Thinking and Acting for the Long-Term: Mortgage Acceleration Programs

We Americans have a funny way of dealing with major purchases. When we borrow money for a home, we tend to resign ourselves to the idea that we’ll be in debt forever. It’s easier to quantify the impact of a monthly payment on our life than the interest we’ll accrue over the course of what seems like a lifetime. So we put it off and assume we’re settled in. We take on the longest payment plans we can – for mortgages and car payments – to improve cash flow – and we never get free of debt. We say we want to make decisions based on what’s best for us in the long run, but when it comes down to it, we don’t always do it. If only there was an easier way to rationally make better long term financial decisions.

After doing real estate closings for more than 25 years and seeing the Truth-in-Lending Statement, where my clients faced the fact that they were paying 2-1/4 to 2-1/2 times the original amount they borrowed if they paid off the mortgage over the length of its term, I started researching mortgage acceleration programs. My husband and I had been doing it with our mortgage – turning a 30 year mortgage into one that will complete in 18.5 years (a year from now!), so the strategy seemed incredibly logical to me.

Here's how it works: Using the power of interest, the algarhythm-based software program weighs the rates of your loans with the value of your income, determining precisely the best time to make payments, effectively raising your monthly payment while lowering your principle. Mortgage acceleration programs are cash management systems that can help you pay off your mortgage in ½ to 1/3 of the time. They help you budget, determine the time value of your purchases, and determine the best time to make a purchase based on market conditions and your own cash flow.

These types of programs have been used very successfully in Australia for more that the past 12 years. In fact, currently, more than 30% of all homeowners in Australia and more than 25% of homeowners in the U.K. use mortgage acceleration programs (as opposed to 1% in the United States). But that is changing. In the wake of the recent economic crisis, many Americans are realizing the value of long-term financial thinking.

As an attorney, I’ve dedicated a significant portion of my practice to helping people get out of debt, and I've seen too many people struggle unnecessarily. I’ve done a lot of research in the area of mortgage acceleration and found a particular company that I think is the most effective and checks out as solid and reliable. I’ve become involved with United First Financial®, because I’ve seen it help my clients pay off their mortgages and take steps towards debt-free living. If you’re interested in learning more about the program, or would like to set up a time for a free consultation, please contact me! I’d be more than happy to discuss your options. You will never, ever regret thinking ahead and planning for the future.

Thriving in the Post Credit World

Imagine, if you will, only spending the money you make (and not that which you have on a credit line), putting money away for the future and never borrowing money from any financial institution again. Can it be done? Absolutely. Does it take discipline? Absolutely. Is it worth it? Duh!

Our economy was on the brink of self-destruction last year because of a collective addiction to credit. It doesn’t take a genius to figure out that you can’t live that way forever. Well, whether we like it or not, as of October of 2008 the personal credit game was over. The buck stops here, the jig is up, party’s over, etc. A new model is inevitable, and the people who going to thrive are those who pick up on that the quickest. It takes knowhow, strategy, and maybe a little bit of expert help, but it can be done.


How Did We Get Here?

In the 1980s there was a paradigm shift in American spending habits. While credit cards had been around in some form since the ‘50s, a combination of technological limitations and strict usury laws had limited their usage by the US population. Americans were taught to save up over time for large purchases, put them on layaway or, for major purchases (such as a home or a car) borrow the money directly from a bank.

But in 1980, tough economic conditions and an obscure but important Supreme Court ruling opened the flood gates for banks to offer credit cards to the masses. The credit card business was floundering at the turn of the decade because inflation rates were higher than the interest rates NY state law allowed lenders to charge. A 1978 Supreme Court ruling allowed banks to export interest rates from whatever state the decision to lend was made. States like South Dakota and Delaware, eager to bring lucrative finance jobs to their states, quickly became pro-bank havens. Additionally, developments in technology facilitated faster communication between retailers and banks. The credit card industry was booming, and Americans were using their cards more than ever.

What followed was a massive effort by banks to shift the cultural mindset of Americans towards “spend now” and instant gratification. The credit card industry was literally expanding the US economy, and no one had more to gain than the banks themselves. "Banks had a multi-billion dollar mass-marketing strategy that led to the Nike 'Just do it' consumptionism -- the effort to get the new generation to reject those old school values,” explains Dr. Robert Manning, author of Credit Card Nation: The Consequences of America's Addiction to Credit. The whole idea of saving for what you want and paying on layaway became an arcane way of approaching purchasing. Bank cards became the way of obtaining everything from groceries to trips to furniture to timeshares. It is this mentality that has, in many ways, led us to our current circumstances.


The Remedy?

The new paradigm is living debt free. It is paying off debt. It is saving for purchases.

The new model requires two strategies – budgeting and savings. I have had what I refer to as my “purses and paychecks” principal. If I buy a small purse, I organize it and manage with the space I have; if I buy a large purse, I need all sorts of things in it until it gets too heavy to lift. If I have a large paycheck, I can spend that as easily as a small one – it’s all a matter of what I need. I recently found out that someone else had actually named this principal (I thought I had come up with it myself!). It’s called Parkinson’s Law. I think Cyril Northcote Parkinson had a vision of our future when he said “A luxury once enjoyed, becomes a necessity”.

Here’s the thing: at near record-low interest rates, there is no good place to save your money – not savings accounts, not treasuries, not CDs. With the roller coaster ride of the stock market, there’s no good place to invest. If, however, you are willing to budget yourself, take some time (years, not months – sorry no instant gratification here), you can live not only debt-free, you can use your own money to build wealth and stability. If you have a strategy, discipline, and the right team supporting you, it can work.