A bond is actually an investment. You can buy it from a financial institution and if you purchase a bond the amount, which you have paid, will be given back to the lender with interest. The rate of interest for bonds is not like that of stocks. Before the maturity of the bond, it is better if you sell it for a higher value to someone who needs it more.
Say person A purchased a bond from a certain financial institution. While waiting for the bond to mature, here comes person B, will a dire need for money to purchase a house. Person B comes to the same financial institution to ask for a loan. The financial institution then lends Person A's money to Person B as mortgage loan. Sometimes the borrower comes to a mortgage lending company to ask for a loan then the lending company comes to the financial institution for the lump sum of money. It works as a win-win situation to both the larger financial institution and the lending company.
Prior to attaining a bond, few things should be taken into account:
There is no such complexity in them, as they seem to have. A legal document spells out all the numerical details like credit details, the interest rates and the payback period clearly. Unlike IOU, it is not that fancy.
Bonds are relatively safer than stock investments. They have a reputation. Bonds are a safe investment to make and that is time proven. However, bond investors worry about stuff like inflation and liquidation. The risk is less, nevertheless, compared to stock investments.
Bonds are fairly low risk investment. They don't rise in value greatly, but they can be susceptible to changes in inflation.
Bonds and interest rates have an inverse relationship. If bonds rise in value, interest rates slide. If interest rates rise, bond values decrease.
It is important to grasp what a yield curve is. Prior to taking on bonds, it is necessary to understand how interest rates and bonds work. They have an inverse relationship. After learning to understand the curve, you will be able to make better decisions about bond investment, which will hopefully lead to better returns.
Before investing in any types of bonds, make sure the bond you chose is the right one for you. There are more choices in the bond market than you realize so do your research first.
Bond Investment is very helpful to both borrower and the lender. You can get a home loan or a bond at a cheaper rate than other loans. The transaction is made in privacy like a borrower paying directly to the lender. However when the homes are of higher value the bond owners end up issuing loans to non-ideal candidates also. So if you are going to get loan, you should have a good credit history of your own. It is because the lender sees your credit worthiness before lending money. Your credit worthiness increases your lender's confidence in you and as a borrower you can hold your head high.
Say person A purchased a bond from a certain financial institution. While waiting for the bond to mature, here comes person B, will a dire need for money to purchase a house. Person B comes to the same financial institution to ask for a loan. The financial institution then lends Person A's money to Person B as mortgage loan. Sometimes the borrower comes to a mortgage lending company to ask for a loan then the lending company comes to the financial institution for the lump sum of money. It works as a win-win situation to both the larger financial institution and the lending company.
Prior to attaining a bond, few things should be taken into account:
There is no such complexity in them, as they seem to have. A legal document spells out all the numerical details like credit details, the interest rates and the payback period clearly. Unlike IOU, it is not that fancy.
Bonds are relatively safer than stock investments. They have a reputation. Bonds are a safe investment to make and that is time proven. However, bond investors worry about stuff like inflation and liquidation. The risk is less, nevertheless, compared to stock investments.
Bonds are fairly low risk investment. They don't rise in value greatly, but they can be susceptible to changes in inflation.
Bonds and interest rates have an inverse relationship. If bonds rise in value, interest rates slide. If interest rates rise, bond values decrease.
It is important to grasp what a yield curve is. Prior to taking on bonds, it is necessary to understand how interest rates and bonds work. They have an inverse relationship. After learning to understand the curve, you will be able to make better decisions about bond investment, which will hopefully lead to better returns.
Before investing in any types of bonds, make sure the bond you chose is the right one for you. There are more choices in the bond market than you realize so do your research first.
Bond Investment is very helpful to both borrower and the lender. You can get a home loan or a bond at a cheaper rate than other loans. The transaction is made in privacy like a borrower paying directly to the lender. However when the homes are of higher value the bond owners end up issuing loans to non-ideal candidates also. So if you are going to get loan, you should have a good credit history of your own. It is because the lender sees your credit worthiness before lending money. Your credit worthiness increases your lender's confidence in you and as a borrower you can hold your head high.
About the Author:
John Adamson is a freelance writer for www.123homeloans.co.za. For more information on home loans and buying a home, click here.
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