Dumb with Money

Getting a mortgage is the smartest and dumbiest thing we will ever do with our money. 

What’s smart about mortgages:

1. Real estate, historically, is a very safe investment.
2. The rate of return on investment for houses usually greatly exceeds just about any other safe you could make.  In my area, properties tripled in value over the last 15 years.
3. Your rent now goes toward an investment.
4. You can deduct all interest paid on your primary home from your taxes.  A huge plus.

What’s dumb about mortgages:

1. On an average mortgage, you’ll pay the prinicipal off 3 and a half times.
2. Most people go in with the sense of once I have my mortgage I will pay it off in that manner for life.
3. Many people thank the bank for giving them a mortgage.  You need to realize that they are competing for your business, make them work.
4. If you don’t have enough equity, mortgage companies will make you pay for Personal Mortgage Insurance.  This insurance in no way pays you, only the bank.
5. Closing costs are outrageous.  You’re usually looking at anywhere from $6,000 to $20,000.  I can totally understand about $3,000 of the charges (title search and  local recording fees.)

All and all mortgages are a good deal.  You just need to be sure you get a great deal.  You should have a plan when you begin. 

1. How much can you afford?

Make it as simple as possible.  Look at last month, how much did you make and how much did you spend?   Come out with what you can afford a month.

Then visit a good calculator.  I love Karl’s Calculator.

Don’t forget to add taxes and find out what you can handle.  Taxes play a huge role in that.