Save your thousands of dollars when you finance or refinance your mortgage.

One of the most important things about home ownership is the financing. Most people don't shop around for the lowest rate possibly, which seems odd since most people comparison shop for food, clothes etc, but when it comes to probably the biggest investment in their life, they just run to the bank and accept their rate and terms.

My personal rule is never finance a property with a amortization of over 15 years. Some banks are offering 40 year mortgages, that is insane! If you can't afford the payments on a 15 amortization then the property is out of your price range. People must live below their means unless they want to be one those people that live paycheck to paycheck.

Why a 15 amortization?

The interest you save by have a 15 year vs. 25 year amortization is $50,244 over the life of the loan. And after 15 years you own it, and can use that equity to buy your dream home if you desire.

Monthly payments for $100,000 at 7 percent:
40 year term: $621     ($198,287 in interest)
30 year term: $665     ($139,508 in interest)
25 year term: $706     ($112,033 in interest)
20 year term: $775     ($86,071 in interest)
15 year term: $898     ($61,789 in interest)

Never count on your property appreciating in value. That should never be apart of your financial plan, businesses always depreciate their property .on the books. yet personally people count on the value going up so the can re-finance their property and get cash out.

Never Cash Out

When you refinance never take cash out, your goal is to pay off your loan as soon as you possible can. I personally know people that owe more on their house than they paid for it, ensuring that they will never be debt free.

Why are you opposed to cash outs?

Cash outs are generally approved in two ways.

1. You have done well and paid off a lot of principle and you owe less than when you bought the property.

2. Property values have gone up and you owe less than the .bank. says it is worth now.

The problem with scenario 1 is that you have worked hard for years to pay down your mortgage, now you want to do a cash out refinance and wipe out the hard work you have done and you have to start from scratch again.

Scenario 2 can be devastating and is why the US economy is doing poorly. Refinancing based on .current value. is bad idea and should be illegal. Let's say you paid $100,000 for your home and you have worked hard and paid down your principle and now owe $90,000. The bank says the real estate market is hot and your house is worth $120,000, so you decide to refinance and cash out your equity, now you owe $120,000. Now the market slumps and if you had to sell your house in a hurry you could only get $90,000 for it, now you owe more on your house than it is worth, much like most of the US.

The only way scenario 2 works is if housing prices always go up, always! Simple math shows you that it is not possible to have your home increase 15% a year every year, and you count on that as part of your income, you will likely end up bankrupt or in foreclosure.

Remember, the bank makes money by loaning you money, the long they can keep you on the hook, the more they will make. Never let them talk you into increasing your principle or an amortization of over 20 years.

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