How to Make Your Mortgage Work For You, Instead of You Working For It
By Ed Wacaster
We work so hard for our money these days, it just makes sense to use it wisely. Even as the world’s wealthiest nation, we still use antiquated money management techniques, when in today’s economy, we should be using state-of-the-art, up-to-date techniques. Our Grandparents, God bless them all, lived in a very difficult time in our Countries history. Their main goal in that era was to get their home paid off as soon as they could so the bank wouldn’t take it from them. Back then when the bank needed money, they could knock on your door and demand that you pay your mortgage off right now while they waited for you get the money out of your wallet. Obviously the poor homeowner very rarely had that kind of cash in their wallet, so they lost their home.
In today’s economy, you literally have to quit paying for your home in order for the bank to foreclose. Even then it takes roughly four months for them to do so. Of course with all of the upheaval going on with such huge foreclosure rates, you might be able to stretch it out much longer and perhaps even get back on your feet and catch up before they’re allowed to take your home. So paying your home off as fast as possible is no longer a valid concern. As you read further you will find out that I am not telling you to never pay off your house, but there is a proper time to do so.
Let me share with you current up-to-date, state-of-the-art money management thinking. OPM (Other Peoples Money) is big now days, perhaps you’ve heard about it. However, every time I make that statement I’m a little surprised at the number of people who have not. So bear with me for a moment while I bring everyone onto the same page. Instead of accelerating our mortgage payments in order to decrease the amount of interest we pay on our mortgage, we’re literally better off taking those same dollars and giving them to our investment person, Financial Planner, or whatever professional you have do that for you.
Accelerating our mortgage payments robs you of money you could actually be investing and earning money on. And here’s the kicker in this entire situation: you actually earn assets quicker than you pay off debt. I know that sounds counter-intuitive, but bear with me. As we pay on our mortgage, we are paying our mortgage in arrears. In other words, we’re paying last months interest. So if we’re pay Decembers payment, we’re really paying for the interest accrued in November. So thinking about paying down the interest on the mortgage may have merit, but not entirely. Think about this for a moment, every time you make a larger mortgage payment, you will always be paying last months interest, regardless of how much you pay down the loan. It’s the very nature of the beast if you will. But, if you are investing those dollars, you are increasing the amount of money in your account every day that money is in the investment account. Paying off the mortgage may decrease the amount of interest you are paying, but it will always be last months interest.
Don’t run away just yet, the best is coming up right now. While you are investing that same amount of money you would usually use to accelerate your mortgage payments, you will be earning interest. I know Ed you said that already). Each month your account statement will grow and you will smile each time you see that bigger number. But what if you were to lose your income because you work for the State of California, or worse, the mortgage industry. Since you were smart enough to save your money, you now have cash available to you in order to pay your house payment, your car payment, college tuition, kids braces and so on and so on it goes. Had you taken that money and put it into your mortgage; when you lost your income you no longer qualify for a mortgage with today’s underwriting guidelines.
Stated income loans are basically gone at this point. Now you have equity in your home, but you can’t get to it. It’s trapped, and your tapped. Now you may not have money to pay your mortgage, your car payment, college tuition and the kids braces. and take it from me personally; broke women are flat out vicious! You may develop a case of marital discord for which there never ever will be an antibiotic created. Conversely, if you had invested that money instead, you won’t need a pill, your wife will love you even more because you’re so smart and handsome. She may even bake you a cake with your favorite frosting, or your favorite pie and even put ice cream on it for you while you weren’t looking.
If this hasn’t made sense to you yet, and it ‘t may not have if you haven’t seen this strategy before, you will want to check back frequently to this article as I go deeper with it. But one final thought here. You actually are paying compounding interest on your mortgage. Each month you don’t pay off the entire principal amount, you are charged interest for every day that principal isn’t paid. That’s why it takes s darn long to pay the thing off. If you invest that same dollar, you are now earning compound interest every day that money is in the account. When it comes to using your dollars to increase your wealth, OPM makes a terrific difference in your plan. Use it as often as possible, but do it wisely. Investing will always make you more money than paying down debt ,as we acquire assets at a quicker rate than paying off debt. It’s an absolute for which there is no argument. The numbers don’t lie as math is a science, not an art, unless you’re doing your taxes.
Until next time
Ed Wacaster CMPS works for RPM Mortgage in Fair Oaks California. He earned his CMPS designation in April of 2007. Less than 1% of Mortgage Originators nationwide have earned that designation setting him apart from the rest of the Mortgage Industry. For more information about CMPS (Certified Mortgage Planning Specialist) go to http://www.CMPSInstitute.org There you will find out why this designation is such a huge undertaking and brings credibility to the industry. Testing is required each year in order to keep this designation.
Ed lives in Grass Valley California with his wife Paggy and dog Angel on 2 acres. Together they have 6 children, all of them boys, except 4. 11 Grandchildren and two Great Grandchildren.
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I remember when I put new cabinets in my house. It was time because those cabinets were screaming to go back to the 70′s where they came from. Old and tired, repainted so many times that much like some females I know, have no idea what their natural color was. Have you ever priced cabinets? I hadn’t either so I was shocked that one 8 foot wall of cabinets was going to set me back $5,000! What are these things made of?
