Comments on: Should You Leverage Your Home or Pay it Down Rapidly?

By: Brock Gratton

Brock Gratton — Thu, 22 Feb 2007 21:17:48 +0000

As Mortgage Planners it is our job to open the eyes of the clients to all the possible options and to show them that times have changed from what their parents and grandparents have taught them.

Money sitting in your house’s equity is not working for you.

By: Honlulu Realtor

Honlulu Realtor — Sat, 14 Jan 2006 01:00:17 +0000

I have been telling people in Hawaii this concept for a while. People look at a $100k gain on a $500k house and say they gaine 20%. I tell them they actually gained 100% if they put 10% down. I say leverage real estate hard and try to gain 7% with the money you would have put down.

By: Mortgage Slave

Mortgage Slave — Fri, 13 Jan 2006 19:11:31 +0000

Great post! You’ve made a difficult subject for some to grasp (and hold tightly to, since it goes against what so many assume to be the way you should do things) in a way that makes perfect sense. Great points, and I’ll be checking out your book suggestion!

By: Dan Green

Dan Green — Fri, 13 Jan 2006 04:17:21 +0000

This is still one of my favorite topics! My clients are sometimes surprised at my response to “We’re conservative. We want to make a large downpayment.”

My answer is that larger downpayments only INCREASE your risk. Large downpayments favor the BANK, not the BORROWER.

One of my favorite posts ever (from my blog): http://21stcmb.typepad.com/the_mortgage_reports/2005/03/want_to_be_cons.html.

By: Galen

Galen — Thu, 12 Jan 2006 18:27:22 +0000

Good post, Randy and D.R. I think the pay down your home as a savings account model is a pretty good way to go for lots of people who otherwise aren’t savers. I’ll be sure to check out Missed Fortune 101.

Some questions: What does the scenario look like if home prices flatline or drop slightly over the course of 5 years. Lets say there is a 15% chance of this happening over the next 5 years (I made that up) – what would you recommend for someone who doesn’t have a lot of savings?

Also, what is the incentive for mortgage lenders? Do most get a flat commission on the size of the loan, or are loans with 20% down payments more profitable. I ask not to accuse you of anything, but because I assume that incentives would cause the industry in general to favor certain types of loans even if they are not in the interest of consumers. Or am I wrong – are industry incentives and consumer incentives perfectly aligned?

By: Legacy

Legacy — Thu, 12 Jan 2006 17:59:07 +0000

Our allied real estate professionals at Golf Savings make several good points as well as the last post. It is individually up to the borrower what risk they take in the guise of tax savings on the mortgage itself. Thing is, human behavior tells another story. The refinances we closed in 2005 tell us that many people are not taking any downpayment savings and investing it. They are doing just what you reported, going to Las Vegas, 2 SUV’s in driveway at 4-500/mo. a pop, credit cards, you name it. In fact, many borrowers at the closing comment : oh, we’ll just refinance again at our next adjustment in 2 years (with a pre-payment penalty of course).

Our 2005 statistics were just compiled recently and it is quite telling.

Of all purchase transactions we closed during 2005, 71% were 100% financed. Not one dime down. For some, eh, no big deal. For others it is a sobering statistic. Since our firm is such a tiny microcosm of the market, you have to ask yourself what the title companies and others are closing. I would venture that their numbers would mimic ours.

Live under your means.

T.Kane
Legacy Escrow Service. Inc.

By: darren

darren — Wed, 11 Jan 2006 23:41:07 +0000

I think everybody needs to run their own numbers to get an idea of what getting a lower interest rate and less or no mortgage insurance would mean.