none of them will be paying a lot, but whatever you do earn on your savings can help offset the charges and fees.

You should also take a look at banks that are totally online. They do not have the expense of physical branches sop are often the cheapest of all.

Choosing a bank is something only you can do. Once you have opened an account it is not set in stone that you have to stay with them forever more. You can always move to another one if you are not happy with your first choice.

4 Things You Must Do Before Giving Up A Fixed Income

It might sound odd, but you won’t always have a permanent income to fall back on. There will be a time when that constant cash injection ends and is replaced with a government payment or even funds from your own life savings. You need to make sure that you are prepared for this point in your life by taking the right steps now. There are a few options to consider here that can make sure you are prepared for the trials of the future.

Buy Property

While you don’t have to start buying property once you turn twenty, you should make sure you own at least one home by the time you reach forty. Why would you do this? Well, it’s simple a matter of making sure that you have a cushion of capital that you can fall back on. When you have a home, you can use it as security for a loan or maybe even borrow from it to go on a globe-trotting adventure. You can also think about upscaling or downsizing. As you head towards the end of middle age, downsizing can be a smart decision. You’ll get extra money for your savings, and you will be able to move to a place that will almost certainly have lower bills and monthly costs. However, it’s more difficult to do this if you don’t have a property to sell.

Find The Highest Interest Rate

You should be looking for a way that your money can work for you. Here, we are talking about the option of finding a savings account with a high-interest rate. You’ll be able to gain a fortune on your existing savings if you do this by taking virtually no action at all. There are various savings accounts on the market, so make sure that you compare the market here and find the right choice. Obviously, this move can be risky particularly when you consider that in a recession, interest rates drop. We haven’t had a recession in a while so one could be on the horizon. But ultimately, you won’t lose more than you save, unless you choose a locked in the account which isn’t a smart move. You want to make sure you have as much freedom as possible to move your money around.

Plan For Retirement

Do make sure that you have a plan in place for your retirement. There are various retirement solutions that you can consider, and you should look at various possibilities including pension funds and investment options. It’s all about making sure you have more than one source of income flowing into your accounts before and after your retire.

Get Your Family Sorted

Finally, if you have a family and kids, you need to make sure that they are sorted and moved out before you give up your fixed income. Kids are expensive, and this doesn’t really change until they have moved out of the house completely and are standing on their own two feet. This should be the case before you start to consider an early retirement.