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For Your Home
You should not necessarily pay
cash for your home just because you don't need to borrow money; More often than
not you can still qualify for a loan as long as you are willing to commit to a
sizeable down payment.
However, don't overlook
re-establishing your credibility as a borrower. If you are permanently
classified as a "deadbeat" your borrowing power will suffer in the long run. You
never know when you'll need to borrow for some unexpected reason, to guarantee
the debt of someone else, or to sign a lease or other contract that requires a
Rebuilding a strong credit
rating is a very valuable asset on your household's financial balance sheet.
Unfortunately, many people don't realize that until the need arises -- often
when it's time to buy a home. With bad credit, they may find themselves paying
11% interest instead of 8%. You have the option to pay cash, but it is your best
option only because your alternative is to borrow under the onerous terms
offered to deadbeats.
The first creditor to convince
you are no longer a dead beat is yourself. When you withdraw $50,000 from your
savings to make the purchase, you are effectively borrowing money from yourself.
Pay it back to your self, with interest, just as if you had borrowed it from
someone else. Charge yourself 8 percent, the going rate for a mortgage without
points. To pay off the $50,000 loan at 8% over 10 years, pay your account $607 a
month. To pay it off over 15 years your payment would be $478. To determine
payments for other periods use the "Mortgage Payments on Fixed-Rate Mortgages"
calculator on my web site.
Playing the role of lender as
well as borrower may prove therapeutic because your lender half will be obliged
to discipline your profligate half. Self-discipline is more difficult than
externally imposed discipline and, if you manage it successfully, you can start
taking the next step to restore your credibility with others. To begin that
process apply for a credit card secured by a deposit and use it to make
purchases for which you would otherwise pay cash. Then, make sure you pay the
credit card bill on time, every time.