What are the advantages and pitfalls of purchasing automobil

What are the advantages and pitfalls of purchasing automobiles and homes, and the various ways to fund them. Include the following in your discussion:

Auto: Length of the auto loan, interest paid, lease or buy, buy a new car, pre-owned certified or used.

Home: Length of mortgage (15, 20, or 30 year mortgage), fixed interest or ARM, use a second mortgage or pay 20% down payment, or pay less 20% down and pay private mortgage insurance (PMI).

Solution

Various ways to fund purchasing automobile and homes:

Let us discuss advantages and pitfalls of purchasing automobiles and homes with the given points:

Automobile

Home

A person who owns an automobile has a benefit of independence because that person may not have to rely on others for travel needs.

A person who owns a house has a benefit of independence because that person may not have to rely on others for housing needs.

With independence a person may enjoy a benefit of convenience. So, if a person owns a car that person can travel at his or her own convenience.

A person who owns a house also enjoys a benefit of convenience as that person can go or come at his or her house at any time and as per his/her comfort.

Owing an automobile my give a benefit of savings on travel time as person does not need to wait for other modes of transport.

A person who owns a house can save a lot on rental payment and saves time as they don’t need to change house after termination of rental / lease agreements.

If you take a loan to buy a car then you will have to consider loan tenure, interest amount to be paid as this is will add up to individuals expenses which are to be paid without any delay to avoid penalties arising out of delaying loan interest payment.

If you take a loan to buy a house you will have to consider loan tenure, interest amount to be paid as this is will add up to individuals expenses which are to be paid without any delay to avoid penalties arising out of delaying loan interest payment.

Buying a new car may give benefit of cash discount or free additional services and longevity benefit but certified or used car may or may not give such benefits.

If you buy a new house with or without loan, please remember it is an asset creation which may give a benefit of increase in real estate value if markets condition is favorable.

The difference between a fixed rate and an ARM i.e. an Adjustable Rate Mortgage is when you opt for a loan fixed interest rate is set however with an ARM interest rate may go up or down. Sometimes initially ARM may have lower interest rates than loan with fixed interest rate but they can go up in future and therefore you may check how high your interest rate and monthly payments can go with each adjustment. Find out if there is any cap of higher level of rate of interest.

A second mortgage or pay 20% down payment:

A second mortgage is a loan that uses a person’s house as a collateral. It may allow a borrower to borrow a substantial amount of money to buy a home but a person needs to keep in mind few important points here such as if person stops making payment to lender there is a risk of foreclosure and remember that the house is used as a collateral here, it also increases monthly expenses of an individual in form of interest payment on loan.

Pay 20% down payment: Paying lump sum amount as down payment is good for lender as it decreases default risk. Also when you make down payment you are depleting your assets.

Pay less 20% down and pay private mortgage insurance (PMI)  

PMI i.e. Private Mortgage Insurance may help home buyers purchase homes with less than 20% down. PMI may add up to person’s monthly expenses along with principal and interest payment on loan.