Delete Your Mortgage

This story is a sad sign of the times. If you have followed the game of baseball at all over the last 20 years, you have probably heard of Jose Canseco. Just in case you are not familiar with him, he hit over 450 home runs during his approximate 15 year career. He also used steroids, wrote a tell all book naming other Major League players who also used steroids, and starred in a reality TV show. He even drew over 900 walks (base on balls) in his career.

But now he is taking another kind of walk. He is walking away from his $2.5 million, Encino, CA home. He is just giving the keys back to the bank and allowing his 7000+ sq.ft. home to fall into foreclosure. Why? On the TV show “Inside Edition”, Jose stated: “I do have a judgment on my home and it to me is very strange because it didn’t make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else.”

Huh???

Now, lets not all go crying about his hardship. He made over $35 million during his career, plus endorsements and book sales. Now granted, he has had a couple of divorces, but he still should have had no problem in keeping up payments on his house. The question is how did the mess of the sub prime world spread to the prime world? There is a growing trend of “A” paper homeowners just handing the keys back to the bank. This is due to the reduction of home values and that it makes “no sense to continue making the payments”.

The reason for this is due to the recent law changes. The Mortgage Forgiveness Act was passed so that homeowners would not suffer the additional tax burden after a foreclosure on the difference between what the house sells for and their unpaid mortgage amount. This law was supposed to help the truly unfortunate. But, this opened the door for Mr. Canseco and many others to walk away and exploit this loophole even though they are far from indigent. There is even a web site called “YouWalkAway” that promotes this method of getting out from under an upside down home.

People are forgetting that real estate is a cyclical asset. Even with current conditions, over time the values have always risen at a rate of around 5%. Letting a home go to foreclosure just because of short term price set backs is not thinking for the long term. It would more than likely be at least 5 more years before they could again qualify for financing. Landlords will most likely not rent to them due to poor credit.

If you have the means to continue to pay your mortgage, don’t walk away. Your home is well worth keeping despite any temporary market fluctuations. Plus, this tool will assist you in building your equity and reducing your mortgage balance at a much faster rate, giving you the incentive to keep your home.

We advocate getting out of debt as soon as possible and staying out as long as possible. There is, however, an exception to that rule. It is wise to go into debt if (This is Important) the borrowed money can be invested at a higher rate than is being charged, and if the investment carries minimal risk. For example, it would be wise to borrow at 10% if the money will earn 20% and not be subject to high risk.

Business loans use this model. When businesses borrow money, it is done with the assumption that they will use the funds to create goods or services that will cover the interest and principle and turn a profit. This also is the rationale behind the purchase of a home –- it is expected to appreciate in value faster than the rate of interest on the loan.

The Money Merge Account is a classic example of borrowing money to make money. It borrows money from an equity line-of-credit at one cost and uses it to pay down a mortgage at a much higher cost. Don’t confuse cost with rate. That is because the rate of the equity line usually will be higher than the rate of the mortgage, but the cost will be the other way around. The rate of the equity line is charged for a very short time period while the rate of the mortgage typically is charged over the entire length of the loan, 30 years being a typical example.

Another thing to remember is the length of the loan is just as important as the rate. We have been conditioned over time to focus on payment affordability vs. the impact of the overwhelming amount of debt and interest payments we are accepting when we take out a mortgage. The immense amount of debt has a far greater impact on your net worth than an extra 1/8 or 1/4 percent difference in the interest rate.

The Money Merge Account software is programmed to maximize every advantage of shortening your mortgage. This is more than just sending extra monthly payments to reduce your principle. That is an excellent plan, but it falls short of what Money Merge Account can do. While your money is accumulating in a checking or savings account waiting to be used, it is not working for you. At best, it may earn a minimal amount of interest that falls short of the inflation rate. In this case, you are actually losing value and, on top of that, you have to pay income taxes on the interest earned. When you finally do send in your extra payment for principle, the mortgage company will apply it only once each month. That means the money you save for mortgage acceleration sits idle for several weeks each month, not benefiting you and not helping to reduce your mortgage during that time. This may not seem like a big deal, but if this pattern is repeated over the course of several years, it will add up to a substantial amount.

The Money Merge Account’s software monitors your monthly cash flows and gives you perfectly timed prompts telling you when to send in your mortgage-acceleration payment and exactly how much. Most of us would be hard pressed to figure that out on our own.

To find out what the Money Merge Account can do for you, get your FREE ANALYSIS

This posting offers a change of pace from the Money Merge Account because there is more to life than just one product or service.

Unless you have been living in a cave without any of the modern day conveniences, (telephone, television, computer and internet) you have been deluged with information about the impending mortgage meltdown. And more recently, the Bear Stearns fiasco.

However, I read an interesting article that deals with the herd mentality and selling your home. While you may or may not agree with his viewpoint, I thought the argument he lays out was rather unique.

Anyways, here it is: Don’t Sell Your Home Unless You Have To.