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oday’s real estate consumers, especially younger buyers, are
looking for professional advice to help them understand all
the implications of the choices they make for their personal
financial future. They view their financial needs holistically,
Many young consumers tend to make critical decisions — even major
financial decisions — on their own, after looking for information and advice
from online and other sources. Some will seek a trusted adviser, however,
who understands their larger financial concerns, including their fear of running out of money in their retirement years.
When these young homebuyers make decisions about whether, why,
when and how to mortgage or refinance a home to fit their personal situations, they want to see how it might affect their future financial transactions.
They need to take a long and comprehensive view on how the mortgage
contract they sign today will impact their lives in 30 or 40 years.
Many originators miss the opportunity to provide young buyers with
the information they need to make sound, long-term financial decisions.
Although mortgage originators are not financial advisers, and should be
wary of giving financial advice, they should be prepared to answer the questions that borrowers have about the long-term financial consequences of
the mortgage products they suggest to their clients.
Many borrowers want information that will help them make better finan-
cial decisions and will be grateful to a mortgage professional who takes the
time to answer their questions, explains the ramifications of homeowner-
ship and helps guide them through their options. Every borrower’s situation
is unique, however, so sometimes the answer may well be to have them
seek out a financial planner. That being said, here are some of the questions
borrowers may ask and some example advice originators can provide:
When you buy a home when you are relatively young, a fixed-rate mort-
gage gives you control over your housing expense to the extent that you no
longer rent and can avoid unexpected rent increases. As your income grows
over the years, you can put more money toward retirement. Owning a home
also can still provide tax advantages to some and, over time, you typically will
build equity, which you never get from renting.
To save money, you will have to manage your expenses. That’s why it’s
important you don’t buy more of a home than you can afford. Homeownership should not prevent you from saving for retirement. The real danger
comes from overspending on discretionary items: cars, clothes, restaurants
and travel. That’s more likely to keep you from saving for retirement than
owning a home.
Q: Can we still save for retirement after paying our
mortgage, property taxes, insurance, etc.?
A: There’s an old rule of thumb that you should not spend more than
30 percent of your income on housing. Although this is a good place
to start, it may not apply specifically to your situation. That’s why you
need to know what you can afford, so we’ll look at your current total
financial picture: your income, debt and credit scores.
Q: Should I maintain extra liquidity or put more money
into house payments?
A: Some people like to prepay their mortgage, which is done by making extra payments, because they have extra funds and want to pay off
their mortgage more quickly. Prepaying a loan is like a type of forced
savings plan because it helps build equity more quickly. But it can be
problematic if you don’t leave enough cash for unexpected expenses.
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