Not everyone who owns a house or has bought one lately has lost it, nor have very many realized real financial losses. There are certainly a lot of paper losses, more than we need or should have had, but I believe most people will get through the mess okay. Some will actually be big winners and those are the ones I wish to highlight. What is their secret, how did they figure it out, and how can you be just like them? It starts with understanding what you are doing when you are buying a house: how to take advantage of the opportunities given to you, and how to avoid the common mistakes. And so we begin a somewhat historical visit to the housing and finance markets while we are still in the middle of the credit crunch. Paraphrasing a famous quote, “If you study what happened and understand it you won’t be subject to repeating the same mistakes!”
The key to success is low interest rates—pretty simple stuff that most people can understand. How you use the low interest rates amounts to taking the key and opening the door to your future. Those who took the interest rates and put them to their highest and best use are the winners. Those who either didn’t react or took the opportunity and squandered it were the losers. The following is the hierarchy of the highest and best use:
1. Investing for your future, externally or internally.
2. Securing a long-term, low-cost future.
3. Securing a short-term, low-cost future
*10. Trying to use short-term tools for long-term success.
If you are wondering what happened to 4-9, I simply skipped to number 10 to show how far away this strategy is from successful ones. It is obvious that most who are in trouble today were advocates of number 10. Now let’s take a hard look at each of the ideas and see why I ranked them in that order.
Investing for the future via your house can take two forms, and both have merits:
* Taking a shorter term loan as a 10-year or 15-year fixed, or;
* Pulling out money for other investments with a longer-term, lower interest rate loan, knowing that the return you will be making on your invested funds will exceed what you pay on the loan
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.