A Quick Market Newsletter

A short post tonight.  Here is a link to a useful free financial newsletter from Axiom Financial.  The format has remained the same for several years and provides a quick weekly update of market conditions.


Image from Axiom Financial

Image from Axiom Financial


House purchasing economies of scale

This one is a quick reminder for those attracted to investment properties. The right home to have for the purpose of renting out will be around the price median for a given area. Too expensive of a home, and it will be hard to get what is needed in monthly rent. The exceptions being vacation homes, and the luxury market.

The other end of the spectrum is even more problematic. A $40k house will have many cost items that are the same as a $160k house. Here is a list for example:

Appraisal: $200-$400. The house size can influence price, but not by much.

Home Inspection: $200-$500 depending on tests performed. It is similar to appraisal, but can vary a little more with house size. Most of the inspection will be a fixed cost.

Plumbing: Trip fees and simple fixes will be the same. Toilets will be the same.

Mortgages and titling fees generally disregard house size.

Cable TV, and utility service fees will be the same

Evictions will cost the same

Liability issues will be roughly the same

While this list has exceptions, its purpose is to provoke thought about the “good deals” to be had in low cost houses. Always make sure to do your own due diligence before making any kind of investment, and if unsure…consult a local professional advisor.

How a monthly mortgage works

Most people are now stuck with getting fixed rate mortgages with terms up to 30 years. The time of adjustable rate and other specialized home loan products is over. Today, FPO answers the question of what determines your monthly house payment. The first factor is your home loan amount. This amount will be some percentage of what you bought your house for, depending on how much money was paid down. A standard situation may look like this: A house was purchased for $125,000. The loan company required 20% of the house value to be paid immediately in the form of a down payment. This results in a loan amount of $100,000. With a term of 30 years, this amount will be paid at the end of the term as long as all payments are on time and there are no other changes to the loan. The loan contract will have interest on the amount borrowed from the bank, which is the reward for the bank risking it’s money   with you. Presently an interest rate of 3.5% is reasonable (and average). This rate will be compounded daily and payments made on the loan monthly.The monthly payment consists of money that is directed to service the interest on the debt and money that is paid towards the principle of the loan, reducing the amount currently being borrowed. For most all loans in the U.S., this monthly payments remains the same for the life of the loan.  Keep in mind that this does not include taxes, insurance, home owners’ association, or late fees; that’s extra.

Since the payment is the same for each month, the portion of money that is applied to the principle of the loan will subsequently   reduce the portion of the payment that covers interest for the next and each subsequent month. This process of repayment in called amortization.

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