Part 5: What are the Interest Rates?

What are the banks selling money for?



















We learned in the last 2 lessons to make sure your credit is as good as you can get it. If you have not done that yet or have not read the last Parts (4 and 5), read the following blog.


https://www.blogger.com/blogger.g?blogID=4738936030458353613#editor/target=post;postID=7867299750255712615;onPublishedMenu=allposts;onClosedMenu=allposts;postNum=3;src=link

It is time to shop for interest rates.

As I said before, my credit is in the 770s to 800 range, that is great credit. I should be able to get the best credit possible. Today as I am writing, that is 2.5% and I should be able to borrow $170,000 on a $225,000 home easily.

 What are Corporate Bonds selling money for?



What is the spread between the rates?

The bond or bonds that I expect to buy has a rate of 5%. That is what the bonds that I need sell for in interest. So we are talking about $100,000 bonds, giving  $5,000.

The Banks interest rate on my line of credit is 2.5%, getting a loan of $100,000, using my house as collateral, I pay $2,500 interest expense.

The difference between the money that I have to pay the banks  is $2,500.  $5,000 - $2,500 = $2,500 is the spread or the money that I am keeping.

Notice, that this is a "no money down" deal and I am walking away with $2,500 per year. In this strategy, I should make more than that. I also make money on the Maturity Price, say $1,000 minus the Discounted Purchase Price or $750. I put in my pocket $250.00 per bond. 

This is our objective in this process. We are going to take the banks money and make money to buy cars, homes, or bigger homes or better cars.

Now it is time to see the brokerage firm!

Apply for your brokerage account. You can find several online.   I suggest a firm where you can invest online. I use Zion's Direct Online Brokerage because of the low commissions on bonds. But I am sure that other brokerage firms have commissions just a low.  

But remember, they must have low commission rates and a large portfolio of bonds that includes BB+ through CCC bonds. Make sure that they have bonds which you can buy as low as 1 bond per trade. However, the volume of bonds sold per transaction maybe controlled by the seller.

http://www.forbes.com/2011/01/25/how-to-open-your-first-online-brokerage-account-personal-finance.html

If this is your first account, you may want to read this link above.

Remember that security of your brokerage account is important. Click on this link below to learn more about securing your account.

http://www.sec.gov/investor/pubs/onlinebrokerage.htm



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My Book; Building Wealth with Corporate Bonds

 

I told you many times about my last book published in 2003 called, "Building Wealth with Corporate Bonds." The price is $35.00. I am selling off my final copies of this book. After that, I do not plan to produce anymore.  Some of the topics enclosed are: 

• Creating a Risk Policy
• Bull and Bear Markets
• What are Stocks and Bonds
• Corporate Bond Strategy
• Buying Corporate Bonds on Margin
• How to Place orders

You can buy a copy of my book by sending a donation of $35.00 money order to: Darnell L Williams

Building Wealth with Corporate Bonds

I/O Darnell L Williams

200 A Seneca Way

Havre de Grace, MD.  21078

I only have a limited amount of copies so order yours today. When they are gone, they are gone.