When Hypocrisy Makes Cents and a Lot of Dollars Too!!!
Posted by admin on Apr 26, 2010
I am a St Louis based mortgage professional who does not like debt. I know it sounds strange when you consider that part of my job is helping my clients buy and finance a home. It is even more strange when you consider that I often advise my clients to borrower more money so to they can eventually owe less. Is it hypocrisy, do I contradict myself or is it just good advice.
Before I get in to the heart of the matter, let me make a few things clear (or at least try to). Though I may not like debt, a mortgage is a necessary component to becoming a home owner for most people. With the exception of living with mom and dad all your life or shacking up on a friends couch, the only two practical choices are to rent or to buy. From strictly a financial standpoint, when you compare at the benefits of renting versus owning a home, it almost always make sense to buy. So if the better option is to buy a home and a necessary component to buying a home is a mortgage, then the whole matter comes down to how do you best manage your mortgage to create the greatest benefit for yourself?
I could go into a lot of detail here, but I am going to do my best to make this very simple and to the point. There a two components to a mortgage as it relates to a debt.; the principal and the interest. Principal is OK, interest is bad. Why is principal OK? Though it is best to owe nothing, at least when you are paying the principal, you are paying money that was already given to you and it is not a cost. Think of it this way. Someone loans you $150. You pay them back $150. The cost to you is zero. You are only paying back what was already given to you. Interest, on the other hand, is a cost to you and you want your interest rate to be as low as possible. One of the best ways to keep your interest rate low is to have the seller paying discount points to lower your rate. As long as you do not plan to move out of the home in a short period of time, it even makes sense if you were to borrower or pay a bit more for the home in exchange for the lower interest rate. The bottom line, this practice may save you tens of thousand of dollars. A side note though, it could also cost a buyer tens of thousand is it is VERY important to compare both options and see what works best for you. If you are in the market for a home for sale in St Louis, you must know that this is not a customary practice. It is important to work with an agent who understand the process asking the seller to pay points and how best to present it to a seller. Happy Shopping.
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