Real estate for the masses
Hey Miss Jones, here is an example of a consultative selling trick I use in initial client interviews. The "trick" is to give away a little value for free to develop the relationship, to demonstrate value and explore values.
I talk and listen a little around these concepts. For what it's worth.
Interesting article in Investment News, Sept. 10th, excerpt from Whitehead's, Why Smart People Do Stupid Things...
" The fixed rate home mortage is one of the best examples of positive financial leverage. We tend to take it for granted, but, in fact, no other country in the world allows its citizens to borrow large sums of money (relative to income) at a fixed rate of interest over such a long period.
Inflation is the loss of purchasing power through a general rise in prices. During periods of inflation, a debtor repays loans with dollars that are worth less in purchasing power than the dollars originally borrowed.
Locking in a fixed rate mortgage protects the purchasing power of your housing dollars, creating a buffer against inflation.
A study conducted in 1978 found that not only is real estate a hedge against inflation but leveraged private residential real estate is the only investment that offers complete protection against inflation. That is because when there is inflation, the interest yield on investments increases while the rate of fixed-rate mortgages remains the same.
I know Allreit is going to disagree, which is another matter, but I respectfully submit that if you listen to a prospect for fourty minutes and say a few things about topics like this and suggest there may be opportunities to tailor and fine tune this type of planning consideration to their personal situation and hear our their response, it may help with client aquisition.
"and the paid-off home mortgage has replaced the BMW as the new status symbol of choice"
lol....2 1/2 years ago, when we bought this house, it was done via a corporate relocation package...all the bells and whistles.
I'll never forget the day when a loan officer who was recommended by the relocation company called and pitched to me the idea that we should take out an interest-only ARM that carried a teaser rate of 3%. "You see," he told me, "that 30 year fixed rate mortgage carries a rate of 5 3/8% and your payment will be several times higher than the payment on this more advanced product....it will help make that nice home of yours more afforadable..."
Well after I got done wiping the coke that had just come spewing out of my nose and mouth-as he'd called during lunch and I couldn't help but to laugh-I explained that while I was a little nervous about the expenses that came with a larger home, the FIXED monthly cost of the mortgage was not one of them. I was more than happy to borrow money for 30 years locked in at 5 3/8%. He honestly thought I was nuts.
I'd hate to see what the payment is on his 'advanced product' now.....
As far as the 'new status symbol' comment, I see no need to prepay on a mortgage where my after-tax cost of funds runs around 4%. What's the purpose?
Dave Ramsey has some good ideas, but falls short in a few critical areas.
I can't believe these mortgage brokers. But the problem, I believe, is the fault of the lenders who offer these ridiculous products as suitable for EVERYONE.
Just like term life is usually the best fit, I think fixed mortgage is usally the best choice. But you make more money off of perm insurance, and you make more money off of ARMs, so that's what will be pushed, appropriate or not.
My take on Dave Ramsey is similar. Why not do a mortgage on your house when the cost of leverage is so low? As long as it's done responsibly, within a reasonable budget, where else can you get leverage for 20-30 years so cheaply? I tell clients that unless they feel their investment portfolio is going to make less than their mortgage rate, they should NOT pay it off early. As sharp as I think Dave Ramsey is elsewhere, I think he's a total Suze Orman goof when it comes to mortgages.