The Mortgage As A Wealth-Building Tool

While the media is focusing on the negative aspects of today’s real estate marketplace, and particularly the mounting problems with foreclosures, we as real estate professionals need to keep our focus on the positive side: the ability to create wealth through real estate. Despite what you may be hearing, home ownership is still the best vehicle that the average person has to create wealth.

IMPACT OF THE MORTGAGE

Most people know that the definition of the “American Dream” is homeownership. However, few stop to think about the impact their mortgage has on their ability to create wealth. The vast majority of homeowners have no clue how their goal for financial independence is directly affected by the type of mortgage they choose. Current market conditions bear testimony to this fact.

If more real estate professionals and borrowers had taken the time to understand financing and the impact it could have on the borrower’s financial goals we may not have as many foreclosures. Keep in mind that this is not to place the blame for foreclosures on real estate professionals and their buyers. Economic conditions and the huge job layoffs have also had a big impact on the current foreclosure situation.

However, a better understanding of how to use a mortgage to create wealth and to make sure you have access to your equity when you need it can be a great defense against foreclosure. Unfortunately, real estate agents have long been cautioned to “leave the financing to the lender.” We are told that financing is not our job, we are to simply list and sell real estate and keep our nose out of the financing.

Financing the homes we sell is none of our business and the client does not want us to know their financial information anyway. To top it all off we are told that it is a “conflict of interest” and “too much of a liability” for the real estate professional to understand financing. Hmmm, do you think this has anything to do with the fact that it is easier for the lender to overcharge and take advantage of a borrower if the real estate professional is not in a position to understand the process and protect their client?

The good news is that there is a trend for real estate and mortgage professionals to look beyond a quick closing and take the time to provide finance counseling to consumers. As a matter of fact, there is even a designation program, the Residential Finance Specialist (RFS), that’s focused on providing both real estate and mortgage professionals the knowledge and tools they need to provide finance counseling to consumers and to protect them from predatory business practices.

MORTGAGE PLANNING

Just as there is “retirement planning” and “estate planning,” many are now referring to finance counseling as “mortgage planning.” Rather than viewing a mortgage simply as a debt, mortgage planning offers a wealth-building perspective that positions the home and its mortgage into the borrower’s financial planso their equity is safe, accessible and productive. Mortgage planning focuses on using the mortgage as a leverage to create wealth, both on a short-term and a longterm basis.

The premise is to use the equity in the home wisely and invest it, preferably with the help of a professional money manager. Did you know, by the way, that 82 percent of the millionaires in the United States have built their fortune through real estate? Most people usually focus on the sales price, rates and fees and fail to consider the impact real estate and mortgages have on the bigger-picture issues like the borrower’s overall financial goals, asset-producing investments, retirement, planning for college and overall savings.

Real estate and mortgage professionals who will take the time to learn how to provide finance counseling that educates a consumer on the impact the mortgage has on their ability to create wealth will have a considerable edge over their competition.

IT TAKES TEAMWORK

The key to providing these services to consumers is to build a power team that will help educate you and your clients on all the aspects involved in buying and selling real estate. This includes the financial impact real estate and mortgages have on building wealth. Your role as the leader of the team is to hold the team accountable for working in the best interest of your clients.

That means you have to be knowledgeable about each role your team plays and be able to identify predatory business practices so that you and your clients do not become victims. We’ve all heard the slogan, “When banks compete, you win.” I’d like to suggest a bit of a twist on that, “When concerned professionals cooperate, everyone wins.” If everyone involved in the real estate transaction is committed to high standards of excellence, the American Dream will not turn into a nightmare.