There is GOOD & BAD credit debt, as I used to tell my two kids when they were teenagers. When I got them their first credit cards they were aghast. “Dad you’ve told us that debt is bad.” I clarified by stating that there is GOOD debt, such as mortgage debt on your home, and BAD debt, such as paying high interest rates on credit cards. In order to qualify to borrow for GOOD debt and owning your own home, you need to have a plan and discipline. Having two credit cards & using them properly is a great strategy to achieve the goal of home ownership.
To obtain a prime mortgage for your home requires good credit, a minimum credit score of 650-680 points is required. Using two credit cards for at least 2 years and paying them properly will help make this happen. You must have credit cards to create a good credit score. Not having a credit score will cause you to be declined for prime mortgage terms & rates! Paying your credit card debt in full on or before the due dates is the best plan. You get to use the banker’s money for approximately 45 days without paying any interest! And you’re not paying the monthly minimum payments with the 9% -20% interest rates! This allows you to put some savings away for the down payment on your new home. Of course, you can pay the minimum payment every month with the high interest charges and still have a good credit score. It’s just a dreadful financial plan that can lead you to the abyss. (See other blogs on credit).
The Best Mortgage Is No Mortgage
I’ve said this for many years when I’m asked what the best mortgage is; my answer is always the same, NO MORTGAGE. People always say that’s impossible and for the majority this is the true, not because of the mortgage amount but because they didn’t have a plan. But for those that have discipline and the right plan it’s not only possible- it’s a guarantee.
You must have a plan to pay the mortgage BEFORE the amortization time, which is usually 25-30 years. You can’t do this without the right plan or discipline. The plan is simple and guaranteed to work; all mortgages allow you to prepay lump sum payments as well as increasing your payments. As much as 20% can be increased in payments or lump sums deposits. I know, you are wondering where can you find that extra cash? Prepaying even 10% on a $250,000.00 mortgage will set you back $25,000.00! This for most people is too much but what about $1,000.00 each year, or an increase in your payment by $20-$25.00? Most people can find a way for these small amounts. And if you do this, I guarantee even the small amounts add up to the point you will have your mortgage paid in full many, many years ahead of schedule. In addition, taking even a slightly shorter amortization period will not increase your payment by very much but save you thousands of dollars in mortgage interest.
We can help you with your mortgage plan and show you the proof and the savings of what these smaller amounts can do. The savings of interest & the quickness of your mortgage balance dropping are amazing and improve each month and year. And seeing this in print is a huge motivator.
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