Your Mortgage is NOT a 15, 20 or Even 30 Year Decision



A common mistake I have witnessed over the past two decades of serving thousands of homebuyers as they partake in what is usually the biggest purchase of their life is they look at their home loan as if they will actually have this loan for the next 15, 20 or even 30 years. Statistically, this is not true. It is even improbable the buyer will even own the home in seven years; especially if this is the buyer’s first time owning.

A home loan (aka mortgage) is a tool. It is an instrument. This tool is used to help solve a problem. The problem is that someone wants to purchase a house, but they don’t have the funds to do so. Or, they may have the money but do not wish to deploy those assets to purchase said property.

My advice to all homebuyers, especially those buying their first home, is to look at their mortgage as a means to an end. This instrument is going to be used to allow the purchase to happen. The homebuyer needs to choose a mortgage based on two criteria. The first is basic; yet important. The buyer needs to qualify for the loan. The second criterion is the difference between obtaining just any home loan or the right home loan. The “right” home loan takes into account the purchaser’s financial needs, wants and goals. The mortgage loan originator facilitating the transaction should be asking questions such as, “How long do you see yourself owning this home?”. Or, “Are you in a place in your career where you expect your income to increase marginally from year to year or do you have reason to believe your income will growth exponentially?”. There should even be some dialog as it pertains to monthly budgeting, saving for retirement, discussions around upcoming expenses or even plans to eliminate negative debt such as credit cards.

Finally, it is paramount for a homebuyer to understand that throughout the past 30+ years homeowners keep their same mortgage on average for 5 to 7 years. That’s it!  This is because ultimately the homeowner will either sell their house, pay off their mortgage or obtain a new home loan via a refinance because a new loan either offers better terms or a new mortgage is required to better fufill current financial needs, wants and goals. And from time to time, a refinance does both.

Before buying a home, purchasers should adjust their mindset. Approach each decision as if it is a 5 to 7 year decision. Once the mindset shifts, the decision making process becomes more accurate and less cumbersome.

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