A Mortgage Revolution

By

M.D. Anderson

How Long Is Your Ball and Chain?

Today, there isn't much you can take for granted for the long term. Things change often.   Except for the old traditional mortgage.  It has been updated, but it is the same old ball and chain.  Yes, you can drag it forward and get a home mortgage for fewer years than the traditional 30 year term now.  15 years is a popular option.  And that puts you on a better track for the mortgage revolution now taking place. But, the payment is higher and the chance of default is greater if your income drops and you can't afford the payment.  It's a great option for some, but it leaves less wiggle room when income lowers or stops. 

Proper and modern mortgage management should be about about reserves and options.  In other words, rainy day planning.  Instead, many just refinance their bad spending habits and increase their mortgage debt every time they do it.  They count on equity increases each year and then steal the money away from their eventual retirement income and the great lifestyle they could have at retirement.  The mortgage chain gets longer instead of shorter.  Retirement is guaranteed to be enhanced if the money you now use for mortgage payments can someday be used to build capital which in turn will provide additional retirement income.  Sooner is better than later here...

I have discovered a way to have it all and I really want to tell you more about it.  I have the key to get that ball and chain mortgage off your leg just as soon as possible. Just hang in there and I will get the proper information to you.  But I am going to tell you right up front that there is a huge chance you are going to have to ditch that old-fashioned mortgage you now have to gain access to the most revolutionary mortgage product that has ever hit the planet!  I'm talking "re-fi", in order to get it right.  THE LAST RE-FI!

Please understand right up front that I am a professional mortgage loan officer here in Arizona.  I would give you access to any of the mortgage plans I am about to discuss, if you absolutely instructed me to do so. If you want the lowest payment no matter what, and told me that is the only way you will use my services, I would do it.  But, before I automatically put you into any of these plans, I am going to look at the whole picture of your finances.  That is what I have done for years as a respected Arizona financial planner and consultant.  If I feel any of these plans could hurt you more than help you, at the very least, I would tell you and suggest an alternative that fits your needs.  Not my needs or that of my firm.  Your needs come first! Hopefully you will begin to see that I have something to offer that you won't find just anywhere, especially on the internet.

Now let's explore some of your mortgage plan options.  The 30 year fixed term mortgage is still the standard and plenty long as far as time is concerned.  You should probably still design your mortgage payment to be based on a 30 year amortization schedule, but pre-pay it when you can when extra cash comes into your hands.  With proper pre-payments applied, the right amount will allow you to terminate it and get a free and clear deed to your home in about half the time.  For many, this would save over a hundred thousand dollars in interest charges over the life of the loan.  And that same 100k+ of savings could easily provide a much better retirement for you by investing it in your bank or brokerage account instead of the mortgage company's pocket!

Mortgage bankers who fund your mortgage love those long terms, so recently they opened up the door to even longer term loans.  For most people, this option is probably a move in the wrong direction. But for some who are 100% sure their income will increase and allow them to pre-pay a longer term loan, the option stands as a recommendation because a longer term allows a lower payment. 

You just don't want to pay the minimum payment all those months or years because the interest charges will become completely out of line for proper financial management purposes.  So, just think twice before you decide to drag your own mortgage ball and chain deeper into the financial dungeons of time.  We're talking forty year plans here. (that is 480 payments!)  A good plan for someone whose income will increase, but can't afford the payment with lesser terms up front would be to take this 40 year mortgage and pay it in 20 years.  Or like the program I profile on this site, take the 30 year amortization scheduled payment and pay it in 15.  That is a good financial plan and one that will pay you back in spades when you get older. 

Which Way Are You Going?

If you really have great credit or equity, you can now sign up for a mortgage that will not give you a clear title  until you have faithfully paid in 600 payments, over a 50 year term!  If you took this mortgage out now at age 30, you wouldn't gain clear title until you reached your 80th birthday, if you should live that long.   A $200,000 mortgage taken out in 2007 for 50 years at 6.5% APR will cost you $676,475.13 to pay back in full at the end in 2057!  How smart is that?  If you are still alive, the day they give you back the keys to your home, free and clear, you may be rolled across your entryway in a wheel chair! 

Sure, there probably are a few potential clients I meet that would want this loan to be able to secure the lowest starting monthly payment (without negative amortization or interest only options we will cover next), but they might have to be a better salesperson than I to convince me!

Now, right up front, some might argue (they are called Realtors) that newer mortgage products, with lower payments, help younger home buyers and owners get into a home they otherwise couldn’t afford while they are just starting out.  The idea is admirable, but the end result may not be.  In order to do this, real estate agents and mortgage brokers and salesmen often agree together to offer you  a payment that has a long fixed amortization schedule as we just discussed. 

Or, they may offer a loan that is based on interest only payments in the early years that is fixed for a short period before turning variable (and usually higher in interest and payment amount).  Your payment goes 100% to the funding source (mortgage company or investor) and posts no principal pay-down at all.  So, the best way to understand how an interest only loan works is that if you owe $250,000 now -- you owe $250,000 two years from now!   Four years from now, you still owe that quarter of a million dollars!

Also, some of us creative financing experts may offer you a balloon payment set for total payoff in just 1-5 years.  (Payments are kept low as a longer amortization schedule is used solely for payment purposes) This works for some, but knowing you have to either get better financing or sell your home in just a few short years when the balloon loan pops -- creates undue stress and risks losing the home of your dreams if you can't meet the terms of the loan.  Again, as a Loan Officer, I would have no problem giving you this loan if you asked me to do it.  It just wouldn't be my BEST LOAN to help you.  Nor is it a permanent loan, which should be obvious!

The bank, mortgage company, or investor funding your mortgage will receive a steady stream of interest off of you for a long period of time. Obviously this is a very solid investment for them. But, if it is that great for them, how could it also be that great for you?  As a financial planner, I can't see a long term advantage to you as the consumer on any mortgage plan that, for the long term, doesn't pay down your principal balance when extra cash becomes available.

Some of the options discussed here are good short term "band-aid" fixes to a tight cash flow problem.  But, never getting out of debt on your home is truly a little nutty isn't it?  It is true that you would own the equity increase.  But, plenty of folks reading this article can no longer see their equity increase who financed using extremely long terms or interest only plans.  (In the state of Iowa where I grew up, we called this "taking a swim".)  And, the end results of being underwater too long...are never good! If you are now underwater on your mortgage loan, call me toll free at 800-782-2806.  I might have better ideas on how to get you back to the surface before it is too late...

A Typical Snare Ad, Complete With Honey...

Interest only and short term loans weren't enough for the bankers creating loan products.  The mortgage bankers pushed their creative pencils a little bit more and came out with negatively amortized loans that will advertise a low 1% or 1.25% rate to attract the public into taking a closer look.  Otherwise known as a snare ad, they are perfectly legal as long as the real terms are displayed.  The problem is that you will need a good set of reading glasses or a magnifying glass to be able to read all of the fine print on these type of ads! 

Many times, after closer examination has taken place, some Einstein will tell you that you can buy more house, or pull more equity out of your current home by using these negative amortized loans.  And that is where the trap lies.  No legitimate bank in the U.S. is going to fund a loan at 1.25%.  But, they came up with a great way to make money by letting your principal balance increase on these type of loans.  In most cases, the payment bomb goes off in year 4 and your low $1,000 a month payment instantly adjusts up to $2,500 or more because you hit the end of the road of the low cost ride.  What's next?  F-o-r-e-c-l-o-s-u-r-e!!!

Hey, again, this mortgage term could work for some.  Someone might just be able to convince me that for short term use only, this would be a way to go. This is getting financing by the skin of your teeth, and of course, the mortgage ads you see in print or hear on the radio or view on television or on the internet have used this ploy successfully.  Mortgage sellers concentrate their advertising on this one option more than any other to get you hooked.  Once hooked, they know many will go for the lowest monthly payment and ignore the true cost of the loan.

Many consumers will go this way only because they are still deep in credit card and car loan debt.  For new purchases, it might work as long as you understand the higher costs of interest these loans usually carry, and the fact that paying the minimum monthly payment is putting you deeper in debt each and every month you pay it!

Many who refinance take advantage of the "cash out" feature, which is simply pulling out extra money to pay off other loans and debts that may have incurred since the last time they refinanced.  Remember the ball and chain?  This just adds extra links to it.  Those who choose to pay a higher monthly payment at a fixed amortized rate will just refinance all of their debts into another refinanced first mortgage (the average mortgage finance is now every 4.6 years!), and can still do the deal most likely because some of their principal was paid down creating additional equity.  And, many homes do appreciate nicely which helps to be able to pull cash out later as equity values increase.

Not so for the person who took on too much house debt for too low of a payment.  They will have no equity left to refinance.  And, based on recent value drops in real estate, some of these poor souls may now be completely underwater with more debt than house!  Much more debt! And, sadly, many haven’t pushed the pencil themselves, nor do they know they are sitting in water!  They are drowning in their own debt and just ignore it or make excuses.  If this is your case, you can call me for free to chat about it.

If you are now shopping for a new mortgage loan, be careful before you sign the papers on this option!  There is a good chance, it will be the first one offered to you!  If that is the case, call me or fax it to me at 480-786-4045.  I will give you the "skinny" on what it really says!

Let's Make a Deal Bub!

There is even a loan that will finance 125% of the value of your home. (Which also ignores the fact that the IRS will only let you deduct 100% based on your true home value)  Can you imagine taking your 10 year old auto, which is paid for, to your banker and getting a new loan on it that exceeds the value by 25%?  Insane you say?  Well, it isn’t happening yet.  Of course, it never will. Very few cars appreciate in value, long-term, as they get older and older. 

But, it was the auto business that influenced these mortgage funding sources to offer ridiculously low payments. Or, at least it would seem that way.  Few auto salesmen will give you any term during the negotiation process, except for your monthly payment.  Even getting the actual interest rate out of a car salesman arranging dealer financing is like pulling teeth!  I have known a few mortgage salesman who do the same thing.  If this is happening on your mortgage shopping right now, give me a call.  We will discuss "rate" and "payment", but we will also talk about the full spectrum of moving parts in a mortgage.  How interest is applied.  Flexibility.  Durability and strength of the funding source. And, a missing element in most discussions -- how extra principal payments work and why everyone should do them.  If you fund with me next time, I promise you will receive a full professional review before you sign that big stack of papers.

Well, just like auto purchases and their subsequent financing which concentrates on “payment” only, the mortgage bankers and some loan originators are pushing “low payment” mortgage loans right now.  Just be aware of the trap before a low payment suddenly turns against you.  It is not completely speculative that some of these loan companies just want to take your home from you when you default!

You see, you could bake an apple pie that looks as good and sweet and delicious as you can possibly get.  But, if you leave out that extra cup of sugar – you are going to get a surprise when you bite into a tart piece of pie.  And, that is what is happening in the mortgage business today.  Some missing ingredients like "Principal pay-downs" and how they are applied should be discussed if you want to ever own ALL of your home someday!

Is Your Debt Time Bomb About To Go Off?

Homeowners are cashing out on their home equity like there was no tomorrow.  For some, that is exactly right.  They are robbing Peter to pay Paul, yet they are the same person.  They are writing themselves checks they most likely can not cash just a few years down the road.  Is your debt load right now hitting the overload stage?

It isn't all your fault if you are loaded up on debt. Rarely are the  rest of the ingredients of the mortgage pie discussed or asked about anymore when you refinance.  You just "Sign Here" and walk out with a new mortgage.

A question like “How can I pay my mortgage off in ˝ the time?" can not be asked when your principal balance is going up every year because you bought more home than you probably can afford!  Early principal payoff strategies are a key ingredient of mortgage financing.  Or, at least they used to be. You can get the inside track on how to turn things around before the big boom hits your finances!  (Some call it bankruptcy)  Help is openly available to you at no cost or obligation by my firm.

The idea of using low payments to buy more “house” is working like a bandit for the mortgage bankers, and some real estate agents who push more house on their buyer than what they really can afford.  It is more like a thief in the night.  Homes that may not otherwise find a buyer so easily, are getting new owners because of irresistibly cheap payments in the early years of the mortgage. And, for most people, they just buy more house thinking they will make more money in the future when the mortgage payment jumps up on them.  This is easier said then done.  And that is why you see a lot of foreclosures in your area right now. 

The worst case scenario in the mortgage arena right now is the homeowner who bought a home with negative amortized interest payments and didn't understand the payment would jump up drastically on them.  They just signed thinking they had a true 1.25% annual rate.  For that situation, I really feel sorry for all parties concerned.  The real estate salesperson and/or mortgage advisor for not educating their client.  And the buyer or re-financing client, who most likely should get a second opinion when they make these kind of decisions.  One thing is certain, few Federal or State regulators will feel sorry for those who get stuck with a bad loan, as the general rule is and always has been "buyer beware".  I'm sure there are exceptions and some bad advisors who get barred from making loans when they are caught doing bad things.  But a negative amortized loan is perfectly legal...just not perfectly smart to do.

I was taught many years ago by a wise cookware salesman who said over and over in his presentation that "good things normally are not cheap – and cheap things normally are not good".   (I still have that stainless steel cookware and they still do exactly what they did over a quarter century ago when I bought them!)  If you want the second* best internet mortgage advisor who will find the best loan for your situation, please introduce yourself to me! 

* I can not claim to be the best mortgage advisor on the internet, since every other firm and loan officer advertising on the internet is already making that claim!

Am I Starting To Bug You?  Good!

I think when you talk about usability, durability and products in general, a good rule is that if don’t follow the maintenance schedule, you may be prematurely disappointed with the performance of the product.  Back to autos, how many cars will run for 150,000 miles without an oil change?  Or, have you ever seen a vacuum that didn’t need a bag, belt, cord or new hose…sooner instead of later? 

Or, take your own teeth.  If you never brush, floss, or go to the dentist, how long will your natural teeth last?  One Dentist billboard used to read “Ignore your teeth – and they will go away!”  He had it exactly right.  But, it doesn’t just apply to teeth…

So, it is pretty obvious that to make something last, or at least last longer, you need to know the maintenance schedule and you need to follow it.  And, that includes buying and financing a home.  Someone high up in their Ivory towers and fancy offices has been playing with your home financing mortgage schedule.  The mortgage service manual, so to speak.  And, with record foreclosures going on now, it can not be ignored that a few unscrupulous lenders can not be totally blameless for what they have done.  They certainly have hurt some of their mortgage loan clients that have now been "done in” by bad loan deals.  Certain homeowners that foolishly bought mortgage loans based on starting low  “payment” sales pitches, and that missed the fact that the true APR (Annual Percentage Rate) is probably the highest cost of all mortgage plans available!  

And, talking about all those sub-prime loans that were funded over the past few years..., well, I can't even go there on this site because it may get too ugly.  Some who bought a home with bad credit may not like what I have to say. 

But, I will summarize how I feel about debt in general by telling you a little story about myself.  I used to ride around on motorcycles a lot during my younger years and actually discovered what it was like to come home with a bug or two in my teeth!  And, I embraced that Iowa sunshine like crazy.  But, at age 35, I was diagnosed with malignant melanoma.  I had two choices.  Cut it out.  Or die.  Obviously, I choose the first option and am glad to report it was an excellent choice.

O.K., if you are really sharp, you are already reading my mind and if that is the case, this is especially for you.  Just like a skin cancer that is almost 100% fatal if you don't cut it out, debt works 100% the same way.  You carry it too long and you get hooked.  And, though it won't physically kill you, it will kill your chances for opportunity in the future.  The longer you stay in debt the longer you kill your future.  If you wait too long to get serious, you may very well ruin your chances for financial independence.  No one wants to turn retirement age and be broke.  But, if you don't recognize you have a debt problem, you will never get better. 

How do you turn things around?  Well, for starters, don't get any more bad mortgage loans that may not fit your needs.  Shop around!  And, I'll give you the specific steps about how to get out of all car loan and credit card debt in about 3 years.  Then, I will show you how to take the payments you used to pay out on credit cards and loans, and apply it towards your mortgage balance.  I will show you how to time your bill payments to get the maximum float on your money, which will help also to prepay your mortgage balance.  With a little training and help, you could easily be completely free of all debt, in as soon as 7-10 years if you apply the principles and concepts I will give you for free. 

The best part of all, I will introduce to you the most radical mortgage concept that has ever hit the mortgage business!  This one will do it all for you and the mortgage company actually will help you with direct support and advise all along the way!

This is completely unheard of in the industry!  A banker who actually tells you how to get out of his pocket!!!

But you will have to register.  Give me something little and I will give you much more in return.  I just want your contact information so I can send you my monthly newsletter.  And, I would like to kindly ask you to let a few close friends know about what I do.  No surprises.  Just good American marketing here and a square deal for both parties.  A dual "back scratching", as they used to say back home...

Feel Financially Challenged Right Now?

Artificially low payments can easily lead down a slippery slope until you get too far down to turn around.  By the time you realize you have a problem, you have to look up just to touch bottom.  And, if you have the wrong tools or bad advice, you could be in serious trouble.  (You might be like the mountain climber pictured -- the wrong tools can be disastrous!)

To understand the maintenance schedule for properly servicing your mortgage, first you need to find it!  The mortgage service manual has been buried now for many years.  Some mortgage customers have actually come to believe that it is proper to make all 360, 480, or even 600 payments on their new mortgage!   Without a change, they are going to pay out mostly interest only, month after month, year after year and even decade after decade.

It would be wise to understand prepayment clauses, especially if anyone starts talking to you about "sub-prime" rates or products.  In layman's terms, it means your credit score or situation is a little less than "stellar" and that you are going to need to pay a higher interest rate and very likely, higher closing fees as well.  Just be sure you understand the difference between a hard Pre Payment Penalty (PPP) and a soft one.  (No jokes please!)  A hard PPP means you have to pay it no matter what, for a certain period of time.  A soft PPP means that it applies, unless you sell your home, in which case the penalty fee would not apply with most loan companies.  Just be aware of it so it doesn't trip you up later.  Either way, they usually disappear after a couple years, which allows the funding source to recover some expenses they may have occurred underwriting your loan.  

Another area that can trip you up if your credit isn't perfect, is the old and now outlawed mortgage “Rule of 78” *.  It used to be used to put the screws to savvy money mortgagees wanting to pay off their long term mortgage early.  The bank did this by raising the effective APR (Annual Percentage Rate) for prepayments, which doesn't seem very fair.  For loans not exceeding a 5 year term, you still need to watch out for this one! Anything longer than 5 years, I am happy to report it is now illegal in America.  But, it has just been replaced with more devious pricing methods that don’t always get disclosed or understood at point of sale.  If you don't understand the terms and you are about to sign something, why not run them by me first?

*Read more about the Rule of 78 and Mortgage Interest at http://en.wikipedia.org/wiki/Interes

The mortgage service manual from the old days, (I have re-written it for you, and include it inside my site if you register) before the bankers had a burning party, said that you should take a long term financing term for safety sake.  But, then you should pay a mortgage off early to avoid excessively high interest charges.  It’s not just about the interest rate!  It is all about the ability to pay off a debt.  If I was to summarize what the point is in this article, it is clearly one thing.  Get the best mortgage terms for flexibility, and then pay it off early! And don't keep thinking your mortgage is something different than your credit card, car loan, or any other loan. It is debt! And debt, other than investment debt, is not your friend!!! (Assuming the leverage you get by using borrowed money on that investment is making more than the interest they are charging you)

The Revolution Begins

Yes, this all is easier said than done.  Until now.  A revolution has begun in America, catching the wave from other countries that figured out a better way to post principal payments.  Securing a mortgage that embraces the "new way", you will end up paying less interest over the lifetime of the loan.  Australia and Britain have discovered what I am talking about here.  A very large percentage of their mortgage loans are wrapped with the ability to include a checkbook inside the mortgage account so that spare cash, you normally would keep in a low interest bank account, can reside inside the mortgage account to help cut down on mortgage interest charges! In fact, it literally displaces interest charges, dollar for dollar, on EVERY dollar you place inside this new mortgage type account.

Now, it is time you too discover these new plans here in America!  A vehicle was needed and now it exists to help you stay on track.  I am part of this Revolution and I am all about helping you find a solution like no other.  I have reviewed the other programs on the internet that are fee happy but do not deliver all of the tools in one package.  Failing to wrap all the tools necessary for successful extra principal payments and money access spells failure for most!  Nothing could be worse than getting all excited about this concept and then finding out you don't have the proper tools to pull it off!

There are two types of financial people in this world.  Those that earn and collect the interest (a.k.a. the “Haves”) and those that pay it to them! (a.k.a. as the “Have Nots”)  Which are you?  Which do you want to be?  If you want to be an interest collector some day and not an interest payer all of your life, we really need to chat!  I have the right account and company with all of the tools.  We even have our own "accelerator" software that allows you to input your actual situation.  Then, in just a few minutes, you can see the drastic difference of what extra principal payments can do!  You can project the future...a future that will retire your mortgage payment quickly.

Money Lost in Interest Payments is Money Lost For Good!

Lastly, If you have a mortgage, would you take just one minute to add up your mortgage payment(s) you are now paying each month, and then annualize the amount for me? 

Then ask yourself –"What could I or would I do if I didn’t have to pay this money to my mortgage bank (or banks) anymore, but instead left it in my own bank?"

What places could you then afford to visit?  What food or entertainment options could you then take advantage of?  What people would you be able to help out? What would you invest the extra money in?  Which charities would you give more money to?

**********************

O.K., I am HALF done in my information here and have concentrated on the problem.  Now, it is time to concentrate on the solution, especially if you have been shaking your head up and down while you read this.  Or maybe even tearing some hair out finding out how many of today's modern mortgage terms can help the bankers more than the consumer.  

If you want the solutions to these problems, and want that information right now, you will have to register with me to gain access. That's the deal. Register and you can read on to the conclusion and the solution to any debt problems you may now have. If you hang in there with me to the second half, I promise this is going to get even more interesting, entertaining, and hopefully profitable to you. And all the tools will be made available to you to see if this program fits your needs.

IN THE SECOND PART, I PROMISE I WILL HELP YOU IDENTIFY A THIEF LURKING IN THE SHADOWS WHO IS ABOUT TO LAY HIS HANDS ON YOUR WALLET OR PURSE AND STEAL YOUR MONEY -- VERY, VERY SOON!

OR, JUST CLOSE THE BROWSER AND GO BACK TO ENJOYING PRESSING THE PLASTIC A LITTLE BIT MORE BECAUSE THAT IS MORE IMPORTANT TO YOU RIGHT NOW THEN GETTING OUT OF DEBT. 

EITHER WAY, I WILL STILL BE HERE WHEN YOU ARE READY...I'M NOT GOING ANYWHERE. BUT, ARE YOU GOING ANYWHERE WITH YOUR MONEY?

THANKS FOR YOUR INTEREST AND YOUR TIME!

Sincerely,

M.D. Anderson

Feel free to email me for any reason at: homes@mdanderson.us

Don't forget to tell me about your current mortgage terms!