“Personality is an unbroken series of successful gestures.“–F. Scott Fitzgerald
According to Psychologist Sigmund Freud, a person’s personality is shaped by the age of 5. Other studies have demonstrated that personalities can be shaped as early as the age of 3, while others studies have shown one’s personality is set by the first grade. The point is, we become who we are quite early in life. Therefore, it is quite difficult to change, regardless of the outer appearance. But men and women can adjust their way of thinking at any time, as the information presented to them changes. This also relates to the information of the type of mortgage to choose. A recent article in the Wall Street Journal—“A New Wave of Adjustable Mortgages” is what prompted me to write about this topic. These mortgages have a fixed period of time for 1,3,5,7 or 10 years and become adjustable after the fixed period.
Most borrowers get a mortgage fixed for 30 years. It is done with the assumption that you are going to have the same mortgage until it is completely paid off in 30 years. When the interest rate comes down (and it does all the time, despite the concern of the skeptics), those who are qualified, refinance their mortgage again into a 30 years fixed rate. This can be good insurance to protect from the possible increase of interest rates in the future. When I moved to the United States in 1980, the interest rates were about 15%. After I started working in the mortgage business in 1983, we hoped that the rate would drop below 10%. And it did!
When we bought our first home in 1984, our first mortgage was anadjustable loan “with negative amortization” from the World Savings and Loans Bank. To this day, we still have an adjustable mortgage with the rate of 2.80% on our personal residence which can adjust monthly (it has not in the last 5 years), as well as 2.875% on our rental properties. Even if the rates will go up, the benefit of the lower interest rate outweighs the risk, and besides an adjustable rate is historically always lower.
My recommendations for those who want to pay off their mortgage sooner, is instead of taking a loan fixed for 30 years, to take a loan fixed for 5 years with the rate as low as 3.375% (depending on the program) and to pay the full payment as it would be fixed for 30 years at say, 4.25% or higher. This will significantly reduce the principal by the end of the 5 years of the loan. At that time (or sooner), one can refinance again with no out of pocket closing costs (no cost) into another 5 years fixed rate—always with the rate lower than the fixed rate. I believe that the balance of your mortgage is going to be paid off much faster.
Some of my financially savvy clients do just that. Of course, there is a risk. The interest rates might be higher in the future. But do you not take risks every day? Anyone who invests money in stocks or other financial “opportunities” has a much higher risk.
If this sounds confusing or frightening, give me a call. I am always available to help you find tailored mortgage solutions.
P.S.
When we traveled in Cuba, we noticed Cubans are making adjustments all the time. Just take a look at the way they learned how to fix their cars. You can see more of my images from Cuba in my book Soy Cubano.
As far as my personal adjustment, I present to you today black and white images. My camera is the same, as are my eyes, and the finger which pressed the button. But I made an adjustment in my interpretation. You be the judge.
P.P.S.
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