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September 17, 2021
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Real Estate & Business

Scott Sheldon
Why most financials get mortgages wrong
July 30, 2021

There’s so much financial misinformation online it’s inundating. Here are some things the experts say as it relates to housing and mortgages for you to consider when trying to get financially ahead.

You have to put down 20 percent to purchase a house. 

The reality is nothing could be further from the truth. They say this in order to avoid a monthly expense called foreclosure insurance, otherwise known as PMI, which could be several hundred dollars per month.  The truth is you can put down 8 percent with good credit and not have any monthly mortgage insurance.

It’s OK to carry credit card debt because it’s 0 percent interest.

This is also something that needs to be taken with a grain of salt. A $300-$400 a month payment on a credit card or even a $100 a month on a credit card when compared to saving that money, even with a meager rate of return, over the course of time, will produce far more financial benefits than paying 0 percent interest on a debt, which is non-tax deductible whereas a mortgage is tax-deductible. Lenders look at the payment on your consumer debt, not the interest you are paying.  A $100 monthly payment on a credit card is 15k of spending power on a home.

Don’t pay off your mortgage. It’s best to take a 30-year mortgage and just save the difference.

Well, there might be some argument here, however the 0.001 percent of people that actually will save that money when compared to making a higher payment is very far and few. If you want to pay your house off and that will give you peace of mind to help you sleep better at night, then unequivocally do it. You just don’t want to do it at the expense of sacrificing your retirement or draining your bank account. Paying off the home can lead to lower stress as pressure to constantly earn to support a higher payment lifestyle is not there.

Anyone who calls themselves a self-proclaimed expert, with the exception of probably a few people out there, might want to rethink the advice. The guy down the street swimming in debt may not be a good resource for financial advice.

In closing, any advice which leads you to believe carrying consumer debt is a smart financial idea regardless of what kind of consumer debt it is not an expert at all. As for saving, it’s not just about the interest rate it’s about the savings and the broader monthly budget. Anyone who truly knows finance and personal budgeting and household finance

knows this rule, and they know the way to create wealth is by earning a high income with little monthly expenses.

 

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.