I write many columns, generally 3 or 4 a week, and I do my best to give you information that can help, if you will take it to heart. But I am also a pragmatist. I truly believe people will do what they have to do, not what they need to do, or even what they want to do -- just what they have to do. I am writing this column based on my experiences and my knowledge of the financial markets to show that I realize that everything I say may not be the absolute best solution, but it will be the solution most people will adopt. So let's get into it.
I wrote a column last week called "How Important is the Right Mortgage", and talked about what a $354 per month additional loan payment could do for you. I received some correspondence that said I should have taken another approach, where the borrower who kept their 30-year loan and didn't pay the extra $354 per month for the 20-year loan would instead invest that $354. It is a good point, but not a realistic one, as people simply won't do that. How do I know? Because I see it with the clients who tell me what they are going to do, and yet years later, still haven't done it.
I also know that we have a negative savings rate in this country because people don't save.
A number of people tell me they don't need a shorter mortgage, as they are going to make the additional payments on their longer amortizing loan. These people actually do give me a caveat by saying, "If I don't have any calamities". But you probably guessed it… there is always a calamity. When it is time to refinance, their balance is exactly where I thought it would be -- not where they wanted it to be.
Those who tell me they want to refinance and pay off their credit cards and burn them, somehow never do. I know they won't because they missed the key ingredient to the refinance: reserves. Without reserves you cannot withstand the urge to go back to your old ways of credit cards.
A good number of people look for a “miracle” solution for their financing, and they have no problem suspending reality to find that solution. Obviously, telling yourself you will invest that $354/month is one way of doing this. But other areas where this happens include rate shopping and looking for loan products such as the “so-called” no-cost loan.
People shop loans all the time and never realize that loan rates change every day, sometimes 2 or 3 times a day. Loan rates are dependent on the following items: size of loan, type of loan, type of qualifying (i.e. full doc, limited doc, stated income), type of property, and the use of the property. Add to that list the credit of the borrower and you see why shopping a loan might be good in principle but generally ends with a comparison of apples and oranges.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.