In one of the more famous scenes in Alice In Wonderland, Alice comes to a fork in the road and asks the Cheshire Cat, “Which Road Do I Take?”. The cat wisely responds by asking Alice, “Where do you want to go?”
In the context of a Disney movie, the point seems obvious but in real world situations like buying a home, we often forget to ask the obvious. The majority of people I speak to are clear on their primary goal in getting a mortgage. For a buyer, they want a new home. When it’s time to refinance, it’s usually a lower payment or free up some equity. Basically, most folks are pretty clear on what they want in the short term but haven’t given much, or enough, thought to where today’s financial decisions will lead them in the future. This can be a big mistake when the majority of loans are amortized over 30 years.
Your home, and your mortgage, are both financial vehicles that can help you advance towards your goals. As many learned in the last downturn, they can also be a quick path to financial ruin. What questions should you ask about your financial future when determining how to structure the financing for your real estate. Let’s take a look at a few:
- How long do I plan to live in this home?
- Am I likely to keep this home as a rental, or sell when I move on?
- How old would I like to be when I retire?
- Do I plan to have my home paid for upon retirement or will I carry a mortgage?
- What do I expect my income to do during my home ownership? Increase? Decrease? Remain stable? Who knows?
This is far from a comprehensive list of questions but they do represent a good start at answering the question, “Where do you want to go?” Once we get clear on that, picking the mortgage product to advance you on that path is a pretty easy next step