5.875% + 6 months no payment!

This morning, I heard an ad on the radio selling an amazing loan program!

5.875% 30 year fixed rate + No Payment for 6 months!

Wow! It sounds too good to be true.

It is. I haven't called in to shop this loan program, but before getting excited let's take some time to guess where 6 months of payment freedom comes from. It's going to be one of two places:

1 - EQUITY!
2 - Closing Costs (Since we'd be talking about 6 months of payments rolled into your closing costs, I think its fair to say that this 'payment freedom' will in fact be 'equity payments.')

There is no such thing as a free lunch. This program simply offers you the opportunity to eat up your equity. However, it may be a good fit for a select few people.

Let's say you have great credit but have just experienced major unforeseen expenses and need some help to get back on your feet. Perfect!

On the other hand, if you are incapable of living within your means and need payment freedom to pay down $15,000 in credit card debt, this isn't a solution. It's a band aid. The real problems? Financial management, self-control and budgeting.

Shady marketing is just that.... shady! The company has one goal, and that is phone calls. Once you've called, I hope you are ready to be told that you don't qualify because of ________ (select one or more: credit, employment, assets), but you do qualify for this higher interest rate loan that will allow you to skip two months payments!

I hope they mention that every refinance allows you to enjoy no mortgage payment for two months.

I also hope that they disclose where the money for this payment freedom is coming from.
A - Equity
B - Closing Costs

I encourage you all to trust your home to financial professionals who are not transaction driven, but people driven. You deserve a consultation where your needs and goals are discussed. Let's all get past minimum payments and start talking about how you can work towards financial freedom! It can be a reality, but it's not going to fall into your lap!

Wishing you all a wealth of real estate knowledge in 2008.

Why Not?

I was chatting with a friend from home a few weeks ago. Soon, we started talking about mortgages. Here is his scenario.

30 year fixed loan

90% financing

Low interest rate

This young lad has made some pretty wise decisions! After all, he is planning on living in this home for a long time. He is in the right loan product and he is locked in at a competitive interest rate which will save him thousands of dollars over the life of his loan.

Problem: He is putting every spare dollar towards paying off his mortgage as soon as possible.

Question: Why is this a problem? Won't this save him even more money in interest paid?

Answer! Before paying down your mortgage, take some time to evaluate your overall financial situation.

1 - Do you have any other debt that carries a higher interest rate? (i.e. auto, personal loans, credit card debt)

2 - Do you have at least enough money in the bank to cover 6 months of expenses?

3 - Are you on pace to retire at the income level you desire?

For those who are not carrying extra debt, have substantial savings and are investing for retirement.... go ahead and pay that mortgage down.

For the rest of us.... don't do it!

When you pay towards a fixed rate mortgage, you lose liquidity. In other words, that money is no longer yours and you can no longer access those funds.

What will happen if you lose an income or encounter unforeseen expenses and find yourself unable to make your mortgage payment? Will the bank give you a credit for the extra payments that you have made?

Nope. The bank will begin the foreclosure process. Not only would you lose your home, but you'd lose all of those extra payments as well. Yikes!

Don't fear! With a little education and a little bit of discipline, you can build some reserves, save for your retirement and pay down your mortgage early!

It's Not the Shoes!

(I want to preface this article. I'm not a great basketball player. Barely above average and far from great.)

On the way home from work today, I saw an open court. I happened to have a ball in the back seat so I stopped and shot around. I don't suppose I looked like much of a basketball player in running shoes, khaki shorts and a polo. It was a beautiful day and I hadn't played in a few months so I thought I would seize the carp or whatever.

I don't think I'm the only one who didn't think that I looked like a basketball player. A younger kid (later found out he was 19) approached me with a big smile and said, “Wanna hoop?”
“Sure,” I replied.

As the game progressed, a few things were evident.

1. I'm fat and out of shape. I was dying out there playing half court 1 on 1. I need to get on the treadmill!
2. I was a lot better than he was.

After winning three games, I was literally laying on the court. We were talking and the excuses began to pour like rain.
“I didn't have my shoes.”
“I haven't played in a couple of weeks.”
“I usually play against poor competition.”
“I usually don't play 1 on 1.”

If I had played in the past few months, was wearing basketball shoes or felt that I was actually a decent 1 on 1 player, these excuses could have carried a little bit more weight. (Frankly, even if the excuses were legit, I was too tired to care.)

Driving home, I took some time to think and reflect. Here are some of my thoughts:

• What excuses hold me back?
• I'm exhausted.
• Am I looking for reasons not to succeed or am I proactively searching out success?
• I'm exhausted.
• Do I have a plan/goals?
• Am I making these goals a reality?

I would encourage anyone looking to buy a home or invest in real estate to answer a couple of these thoughts and questions. I'm a big believer in personal check ups. If I don't have a direction/purpose/goal, I find myself getting by rather than getting ahead.

Deadline...

I have an open house. My property is being listed tomorrow. One problem...

It's not done!

I'm looking at a couple of long days. In less than 38 hours, the open house is happening.

I have 38 hours to tile, grout, install lighting, paint, install new electrical outlets, switches, a microwave..... The list goes on and on. After working for over 16 hours today, tomorrow looks like another 15 hours minimum.

Time for some honesty....

I'm tired. Exhausted. I have too many 'irons on the fire' so to speak.

I love it. I love the pressure. I love the deadlines. I love the volatility and risk involved.

Like many of you, I don't want to work for someone else. I want to do my own thing. My thing is real estate.

I believe I'm willing to pay the price. I'm willing to put in the time. I'm willing to take the risk. I'm going to give this all of my energy. The upside is just too good to pass up.

37:30 and counting.....