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| Photo by Bikata |
Imagine some gratuitous crib cinematography as an intro to this segment. 6 beds, 7 and a half bathrooms, 8k sq ft. Modern architecture and efficient design nestled in a copse of mature trees with a view. It was the type of house that reminded you why people went to all the trouble to have money in the first place. We join Monty the Money Monkey in his upscale living room with vaulted ceilings and south facing windows. He is on his Italian leather sofa. His posture is relaxed and his clothing is casual, but his expression still seems all business. It's that resting frownie face. "The most common path to home ownership is through a mortgage loan. Even a creature of considerable means could not afford a house such as this without the ability to pay over time. Most conventional mortgage loans are either 15 or 30 year terms. Typically 15 year terms like mine will have lower interest rates and 30 year terms will have lower minimum payments." We get it Monty, you're super rich. Good for you.
"A loan is considered to be a mortgage loan if property is used as collateral. When I say property I am speaking of real estate and when I say collateral I mean that if I don't continue to pay back the loan than the lending institution will foreclose on the home. By foreclose on the home I mean they will take the home from me. It was really always their home to begin with in a sense. Sure I get to live in and and it's mine for all intents and purposes, unless I default on the payments. The bank has a lien on my home. By lien I mean a judicial mechanism that allows them to seize ownership of the house in the event that I default on the mortgage. This is why it is so important to make paying your mortgage a top priority. In some cases you can protect your home during a bankruptcy. Make no mistake though, if you stop paying on an active mortgage you are living on borrowed time. It's only a matter of time before they come for what is there's." I can't tell if he is either really sad or mad or serious or if it's just that frownie face of his.
"A down-payment was required when I purchased my home. The down-payment required is typically determined by the credit worthiness of the applicant and the value of the home. As you might imagine with a home as nice as the one we are currently sitting in, the down payment was quite substantial. There is an incentive to make a down-payment of at least 20% in the form of avoiding PMI (Personal Mortgage Insurance). PMI is basically a life insurance policy that benefits the bank in the event that you die before you finish paying off their house. It's extra money in your payment that isn't going to principal, or even interest or taxes or insurance or HOA (Home Owners Association) fees. When you get right down to it the majority of a minimum monthly mortgage payment doesn't tend to go towards principal. Obviously if you keep the loan long enough, or pay enough extra towards principle you can tip the scales on that equation." Just in case all those complicated words Monty just said were not as obvious to everyone I will have to get around to writing another article about it. Monty the Money Monkey can act really superior sometimes, however he has so much money that I have to entertain the possibility that he is justified in doing so.
Monty the Money Monkey talks to us as he prepares a fancy dish in his fancy kitchen. Granite counter-tops, stainless steel appliances, fridge big enough for a Buffalo. "Perhaps the most overlooked cost of home ownership is the upkeep. More home means more repairs. Especially if said home is tacked on to the side of a mountain in a way designed to defy gods and gravity. A home is a money pit. There is no end to the amount of money you can spend customizing, upgrading and repairing a home. The money pit demands sacrifice." As Monty ignites the gas burner you can see every crag and line in his frownie face.
Monty the Money Monkey is in his hot tub overlooking a beautiful mountain sunset. Steam rises into the winter air. "Some luxury features to a home add substantial upkeep costs. Typically water features fall into this category. Keeping a water feature in good repair can be expensive, but not as expensive as reversing water damage if it should occur. Water and time will destroy a home."
Cut to Monty in his media room, a private home theater with cushy recliners and a legit projector. Monty sits back in his recliner frowning away at the screen. A black and white government produced film crackles to life. It's none other than TV Dr. Smarmypants in front of a cookie cutter house with a white picket fence. "The path to home ownership can seem daunting to the uninitiated, but fear not first time home buyer there are government programs that exist to help you achieve the American Dream. Different states and even cities have their own programs designed to make owning your own home easy and affordable. Many of these programs offer a way to take out a second loan to pay the down-payment assistance. Why come up with the money up front when you can pay it back over the rest of your life? Now you're getting it!" TV Dr. Smarmypants gives a big thumbs up and a mentos smile. "In addition these programs tend to have more lenient requirements to qualify and may have lower interest rates due to that sweet government subsidy money." TV Dr. Smarmypants gives you a knowing wink before the credits roll. There are not a lot of different names in the credits.
Cut to Monty the Money Monkey's master bedroom. He has a little sitting area over by the bed. We pan the camera around where you can peak outside to the private balcony to one side and the swanky en suite bathroom on the other. "If you are a person who is considering getting a mortgage I offer you the following advice. Ask yourself how long do you want to live there. There are some things in life that are easier to do than they are to undo. Buying a home is one such thing. Once you have signed on the dotted line you are tied to that property, and it is tied to you. Your fates are intertwined now." Monty mingles his monkey fingers together to illustrate the interwoven web of connectivity.
Cut to Monty the Money Monkey behind his heart of Mahogany desk. Is that in his home office? We pan the camera around for a familiar hallway shot to confirm that yes, this is still in fact being shot from Monty's mansion. "Over time property values tend to rise, as do rental rates. A conventional mortgage has a fixed payment that does not increase over time like the rental monthly payment will. The home is an asset that can be rented or sold. You have to live somewhere, why not have a portion of your monthly payment build equity in something? Mortgages aren't for everyone, however they can be a great financial move in the right circumstances. The right circumstances for a mortgage are stability. You need to feel very certain that you want to continue living in the same place for a long time, and you should be even more certain that you will maintain a level of income that can continue to afford the minimum monthly payments. Even in lean sales years."
Join us next time as Monty the Money Monkey invites all of favorite friends to a fancy party. Until next time, stay sane and take some personal responsibility for your life and your choices.
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