It isn't anything more than a loan, period. Unfortunately, our society tends to make this particular financial instrument many other things that tend to blur its prescribed purpose and gives borrowers a false sense of superiority, comfort and prestige or, on the other hand, angst, uneasiness, and sometimes irrationality. It is just a loan! It helps millions of people buy a house to live in and it gives thousands of people an opportunity to have a very comfortable retirement. I wish I could have used the same numbers for home ownership and retirement, but unfortunately, the majority of borrowers do not understand how to make the transition.
With mortgage rates at record lows, I fear that most of those who are opting to refinance to lower rates are going to miss a golden opportunity to make the transition from homeowner to active participant in their own retirement program.
Decades ago, when I placed a mortgage loan, I always asked what the strategy was to eliminate the loan, and it was almost unanimous: sell the house. I stopped asking, but instead, I started suggesting shorter amortizations which would unconsciously have the borrower working to pay off the mortgage loan. Some got the significance, others felt that it would give them more equity to borrow in future years. I put the latter in the "didn't get it camp".
I will divert the article for a moment to state that after several years of real estate prices falling, most, but obviously not all who had 15 year loans still have equity in their houses. Even the majority of those with 20 year loans have houses with equity. The fact that there is equity is an unexpected benefit for those who realized a loan must be paid back. Those who didn't are now trying to figure out what to do because they owe more than their house is worth.
Lets look at the false conceptions about mortgage loans, specifically those which are designed for homeowners. A loan does not provide security for the borrower because it is a liability, a debt, and reduces your equity in the property. Therefore, when borrowers tell me they only feel safe with a 30 year loan, I don't think they realize that the majority of their adult life, more or less, will be spent paying back this liability. The real safety is when there is no loan and the entire house belongs to you.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.
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