I played allot of basketball in my life, one thing that I never got away from was practice. During practice my coaches would often simulate real game situations. As a mortgage planner, or those whom think they understand mortgage planning, it's often helpful to practice our trade, learn from others whom have different styles then we do. Therefore I'm creating the first Mortgage Planning Simulation Runoff! Winner's will be determined by those whom participate and those whom contribute in terms of feedback. The invitation if for anyone in the Mortgage Planning Strategies Group or any other Mortgage Forums. Some of you who like the mortgage merge account with your clients are welcome as well, but make sure you back up your advice in each scenario with hard numbers. The winner at my expense will receive 2 x 9 Light LED flashlights
at my expense, these are nice little lights to keep in your car's glove department and will hopefully be there in times need, much like mortgage planners in todays market. The winning solution will be posted in a separate blog post to the general public.
So let the competition begin...... First contest will be 1 week before I judge the winner
Simulation #1 ....Brad and Lisa are thinking of moving......
Brad and Lisa are married, they live in a smaller home, they have two children and Lisa is pregnant. Brad has a great job with upward mobility and is already earning enough to put him in the 35% tax bracket. Lisa does work but only part time, and she wants to stay home after the pregnancy with her children. Brad and Lisa have asked their real estate agent buddy Jason to keep an eye out for any great deals due to the desire to upgrade to a larger home. Brad has some handy man skills but he also has a stressful job but assures Jason he can handle a "great' deal even if it needs a little TLC. Brad is one of those driver personalities, and sometimes he can bite off more then he can chew. Both Brad and Lisa like to travel and both have newer vehicles, and Lisa has been pushing Brad to buy a bigger vehicle for the extra addition to the family. Brad due to his occupation can run up his credit cards in travel expenses, and Lisa is a clothes hound, there isn't a department store credit card she's ever turned down!
One day the phone rings and Jason explains to Brad that he's found the perfect house. It's a repossession, the bank just wants someone to make an offer. There needs to be about 30k in TLC that will be needed after the purchase, but it's something that Brad said he could handle. Brad knows he's going to get a raise shortly and he wonders if it's the right time to put his house on the market. So Brad calls his local banker, who tells him..NO PROBLEM...just let me know how much you need to qualify you for and it's a done deal! His real estate agent suggests he call you, and after speaking to Brad and Lisa you also find out the following hard numbers.
current home: 195,000 mortgage @ 6.5% 30 year fixed rate...Can sell it for $265,000 in a buyer's market.
New home: Realtor thinks bank will accept 400k offer, home has appraised recently for $625,000
Current Market conditions: Adverse....20% drop in values in last six months....
Brad's Income $95,000 per year W-2 with 10% income bonus every year, past 5 years. Lisa $1500 month P/T
Asset reserves: $10k 401k, 10k whole life policy, $2000 savings, $5000 checking
No financial plan or planner.....Has a CPA.....Has an insurance buddy who sold him his whole life policy....
No disability insurance....basic insurance on auto...
Brad is 31, Lisa is 30
Brad works as a administrator for a large commercial lending company. Brad's feels his job is fairly secure, but worries somewhat about the economy and job growth in his city. Brad is a big picture guy, let's his wife pay the bills. Brad also likes recreational vehicles and also loves to travel with his family. Brad is a strong believer in putting aside 10% of his income for church, and any additional money at the end of each month into savings..though he hasn't put much in lately do to various reasons. Brad isn't worried about paying off debt at this time, he's more interested in reaching income goals within his company. Retirement isn't something Brad has worried about yet, neither has he worried much about his children's college costs. He figures he still has plenty of time to save for these events, his oldest isn't even six years old.
Lisa works part time, wants to quit. She likes there current lifestyle, but wants to pay off the home and stay out of debt. Though at times she has a hard time staying disciplined when it comes to weaknesses like clothes. One important factor with Lisa is her father and mother are over retirement age, and her mother is still working. Her father has been in a wheel chair since his 50th birthday due to a non-work related injury. Lisa is quietly worried about her husbands active lifestyle when it comes to sports and recreation, and is fearful that this could happen to their family as well.
So now you've spoken to this family....what would you do? How should they manage the mortgage? Should you put down a big down payment ? What type of loan should they get ? What other professionals should they speak to? Who else do you bring into the transaction ?
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