| San Ramon, CA -- Federal Reserve Board | | | | existing loan (they like the current low |
| Chairman, Alan Greenspan, commented best when | | | | rate) and take out a Home Equity Line of |
| he stated "Homeowners might have saved tens | | | | Credit. |
| of thousands of dollars had they held | | | | |
| Adjustable-Rate mortgages rather than Fixed | | | | Currently our economy is prospering; this |
| rate mortgages during the past decade". If | | | | good news creates a rising Prime Rate, which |
| you own a 30year fixed mortgage, the first | | | | increases the payment rate on your Equity |
| 10years of your payments will be applied | | | | Line of Credit. Some people are using their |
| towards paying down your mortgage interest; | | | | Equity Line of Credit accounts in order to |
| on average only 15% of your original | | | | maintain their current standard of living. |
| principle balance will have been reduced. | | | | One of two things will eventually happen: a) |
| Considering the fact that most people will | | | | The client will have to prematurely sell |
| live in their homes approximately 5 to | | | | their home because they can't afford the |
| 7years, it makes since to plan what your | | | | payments or b) The client will maximize their |
| goals will be before deciding on a loan | | | | existing equity and be forced to make higher |
| program; your decision could affect your | | | | payments; this scenario has the possibility |
| financial planning for the next 10years. | | | | of a foreclosure waiting to happen. |
| | | | |
| Statistically speaking, if you have a family | | | | In addition to establishing your goals and |
| of four (2 adults and 2 kids), a loan balance | | | | determining the right loan program, you |
| of $400K with an interest rate of 4.5% | | | | should also understand the character of a |
| (4.642% APR), you'll need a Combined Yearly | | | | real estate investor. Treat your property as |
| Income of $140,000 just to Almost Break Even | | | | an Investment and NOT a Retirement! Learn to |
| each month; actually you could have a loss of | | | | use your equity as leverage in order to |
| approximately $478 per month. | | | | obtain greater wealth! Ask yourself what are |
| | | | you trying to accomplish with this |
| Here's the breakdown: Income $140K per year x | | | | transaction? In our opinion, "rate shopping" |
| 35% (tax bracket) = $91K per year ($7,583 | | | | is the old process for selecting a mortgage |
| mo.) Monthly Expenses: $2,027 (Principle + | | | | loan and it should be replaced with "payment |
| Interest) + $417 (taxes) + $117 (home | | | | shopping". Did you know there's a loan |
| insurance) + $1K (2 car payments) + $800 | | | | program available that may have a higher |
| (food) + $500 (health insurance) + $2K | | | | interest rate than you currently have, but |
| (family of 4 living expenses) + $300 (student | | | | provides you with a lower monthly payment |
| loans) + $300 (credit cards) + $600 | | | | (plus extra monthly cash-flow), and no |
| (childcare services) = $8,061 Total Expenses. | | | | negative amortization? Also, don't view |
| These figures don't include any increases | | | | negative amortization as a dark cloud in |
| from your local county assessor's office, car | | | | terms of loan programs; depending on how long |
| repair bills, cost of living increases, cable | | | | you plan on staying in your home, this lower |
| or satellite services, utilities, etc. | | | | payment option could be a blessing in |
| | | | disguise for the true Real Estate Investor. |
| Rather than considering shorter termed loans | | | | |
| (with more favorable rates and payment | | | | Copyright © 2005 2002 - 2005 Brisco & |
| options), the customer will keep their | | | | Associates. |