To my followers; sorry to have ben MIA for a while. I am back now and hope to provide my followers with the newest real estate related trends and discussions.
The current real estate market challenges conventional wisdom, especially when it comes to mortgages.
For generations, people have been told that when buying a home they should:
- Make a big downpayment
- Obtain a fixed-rate-mortgage;15 years whenever possible
- Make additional princible payments whenever possible
- Pay off your loan as quickly as possible.
People see a mortgage as a “necessary evil” – one they should be afraid of and try to eliminate as soon as they can. While this was a good tact to take in the past, things have changed so much from the preceeding generations that this is no longer a relevant strategy. Unlike previous generations we no longer:
- Will have the same job for life. Most people will have 5-6 different careers and therefor won’t have a company pension as part of their retirement strategy
- We cannot realistically count on Social Security to make up the difference
- We won’t have “Mortgage Burning Parties.”
With these changes you need to take a second look at these strategies. For instance; Paying off the princible as fast as posible is no longer a good strategy. When you pay down the mortgage the BANK is in a less risky situation. Whose risk is increasing? YOURS!
Additionally, owners have been told to put money towards their 5% tax deductible mortgage, while carrying 18% non-deductible credit cards. In this case you would be far better off to forget the mortgage princible and pay off the credit cards.
These examples are just a small part of how you should adjust your buying strategy to better meet market conditions. Can you think of others? Feel free to comment!