The 30 Year Fixed Rate Mortgage is a Sucker’s Bet!

Yep that’s right if you have a 30 year fixed rate mortgage or even a 15 year mortgage you made a sucker’s bet. The odds are stacked against you worse than they are in the casinos. The problem is this bet is with ten’s of thousands if not hundred’s of thousands of your hard earned dollars and not on the Nickel Slots or the $5 Black Jack table.

You’re thinking; “But, wait, the fixed rate mortgage is the safest loan to be in. It’s what we have always been told to get. We need that security of payment.” Unfortunately, those things aren’t necessarily true because you are betting the losing side of an enormous wager. Don’t believe it do you?

Let’s back up our bravado. The Federal National Mortgage Association (Fannie Mae) the largest purchaser of mortgage loans says that 80% of their mortgages are paid off in 5 years, 90% are paid off in 7 years and 99% are paid off in 12 years. Heck Harvard University is even in on the game. Their Joint Center for Housing studies shows that the median age of a mortgage loan that was originated since 1993 is 3.29 years. Did you get that? There’s an 80% chance you will be out of your loan in five years, not your home, your loan!

Everybody says “I’ll be in this house forever”, “I’ll keep this loan forever”, well my friend 80% of them are WRONG oh wait, 99% of them are wrong! When you get that fixed rate loan you are betting against the bank and it can be a costly loss.

So, those of you in those safe and secure fixed rate mortgages are taking the D1-AA Football team playing the number one D1-A team in the country in a straight up bet, that’s right you aren’t even getting the points! You have almost no chance of winning. It’s hard to believe that if you (the homeowner) knew the odds you would bet the 20% side, the 10% side or even the 1% side, but we do.

It’s pretty obvious why we do it, we cling to old ideas, ideas that were an asset 20 or more years ago, but those ideas no longer are valid. Former Federal Reserve Chairman Alan Greenspan even wondered why so many of us are in fixed rate mortgages. He wondered said homeowners were transferring billions of dollars in wealth.  This is wealth that you are transferring to the banks by having fixed rate mortgages.

If you pay attention to the national media you would think having an adjustable rate mortgage (ARM) would bring about the end of the free world. That thinking may have some validity if those folks with an ARM got it without understanding the potential risks, or got one without a well thought out financial strategy to accompany it, or if they used it to buy more home than they could afford. Those are all dangerous situations, but it’s not the ARM’s fault that is the fault of the consumer or the consumer and the mortgage lender that granted the loan.

Even now with the “Chicken Little” types crying that the sky is falling with all the ARM’s that are set to adjust they don’t really know how many people will be in financial trouble. It also appears that perhaps in the next 6 to 12 months the Fed may start to lower rates so those adjustments may not be as much as they thought. Historically, when the Fed has hiked rates more than 3 times they have over done it, raised them too much and within 7 months had to change course and start a series of rate reductions. Sounds like what could be happening right now doesn’t it?

If you have an ARM right now that is scheduled to adjust in the next 18 months then you need to get in and meet with a Certified Mortgage Planner to see what the best way for you to proceed. You may find that your ARM may be the best place to be, you may want to look at some other shorter term ARM or yes you may find that the risk reward analysis right now may favor a 30 year fixed thanks to the flattening yield curve. It is doubtful that a traditional loan officer, mortgage consultant, or whatever they are calling themselves today could properly advise you because they haven’t had the advanced training that a Certified Mortgage Planner has.

The bottom line is stop listening to “financial rules of thumb” because when you really analyze “financial rules of thumb” they seldom protect you they almost always protect the financial institution.

If you haven’t yet had a professional mortgage plan done for you then it is time to get one done right now it could potentially grow your wealth up to a $1,000,000 or more!