Never own your home outright, and never pay it off regardless of your age or income.

Reason 1

Your mortgage doesn’t affect your home’s value.

You’re buying your home because you think it will rise in value over time (Admit it : if you were certain it would fall in value, you wouldn’t buy it - you’d rent instead). Yet, the eventual rise (or fall) in value will occur whether you have a mortgage or not. So, go ahead and get a mortgage. Your house’s value will be unaffected.

Reason 2

You’re going to build equity anyway.

Many homeowners try to build equity in their houses by paying off the mortgage. But that produces weak results when compared to the equity you’ll build simply by watching the house appreciate in value. So go ahead - keep the mortgage. You’ll build plenty of equity anyway.

Reason 3

A mortgage is cheap money.

There’s no way you can avoid debt in today’s society. Cars and college - let alone big screen tv - virtually require you to have loans. And you’ll find that mortgages offer you perhaps the cheapest way to borrow.

Reason 4

Mortgage interest is tax - deductable.

Not only are mortgage loans low cost, the interest you pay is tax-deductible. You can save as much as 35 cents in taxes for every dollar you pay in interest. That means a 6% mortgage loan really costs as little as 3.9 %. Why carry non-tax deductible 18 % credit cards, when you can instead carry a 6% mortgage with interest that is tax-deductible? Your mortgage is probably the cheapest money you can borrow, so it makes sense to get as much of it as you can.

Reason 5

Mortgage interest is tax-favorable.

Assume you have both a 6% mortgage and a 6% profit on your investments. The mortgage is deductible at your top tax bracket, but the investments are taxed as low as 15%. For someone in the 25% tax bracket, that means the mortgage costs them 4.5% while the investment nets them 5.1% after taxes. In other words, tax law makes it beneficial for you to maintain your mortgage.

Reason 6

Mortgage payments get easier overtime.

You might be struggling to make your mortgage payment at first, but over time you can expect your payments to become cheaper relative to your income - especially if yours is a fixed - rate loan. That way, your payment never rises, but your income does.

Reason 7

Mortgages let you sell without selling.

In time you may well find that your home has grown substantially in value and you may worry that you might lose that equity if there’s a decline in real estate values. You don’t want to sell the house, which is the obvious way you can capture the value, but there is another answer, get a new, lager mortgage. By cashing out some of the equity, you essentially collect the value of the house in cash without actually having to sell the house.

Reason 8

Large mortgages let you invest more money quickly.

Assume you own a house and want to buy a larger home. So, you sell your old house and net $ 300,000. Now you’re ready to purchase a new $500.000 home. How much should you put down? Should you make a 10% down payment of $50,000? Or should you put down the entire $300,000 prceeds from the sale of the house?

Big mortgages mean small down payments. Small down payments mean you retain lots of cash that you can then invest. Small mortgages are the opposite: Small mortgages require big down payments, which leave you with little to no cash left over for investing. In the above example, the $50,000 down payment ( assuming a 7% mortgage rate), produces a monthly payment of $2,994.00 while the $300,000 down payment results in a monthly payment of $1,330

So, the small down payment lets you invest $250,000 right now, while the big down payment costs $1,664 less per month. That’s money you can invest monthly .

So which would you rather do: Invest $ 250,000 today, or invest $1,664 per-month for 30 years?

Without question, investing the larger lump-sum today produces far greater wealth than investing a small amount over long periods.

Assuming both investments earn 6%, the account that started with $250,000 will be worth $265,419 in just 1 year, while the account that invested $1,664 monthly would be worth only $20,526. After 15 years, the lump-sum investor has $613,523 - $129,601 more than the monthly investor. Clearly, the bigger mortgage leads to far greater wealth.

Reason 9

Long - term mortgages let you create wealth.

Do you merely want to eliminate your debt, or do you want to truly build wealth? Please realize that the former does not automatically result in the latter. Indeed many people who are debt - free are also dead broke.

So, the real goal is to create wealth. You do that by adding as much money as you can to your savings and investments. And the best way to do that is to lower your monthly expenses. That’s why long-term loans are better than shorter-term loans: The longer the term, the lower your monthly payment. And the lower the payment, the more money you have left over that you can place into investments.

Reason 10

Mortgage give you greater liquidity and flexibility.

Let’s look at Sam and Nick. They both earn $ 75,000 a year. Both have $50,000 in cash. Both buy a $250,000 house. Nick wants to minimize his mortgage, so he uses his $ 50,000 in savings as a down payment and he opts for a 15-year loan at 6.75%. His monthly payment is $1,770 - but only 64% of that payment is tax-deductible interest; the rest is principal.Therefore, Nick’s net after-tax cost for his mortgage is $1,489. And to pay off his mortgage even quicker, Nick sends in an extra $10o with every payment. Of course, these payments are devoted entirely to principal, and therefore provide no tax deduction.

Nick’s decision to send extra payments to his lender is a critical point. You see, every time you send extra money to your mortgage company, you deny yourself the opportunity to invest that money elsewhere.

Sam understands this, and therefore, he obtains a 30-year mortgage at 7% (a bit higher than Nick’s rate). He puts down just $12,500 and finances the rest. Even though Sam’s mortgage balance is bigger than Nick’s ($237,500 compared to $200,000), his monthly payment is lower (because it’s a longer term). That’s not all. A full 88% of Sam’s payment is interest, meaning that Sam’s after-tax cost is just $1,234 a month - $255 less than what Nick has to pay! Sam invests this savings of $255 each month for five years, earning 8% after taxes per year. And, instead of sending an extra $100 a month to his mortgage company, as Nick does, Sam adds it to his savings.

Over five years, Sam has about $79,000 in savings and investments. Nick, however, has no cash whatsoever, because he’s placed every available dollar into mortgage payments. So, when both men suddenly find themselves out of work, Sam is in excellent financial condition, but Nick is in real trouble. He has no savings to tide him over and he can’t gain access to the $100,000 worth of equity that’s in his house because the bank turned down his loan application since he was out of work. Indeed, Nick has fallen victim to the biggest misconception in real estate. A mortgage is not a loan against the house, it’s a loan against your income. Without an income, you cannot obtain a loan.

If Nick doesn’t get a job real soon, he’ll lose his house. How ironic! Nick, who never wanted a mortgage in the first place and did everything he could to eliminate his mortgage as quickly as possible, is now in serious financial jeopardy! Sam, though, is in much better shape, With $79,000 in savings, he’s easily able to make his payments each month. In fact, he can make mortgage payments for four years, giving himself plenty of time to find a new job!

And that’s really my point. When you have a mortgage, you are required to make only that month’s payment.

Okay, you’re convinced. You agree that a big, long mortgage is best. But how do you act on this advice? It’s simple. Go get a new mortgage! Either refinance, replacing your current loan with a new, bigger mortgage or get a second mortgage to supplement your existing loan. Which is best? It depends on whether you can get a new loan with better terms that your current loan. Talk to a Mortgage Planner to find out.

So, what are you waiting for? Get a big, long-term mortgage today!

source by Ric Edelman

US home foreclosures doubled last month from a year ago and the nation’s biggest mortgage lender said late payments rose, suggesting that the mortgage crisis is not abating.

The number of foreclosures jumped to 223,538 in September, 99 per cent higher than the number last year, though down 8 per cent from August, according to RealtyTrac, which compiles housing data. California had the largest number of foreclosures, with 51,259, and Florida was second, with 33,354.

Nevada, which has seen explosive housing growth around Las Vegas, had the highest rate of foreclosures, with one for every 185 households. The overall foreclosure rate was one for every 557 households.

The new report on foreclosures came as Countrywide Financial (NYSE:CFC), the largest US mortgage lender, said delinquencies as a percentage of unpaid loans rose to 5.85 per cent from 4.04 per cent a year ago.

New loans issued by Countrywide fell 44 per cent as home sales slowed. Countrywide said pending foreclosures as a percentage of unpaid balances more than doubled, from 0.51 per cent to 1.27 per cent.

Issuance of adjustable rate mortgages, the cause of many of the defaults among subprime home buyers, dropped 76 per cent. Loans to buyers with poor credit histories dropped 92 per cent as Countrywide moved away from providing mortgages to risky borrowers.

Overall mortgage loan funding at Countrywide totalled $21bn (EU15bn, £10bn) in September, down from $38bn last year. Daily mortgage loan applications dropped 39 per cent to $1.7bn. David Sambol, Countrywide president, said the decline in production was due both to weak market conditions and to stricter underwriting standards.

Countrywide, which has seen its shares plunge during the subprime crisis, appeared near failure this summer when it lost access to the short-term credit markets. The lender averted a crisis after securing a $2bn equity investment from Bank of America and $12bn in new financing from its banks.

RealtyTrac said the jump in foreclosures was in part due to subprime borrowers being unable to make payments after their initially low interest rates reset to higher levels. Nearly half a million such loans will reset through next month, indicating the foreclosure rates will continue to grow.

Meanwhile, Moody’s on Thursday lowered its rating on three housebuilders, Centex (NYSE:CTX), Lennar (NYSE:LEN) and Pulte Homes (NYSE:PHM), to Ba1, a non-investment grade rating. The rating agency did not foresee improvement in the housing market until 2009 at the earliest.

“Because of the rapidity of the decline in unit home deliveries and thus of revenue, the companies continue to struggle to keep pace by reducing controllable expen­ses, such as general and administrative,” it said. “This has made, and will continue to make, it difficult for the companies to generate even minimal earnings before charges.”

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For a decade, credit-challenged homebuyers have used a regulatory loophole that lets them get Federal Housing Administration mortgages without putting their own money down, while at the same time avoiding costly subprime loans. About 7,000 buyers per month were exploiting the loophole, and now the feds are squeezing it shut.

The new policy means that prospective homebuyers with marginal credit will have to act quickly if they want to buy houses without putting any money down. Otherwise, they will have to save for down payments or wait for the FHA to roll out its own zero-down program.

At issue is a controversial method of scraping together the down payment for a house. Many subprime lenders require down payments of at least 5 percent. That’s a high hurdle for people who already have credit problems; luckily for those borrowers, loans insured by the Federal Housing Administration require smaller down payments — as little as 3 percent.

Lenders mandate down payments for several reasons, the main one being that borrowers are less likely to stop making monthly payments if their own money is at risk. To make sure that borrowers have something to lose, no lender allows sellers to make down payments on behalf of buyers. But for FHA-insured loans, there has been a way to get around that seller-funded prohibition.

The housing boom and the loophole
The FHA allows homebuyers to accept gifts of down-payment money from nonprofit organizations. There’s your loophole: Since the 1990s, the FHA has grudgingly allowed home sellers to “contribute” money to nonprofits, and for the nonprofits to then “donate” the money to homebuyers. In effect, sellers could fund buyers’ down payments, which was a no-no, but the enterprise was technically legal because the money was shuttled through nonprofits. The nonprofits collected service fees from sellers.

A lively down-payment assistance industry grew quickly behind the protection of this loophole in FHA regulations. In the 2000 fiscal year, 6 percent of FHA-insured purchase loans had down payments channeled through nonprofits; four years later, 33 percent did. When this funding method was most popular, in fiscal years 2003 through 2005, more than 10,000 people per month were taking advantage of it, boosting the housing boom. From 2000 through 2006, more than 650,000 buyers got their down payments through nonprofits.

The federal housing department and Congress have commissioned at least three studies since 1999 that concluded these loans were riskier than FHA loans that didn’t involve down-payment gifts. Sellers inflated home prices to recoup their contributions to the nonprofits, researchers found.

The studies recommended that the nonprofit down-payment assistance loophole be closed. Mortgage lenders, home builders and down-payment assistance programs argued to keep the loophole open, on the grounds that boosting the homeownership rate was good for everyone. The feds didn’t take action until now.

Opposition to rule change
This fall, the Department of Housing and Urban Development adopted a rule that prohibits the down payment money from coming, directly or indirectly, from the seller or “any other person or entity that financially benefits from the transaction.” HUD administers the FHA. The rule takes effect Oct. 31.

The down-payment industry has come to be dominated by two nonprofits: AmeriDream, based in Gaithersburg, Md., and Nehemiah Corp. of America, based in Sacramento, Calif. Both have asked federal courts to block HUD from enforcing the rule. The housing department won’t comment, other than saying it will defend itself in court.

“HUD completely disregarded any effort to fix the problems and improve the program,” says Ann Ashburn, president of AmeriDream. Among the improvements she suggests: prohibiting sellers from inflating their sales prices to make up for their down-payment contributions and requiring property appraisers to include the down-payment gifts in their assessments.

If the new regulation goes into effect on Halloween, it would immediately end down-payment assistance grants from AmeriDream and all its competitors except Nehemiah. Scott Syphax, president of Nehemiah, says his nonprofit won a six-month exemption as a result of litigation against HUD 10 years ago, so Nehemiah will be able to serve as a conduit for down payments until March 31 — six months after HUD published the rule in the Federal Register.

Effect on housing market?
The heads of AmeriDream and Nehemiah say the new rule is short-sighted.

“This particular rule couldn’t have happened at a worse time for working families and for the economy itself,” Syphax says. “Over 10,000 homeowners are created every single month utilizing this program. Those people immediately will no longer be served.”

HUD disputes that the new rule will harm the economy, explaining in a regulatory filing that it “will have a positive impact on the housing market and on the economy by reducing the number of mortgages that would otherwise default and go into foreclosure, driving down property values and negatively impacting a community’s tax base and economic viability.”

Ashburn and Syphax say they are outraged that HUD would publish the new rule while the House and Senate are weighing FHA reform. House bill 1852 would bar HUD from implementing the rule and would allow FHA to insure zero-down mortgages. A Senate bill would allow HUD to implement the rule and would lower the down payment requirement to 1.5 percent instead of 3 percent.

It seems clear that if FHA reform becomes law someday, the minimum down payment is likely to be lowered from the current 3 percent. A lowered threshold would please potential homebuyers who can’t or won’t save a few thousand dollars for a down payment.

In the meantime, people who want FHA-insured mortgages will have to save up that 3 percent down payment, apply at Nehemiah before next March, or hope Nehemiah or AmeriDream win their court challenges.

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