2008: The Year of the Appropriate Mortgage

As we start this new year, resolutions will be made while only some will be achieved and upheld. Some will tackle personal goals, while some will address physical aspirations. Most Americans may choose to address financial resolutions in hopes of furthering financial success and growth.

From my humble experience, I have come to realize a world of neglect in an abundance of Americans' mortgage planning. You see, I encounter homeowners, investors, and clients each and every single day. As I review each case, and sometimes do preliminary underwriting on some, I realize that most do not realize the importance of a mortgage in the overall schematics of financial success and overall wealth accumulation.

For most Americans, a mortgage is seen as a burden, a debt that must simply be paid every month and eventually, after a good 30 years, it will be lifted off the balance books. However, the unfortunate occurrence I have noticed is that while most Americans religiously focus on working long nights and full weeks simply to pay the hefty mortgage payment, they forget to simply invest in themselves. Most simply invest into the bank collecting the payment.

You see, our banking system is one of the largest, if not THE largest, businesses in this country--if not the world. Banks have mastered the art of (first) lending, then collecting, and then investing what they are collecting, which will yield in accumulating interest and wealth. Banks are one of most profitable platforms in our economy. Most wonder why. One example, Bank A lends at 6.5%, collects this payment, utilizes compounded interest, all the while invests that same 6.5% to double, if not triple, if not quadruple, etc. to yield lots and lots of profits. How else can players such as Citi and B of A write of billions in bad debt, while still being profitable businesses?

Sadly enough, most Americans still have not realized that they can too invest in their own bank. I call this the Bank of Me. For the sake of relevance, we will use a recent client of mine by the name of Lilian. Lilian has been self-employed for the past 14 years. Lilian has a 760 fico score, which represents very strong repayment capacity. However, Lilian, now at the age of 58, only has $12,000 in her combined checking and saving account. She has an investment account with Morgan Stanley valued at $60,000. Lilian has been paying her mortgage payment religiously for the past 8 years (since she last refinanced it). Her balance is $680,000. Although Lilian and I realize she will never pay her mortgage to a zero balance, she still prefers a Principle and Interest mortgage, because she likes the concept of "paying the balance down." I have advised Lilian to utilize an Interest-Only mortgage, since it will save her $560 per month, which equates over $6,000 per year. With $6,000 per year in straight savings, Lilian can begin investing, and at a capitalized interest rate of 7.5%, Lilian will begin to see the same type of yield a bank sees if she invests properly. But like Lilian, most Americans neglect to invest in the Bank of Me, and allow their banks to capitalize on the simple investing strategy.

This type of thinking is against most Americans' comfort zone. The irony, however, exists in the fact that most Americans will work a lifetime just to pay off a mortgage, all the while neglecting to invest in the Bank of ME. After 30 years and a mortgage balance of zero, a realization is made that no money has been invested in other financial vehicles. So what happens next? The phenomenon known as a REVERSE MORTGAGE. The very thing that has been religiously paid down for 360 months (assuming consistent payments on a 30 year mortgage) will claim the very money that could have been diverted into other financial vehicles.

In 2008, with the evolution of technology and efficient dissemination of thoughts and knowledge, I hope more Americans learn to break the cycle of poor investing. I hope 2008 brings more good fortune and financial success to the average American, rather than simply big business, corporations, and Wall Street. Our society, government, and general understandings/influences advocate, almost subconsciously in some forms, that home ownership is a necessity. However, with that, no where is it suggested to invest and utilize the same strategies our big banks deploy. With this comes a lack of understanding of how vital the proper mortgage planning is to an individuals and a family's financial security, success, and overall health. The wealthy become wealthy by using strategies the banks utilize; why not you?!

That is why it is crucial to utilize proper mortgage planning. A loan is a loan. Mortgage planning, however, can be a very precise, strategic, and powerful resource. Make 2008 the year you utilize the same tactics banks do; begin investing in the bank of YOU!

Cheers.