It may look easy, but it's not simple

Roger Schlesinger
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Posted: Jul 22, 2006 12:00 AM

The Mortgage Industry is what I am referring to. Everyone thinks that it is pretty straight- forward but it really isn't. I have been in the industry a good portion of my adult life and on radio and television talking about it for almost two decades. The entire time I have been trying to educate the general public to the ins and outs of the industry. I know from the response that I have at least made a minuscule impact. It is on nights like this that make me wish I could do more. Half the problem is that there are so many companies seeking to use a slight of hand to make everybody believe "there is such a thing as a free lunch!" Maybe there is but I haven't been invited.

Let me expand my thesis with the following statement: “If you own a house, you can have a credit card or two but you should never carry a balance from month to month”. It absolutely makes no sense at all. Yet the highest individual debt carried by Americans today is credit card debt. Why? Practically no one stops to read the fine print and figure out what the interest rate is on each card. While no one was paying attention not only were the rules for repayment of credit cards changed but the companies themselves quietly starting moving people off of the fixed rate payback to a variable rate. The variable rates now top out at Thirty Three and a third percent. People use credit cards as installment debt, and it is at the top of the list for the most costly financing you can get.

A ten thousand dollar credit card balance at 18% will cost you $250 a month. If the interest rate doesn't increase it will take you about 8 years to pay this off. If you were to take a 10 year fixed mortgage in the low 6% range and design your payments to pay the debt in 8 years you would pay about $130 a month. Factor in that the interest on the credit card isn't tax deductible while the interest on the home loan is and the difference is staggering.

I could dissect every type of debt financing the average person has but I won't because people really do not want to see this. If they did, they would figure it out for themselves and financing would simply change. People wouldn't pay the ridiculous rates and companies would have to stop charging such high rates. You wouldn't have to hear… "What's in your wallet?"

Suffice to say I can't stop the insanity but you can. You can end it for yourself by learning and understanding the power of home financing to get you out of the maze and on your way to financial freedom. At this point, someone always states they pay cash for everything. Unless you were born wealthy or won the lottery at a young age, you didn't buy your house with cash. You can use your house, however, to head yourself in the direction of being a cash buyer within a decade or two.

The key is to take advantage of the interest rates at any given time and to always have cash reserves. Without the reserves, at the first sign of trouble you are heading back to your old stomping grounds—credit cards and other financial mouse traps. The power is yours--use it.

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