Contribution by Ron Bork NMLS ID 55343
Banks are not our friends. They are for-profit institutions that have done a wonderful job in convincing the American public that close ended fixed rate loans are the way to go.
Why? Because they make money when they originate a loan, not during the course of the loan. See, about 98% of all fixed rate mortgages are sold to the secondary market – Fannie Mae and Freddie Mac who then package these loans into mortgage backed securities. The interest people pay on their mortgages doesn’t go to the banks that originated the loans, rather, it goes to the final investors – life insurance companies, hedge funds, pension funds, etc.
So banks make money when they originate and then sell loans. And they know full well that by selling close ended loans, people will look to refinance whenever rates drop (which has been happening for the past 40+ years) and when they want to cash out some equity. Banks would never survive on purchase financing alone. Consider this chart:
A quick glance will reveal that there has not been a single year since the year 2000 that refinances didn’t match or exceed the volume of purchase originations.
We have been conditioned (brainwashed?) via advertising and the main stream media. What are we told? Shop interest rate. Shop monthly payment. Even the federal government is on board with this – because banks are the lifeblood of the economy (via lending). So even federal gov’t publications and websites will say the same thing… shop rate, shop payment. Pay no attention to the total cost of borrowing. The closed ended mortgage is perfectly designed to keep us in debt our entire lives… exactly what banks want. My customers are able to see beyond the hype and brainwashing. They understand the math.
Consider what most people in this country do. They play tug of war with their financial selves. They try and save money at the same time as they pay interest on borrowed funds. But they almost always pay higher interest on their loans than they get for their money that is saved/invested. Is that not ludicrous? Doesn’t it make more sense to work on eliminating all debt and then save and invest? (I know you know this, this is for your wife 🙂 )
How to Pay Off Your Mortgage In 5-7 Years: https://www.youtube.com/watch?v=3f-ebCjeH8o
The All in One flips the narrative. It puts you in control. I like to put this way… a fixed rate closed-ended mortgage is a child’s mortgage. You are told exactly how much principal and interest you are to pay each month. Fall off the schedule and you get punished (via foreclosure). The All in One is an adult mortgage. You are in control. Want to pay interest only? Your choice. Want to pay it down super rapidly? Your choice. And the biggest benefit (in my eyes) is that as you pay it down, you lower your interest cost while increasing available credit. If you’ve never experienced a loss or decline in income, you will not place a high enough value on this. I have. I know. I will never put my family in that situation again…
Remember – you can always borrow money when you don’t need it. But when you really need it, there’s a good chance you won’t be able to get it.
Contributor Writer – Ron Bork NMLS ID 55343