Thursday, April 9, 2009

Total Money Makeover Take 5

Let's look at some Home Mortgage Myths!! Man...I love this stuff. It get's me so motivated. I'm weird.

MYTH: It is wise to keep my home mortgage to get the tax deduction
TRUTH: Tax deductions are no bargain

I've heard this sooooo many times!! Seriously, all it takes it a good calculator to figure out that this is no bargain. Why would you pay $10,000 in interest just to get $3,000 back?? Personally, I'd rather live debt free and invest that $10,000 and watch it earn interest. However, any of you that want to trade $10,000 for $3,000, just email me and I will personally pay you $3,000 as soon as your $10,000 check comes in the mail. I can add.

MYTH: It is wise to borrow all I can one my home because of the great interest I can make off of investing it.
TRUTH: You really don't make anything when the smoke clears

You always have to factor in risk. What if you lose your job? Sure you might have some great investments but you're also going to have a nice fat mortgage to go with it.

MYTH: Take out a 30 year mortgage and promise yourself to pay it in 15 years, so if something goes wrong you have wiggle room
TRUTH: Something will go wrong

Unless you have innate discipline and fabulous self control, you'll never stick to this. The FDIC says that 97.3% off people don't systematically pay extra on their mortgage. If you just paid $250 more per month(on a $130,000 loan), you would save almost $100,000 and fifteen years of bondage. Pretend only 15 year mortgages exist (yikes....I really need to listen to this one!!).

MYTH: It is wise to use the lower rates offered by an ARM or balloon mortgage if you know you'll be "moving in a few years anyway"
TRUTH: You will be moving when they foreclose

MYTH: The home-equity loan is good to have instead of an emergency fund
TRUTH: Again, emergencies are precisely when you don't need debt

If you have an emergency, you're going to wish you weren't throwing all your money away on your debt. You'll wish you had been saving instead. Remember, always factor in risk.

MYTH: You can't pay cash for a home
TRUTH: Bet me

EX: A couple made $80,000/year but lived off of one salary, saving the rest. They were very disciplined and lived under their means, saving $50,000/ year. In 3 years they had enough saved and bought a $150,000 home with cash. Their friends and family had made fun of their crappy cars and cheap lifestyle. But who cares what the broke people think?? Paying cash for a home is very possible. What's hard is finding people willing to live a sacrificied lifestyle to get there. To celebrate, this 26 year old couple went out to dinner and finally got to order from the "left side" of the menu. And they fully intended to spend more than a car payment!

Remember, if you live like no one else, later you will be able to live like no one else!

(Dave also suggests having no larger of a mortgage payment than 25% of your take-home pay.)

Happy saving my fellow cheapsters :)

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