I have been in the mortgage industry now for 7 years and in those 7 years the most request loan program has always been the 30 year fixed mortgage.
In recent years as a result of being exposed to various experts in the mortgage industry it was finally explained to me why so many people seem hell bent on this type of loan program. I going to start this out with a story that was told to me to best represent how people think and why the 30 year fixed rate loan is the answer to most consumers loan needs, or so they think.
The “Ham Story” goes like this; a little girl after several years of watching here mother cook dinner for the holiday’s, finally one day asked her mom why she cuts off the ends of the ham and throws them away before she sticks the ham in the oven? The mother responded that she wasn’t sure and that that she should ask her Grand-Mother. So one day the little girl asked her Grand-mother why her mom cut-off the ends of the ham and throw them away before she stuck the ham in the oven? The Grand-Mother responded, “I’m not sure why your mother still does that but my mother used to do that because the ham would not fit in the oven”.
So the moral of the story or the question we must ask is; are we still cutting off the ends of the ham and throwing them away because we think the oven is too small?
When the stock market crashed in 1929 and banks were heavily investing in the stock market and a home loan note was a callable contract, many people lost there homes when the banks called those notes because they had lost all there money in the stock market. Since that time things have changed and banks are prohibited from borrowing heavily to gambling in the stock market and the only way you can loss your home is if you stop making your mortgage payment.
As a result of the 1920’s our grand-parents and our parents told have always told us the best thing to do is pay off your mortgage as quickly as possible. The fear of loss that they had experienced or people they knew had experience was rightfully ingrained in there minds.
Now that we understanding why we were taught these things and that these rules no longer apply, we need to re-evaluate whether or not we are applying the old rules of money and potentially limited are ability to create financial wealth.
Consumers now need to consider all loan reasonable loan options that are available and take a look at the different benefits that these loan programs have to offer in helping to improve one’s long term financial position. There are many loan programs available and if the right strategies are applied these loan programs can be key in creating long term wealth. This is why it is paramount to make sure that you seek the advice of a Certified Mortgage Planning Specialist when doing your next loan.
In our next issue we will discuss the history of interest rates.