CHAPTER 1
It's Not Your Uncle Bob's Mortgage—ButIt Ain't Bad.
Oh, Uncle Bob paid off his $200,000 house (currentvalue) because he got his loan right after WorldWar II. He swears by the 30 year fixed mortgage.He'll tell you all about it time and time again overThanksgiving turkey. So let's go back and find outwhy Uncle Bob is so sure this is right for you, too.
The 30-year fixed began in the 1930's, decadesbefore the 15 year fixed was introduced. It wasn'tuntil the 70's that we saw variable interest rate loans,with hybrids, and fixed loans that adjusted. In the80's, we saw adjustable (variables) that are fixed fora period.
But Uncle Bob had one choice. The 30-year fixedwas an arranged marriage, and he had to take her.Thus, his expertise is rather limited. (No offense toyour Aunt).
Now that I've ruled out Uncle Bob's advice,(besides, he always shows up to Thanksgiving with aquestionable salad anyway,) let me save you money.In fact, let me save you a lot of money. If you readevery page of this book, you should save thousands.I've broken it down to 50 simple points, highlightedto help you find the information you're looking forto help you make the right choice.
ECONOMICS (note, this is a highlightedpoint ...)
Economists are those rare professionals who cannever be wrong (or right for that matter). It's an art,not a science, and results are subject to whomever isgiving them.
Economists have the luxury of taking their theory,contradictory to each other as they may be, andautomatically finding a home. If you're one way,you go Republican; if you're the other way, you goDemocrat. Oh, if only all professions could be sosimple.
But an economist is the epitome of the slogan, "whathave you done for me lately? An expert can be right(or at least not wrong) for years and make one badcalculation, and he's suddenly yesterday's news.An amateur can make a wild/lucky on the markstatement, and he's the new messiah over night;that's what you get in an industry without standards.
Author's note: I have a Bachelor of Arts Degree(B.A.) in Economics from U.C.L.A.
Bottom line: Economics can go either way. It canhelp you if you research enough, and it may hinderyou should you choose to ignore the mountain ofinformation. But the best of the best contradict oneanother; it's just not a place to hang your hat.
The World Is Not My Problem
You turn on Fox or CNBC only to find thefollowing: Asia's market takes a dive. Russia'sfunneling billions to private banks. Europe isganging up on itself. South America is trying to gosober. So what should you do?
Fret not. That's it. Fret not. Whatever interest ratesyou're staring at right now are all that matter. Therest of the world is out of your control (assumingyou're not one of those creeps pilfering the Russianmoney.) If you are—hey, thanks for buying my bookanyway.
There are plenty of reasons to enter the mortgagearena including buying a house, refinancing yourcurrent mortgage, consolidating several loans, orpulling cash out of you property. If Japan eats SouthAfrica, it shouldn't change your situation any timesoon.
If your main reason to act is to lower your interestrate, then you're in for a nervous stomach. Interestrates must be right (now) for you to make yourmove.
My World Is Me
Your potential economic future is the one dictatingforce behind acquiring a new mortgage. Your jobprospect, your earning potential, your retirementgoals are singularly important, and every otheroutside force is irrelevant unless it relates directly toyou.
The neighbor's dog, your mother-in-law, and thefact that airline seats seem to be getting smaller asyour cushion gets larger, are all distractions in life.Nonetheless, don't let them distract you from yourgoal.
Know where you're going so you don't end upwhere you're heading. Sales leaders have alwayschided their sales people to plan their work and thenwork their plan. Your life is much the same. If youhave a destination in mind, detours on the way togetting through can be easily dealt with. It's thosepeople who don't know where they are heading whocan easily get lost, and they do. Don't let that beyou.
Inflation-Deflation, So What?!
It comes and goes, like relatives who visit moreoften than you like. And you're never sure howlong they'll stay. It's that scary word—inflation. Ishigh inflation something you need to deal with orsomeone else's problem? Can it affect your way ofliving, or does that only happen to the big boys?
Like those relatives who eat all your food and drinkall your beer, you need to stand up to inflation. Someinflation/deflation can mess up a well-conceivedplan or even poorly conceived ones by the economicrealities that occur in the economy during thosetimes. It all boils down to one phrase which is a truthof Biblical proportions in the home-buying world.Ignore it, and you'll end up in mortgage hell. Thatphrase is as follows: you cannot have high interestrates without rising home prices. You might seetimes of home prices rising without inflation butprobably never the other way around.
Fear causes people to paint a picture of a worldwhere interest rates skyrocket while home pricesremain steady, and this leads them to conclude thatlong term fixed rates are the only safe solution. Ifyou know, however, that home prices will followinflation, and that increased home equity will causemany people to sell or refinance and pull money out,then it's easy to understand why there's no reason topay extra for a long term fixed rate. It feels safe butisn't well thought out.
When you decide to delve into economics, try touncover all the facts and set the right parameters toreach an intelligent conclusion that works for you.
What if We Lose the Tax Deductionon Our Mortgage?
This could be a real dilemma if the push to a realbalanced budget continues. The only way to plan forthis contingency is by developing a strategy to payoff your loan.
Many believe the interest rates will decrease whenand if the deductibility of said rates are eliminated.Let me remind you of the unleaded gas story.Before unleaded gas was introduced to the marketplace, the oil companies told us it would be cheaperbecause they didn't have to add the lead. Whenthe cars converted to unleaded, we were then toldprices went up because they had to remove thelead. The people in control are always looking fora way to squeeze another buck out of you, andthey almost always will. Your job is to outsmartthem. And there's only one way to do this: pay offyour mortgage. They are then left helpless. Thepoliticians will be forced to go and sue the tobaccocompanies one more time to make up the extra cash.
Throughout this book, I'll give you tips on how todo this, but there are alternative viewpoints. Whilenone maybe as good as mine, I will present themshould you not want to pay off your mortgage.One concept states that you can't borrow moneyas cheaply as you can on your home so why pay itoff?" These folks are merely talking to the big boysas most people will need the equity in their hometo supplement social security to be able to survivethe latter years. Be sure to create the equity beforeyou need it and don't count on appreciation as yoursalvation.
CREDIT
What's Good/Bad Credit on a Home Loan?
The mortgage business is both similar to andalso unlike any other business. In the "like otherbusinesses" category, what occurs in the...
