Cash-flow is a foreign term to many folks these days. The ability to spend, save, collect and consume aren't where we are used to being. In fact, I would venture to say a whole lot of people have one mindset in their mind... save money.
There's one issue I have with that. What some folks are doing, or rather thinking, is that they should save money in the short-term... and reap wealth when the "economy" and "housing industry" comes back. Let me tell you something about short-term, it seems to translate to those very results as well.
*I should warn you; I like putting quotations around words for no other reasons than it makes me feel special and stupid... all at the same time.*
Let's just say that there's a bunch of individuals out there who aren't feeling (tangibly) the pinch that is going on with others. Let's just say that they are more than making "ends meat". They aren't rich and perhaps will never be. Yet, they are secure in their financial situation. They bought their house exactly two years ago with a 6% rate attached to their 20% down payment. That's a 30-year fixed rate, if you are curious:)
Well, now there is today! If you can get a fixed rate in the mid to high 4% range, keep your mortgage payment similiar or slightly above what it is now... why not shave three years of payments and get into a 25-year term? You will pay (assuming you do;) a mortgage down faster and own your abode free and outright before you reach diapers... that's the goal, at least. That's long term wealth, my friends. If you can afford it, do it. Especially now.
My guess is that some are and some aren't... in the postion or mindset of long-term wealth.
I think we got too heavy in quick bucks in Real Estate, the Greed Factor. We also changed a paradigm from thinking a house is a roof over your head into a house is a way to make some coin. Real Estate allows us to survive, folks. There is no icing when you aren't eating the cake.
Real Estate makes coin, yet it's a roof. It's time to cover your head and ignore your ego... coin in any investment has always been up and down depending on when you sell... or if you even do. Keep when not wanted, sell when it is hot. If it isn't either, just sit back and review the perception. The medium considers all odds.
If you are lucky/capable/competent enough to be in the postion to do so, increase your payment another $100.00 or keep it the same to keep your financial lives in order.
I believe in long-term wealth, even/especially when it involes long-term pain. Wealth ain't "Lincolns" or "Franklins"... it's a smile:)
I typically add a song or song(s) to my post. If you stuck around this long, here it is:)
Jason.... a good point, but a question. Why worry about the term when most people don't stay in their house for more than 6 to 8 years. Even if they are comfortable, I understood that point. Just that I would show a few different vehicles in which they could use their savings to reap the benefits. Just my .02.
I guess I am old fashioned, I have always believed in making your house your home, and pay extra on the principle every month to pay it off early. My goal is to own my HOME free and clear. That is what I was taught in my church 28 years ago and still is taught today. It is what my grandparents did.
Jason, paying down a mortgage on a steeper slope or shorter note is a wise decision if you can afford the deal. Great advice. It's just math. Some people are terrible at math. That would not include me.
Let's just say that they are more than making "ends meat" do you mean like pork? I love math - just would like to see some positive numbers in my check book to pay down the note... great points
"There is no icing when you aren't eating the cake."
This is the truest thing I've heard in a long time.
Jason,
When were you last invited to a mortgage burning party?
Jeff is right! People don't keep their mortgage long enough for 25 year amortization to save much. On the other hand a 15 year mortgage lowers the rate and haves the time it takes to pay it off! At $100,000.00 at say 4.75% for 30 yeqrs the payment is 521.65 in 5 years the balance will be $91,498.24. At 25 years the payment will be $570.12 in 5 years the balance will be $88,222.92. Reducing the term to 15 years will also reduce the interest rate to say 4.50% increasing the payment to $764.99 and the 5 year balance to $73,813.69.
People seeking 25 or 30 year mortgages should maintain their liquidity, cash they can get without asking permission or paying fees! The cost of even no cost refinancing is to high to even consider getting just a little cash out, so most people are better off building their own rainy day fund. If the consumer does have extra cash and wants to reduce his mortgage he can always pay ahead! Even loans with pre-payment penalties can receive a 20% reduction each year with out penalty.
My advice to the consumer. Unless you can reduce the interest rate don't reduce the term! Unless you can recover the cost of refinancing in the foreseeable future (1 to 2 years) don't refinance!
It a good post, hopefully it will make people think. There is always more than one way.
Bill
Jason, very informative and certainly a smarter way to look at it.
Jason - all but one of my properties is at 5% or 5.25%. The latest one we bought is at 7% with non-owner occ being what kicked it up. These are all investments, they are all paying for themselves, and hopefully when this market turns they will appreciate some over the next 10-12 years. Then I'll cash out and be done landlording. :) I'm a long-term strategy person ... here and now is just flash.
Since when did you actually start writing about mortgages? ;)
Jason you are a mess...(in a good way) I like the message, particularly the delivery.. :)
Jeff - That's exactly why I would ask how long they plan on being in the home. And there are several vehicles in which folks could use. There are still folks out there (I have two clients in this position right now) who plan on being in their homes for quite sometime and are doing quite well. They are looking into refinancing to pay off the principle balance faster at a similar payment. My whole point here was that there are more than one way to skin a mortgage, thus a rate/term refinance. That's my two pennies and I will throw you a dime for asking an appropriate question:)
Katerina - In many ways, I'm old-fashioned as well. Believe that or not;) I miss having grandparents, especially in times like these. While I could teach them a few things, they could teach me so much more. Free & Clear is a GREAT feeling, just consult your accountant on the tax ramifications.
Gary - Basic math was always easy for me. If ya get into geometry, trigonometry, calculus, and the like... then I start having to work a bit. Math & Goals... important factor in this business.
Thesa- No, I meant "pork shoulder"... this was originally going to be a crock pot recipe post;)
For folks in an appropriate position, I believe this to be very worthwhile to consider.
Jeannie - I love throwing out thoughts like that. Seems they either hit home or make no sense at all. In either case, I'm cool with it:)
Bill - "When were you last invited to a mortgage burning party?" Probably the late eighties, in which case I was too wrapped up in former dreams to attend. The 25 year amortization was an example, as would a 20 year... 15 year... or 10 year... depending upon how long they plan on being there. This isn't the most realistic option for a lot of folks right now, but it is for some. For the latter, I don't want them to forget that viable option.
"Unless you can reduce the interest rate don't reduce the term! Unless you can recover the cost of refinancing in the foreseeable future (1 to 2 years) don't refinance!" Absolutely. I suppose I could of made this a shorter entry with just those two sentences.
Susan - For some folks, yes. You don't hear it much these days, as many lack cash-flow and are simply looking for ways to save money right now.
Carol - Sounds like you are in a good position. Did you remember to put me on title of those properties;)
Mark - What's a mortgage?
Konnie - A mess? You are calling me a mess? Okay, fair enough. Here's a tune for you...
Jason - that is why each person is an individual, and I know that is the way you treat people. Some people could refinance and save some on their monthly payment, but it isn't the right thing for them to do. Those with principles will realize this and tell them so, companies like Lie T**h, will only got for the deal.
Good post homeboy.....I will say that wealth can be defined in many ways.... I like the smile, but I"ll take the benjamins as well. Not that the benjamins define me, but it makes life easier to get through. BTW nice Door....
Fred - Ethics versus personal prosperity. It's an easy decision when you don't mind living on the streets. Besides, what's right is right... no matter what the future holds.
Bettag - This may be my fav... http://www.youtube.com/watch?v=FlVCVtWE8K4. Be patient, it's a bit long.
Yes, wealth has different meanings. I just want to live in an Airstream with no anchors.
The nice thing about backpacks is that you don't even need a mortgage to own one :) Kidding baby... I wish more people thought in these terms. I really do like this post a lot. Especially the part about the pork! I called that one, didn't I?? Even knew what animal it would be...
Mwa & Fwa!!
I think any time you have the ability speed up the process of paying off debt, it's a great idea. People spend too much time trying to focus on how they can get rich quick and they over look the fact that most wealthy people have saved for years to build their wealth.
Susie - If ya find that before I do, give me a call:)
My Jennifer - Forget the animals, let's talk backpacks. You could soooo see me in one, couldn't you? If that were ever the case, be holding my hand as I travel on foot;)
JL - Maybe I'm wrong here, but when lending credit... if you get paid back faster, you tend to lend more. That's my philosophy on lending.
Jason, you make a great point here. As for Jeff and William's comments, I think that is one of the things that is wrong with the economy today. I can remember that while I was growing up, we lived in the same house till I graduated and moved on. My parents lived in that house another 10 years after the fact never refinancing it into a longer term. They did however refi into a shorter term and even back then knew to make an extra payment a year.
My point being, if it was good for our parents and their parents before them and their parents before them, when did it become the norm to move every so often? Maybe if we got back into investing in what is partially ours, then we would be better off in the long run.
I heard it best said by a 32 year old friend of mine when she stated "It might need a little work, but she is mine and no one can take her."
Jason,
I second Danny's comments. Also keep in mind with the economy and the housing market the way it is today, the argument that most people only stay in the house for a certain period of time or refinance every couple of years doesn't hold up. Most people these days may not have any choice but to stay in their current home without refinancing or selling anytime soon.
Nothing wrong with refinancing to reduce rate and/or term and get the mortgage paid off a lot sooner. Of course that does make a lot less business for us...
Michelle
Danny - With those sentiments, I largely agree. While it is wonderful to invest for future prosperity, I do believe we forgot that our house is our home. A good example of this is folks who are thinking of walking away from their properties while their mortgage is current and affordable because they have lost equity in them.
Michelle - You bring up a good point regarding how long people will stay in their home and how often they will refinance. This changing economic atmosphere could very well change those modes of operation for folks.
Jason I love your idea. I have always been one of those guys who puts extra towards the principle because I just don't like having large debts. I know I am saving myself a lot of interest expense as well.
Bill - True that. In doable, I love paying extra. Debt is highly over-rated, cash is king:)
Jason, is this "fuzzy" math? Qoutes are just for you because you like 'em. How about adding a mortgage calculator to this blog so we can check it out and see if it works or if it goes in the B.S. bag. Great Doors. And great attitude too, in a soft economy. Love your posts. (A little smoke for your dirigible :) )