Robert Lusk

Very often I find that people are not focusing on the resources that they have. Or an even bigger problem is that they don't move in the direction they want to go. One analogy is that of a car wreck. Most people who see that they are about to get hit by a car, lock up. They slam on the brakes, wait for the impact and then assess the damage. It is the very few that will look in the direction that they want to go and accelerate. This is a common mistake for most.

Where does this apply regarding your mortgage, real estate, or your long term financial plan? For most right now, we are in the middle of a car wreck. You could owe more on your home than it is worth. You could be in the middle of a career change. Or you could be doing fine, though doing nothing. In any of these cases, you're locked up. You're waiting for the impact as opposed to moving in the right direction for you.

Let's address some of these dilemmas. If you're in a house in which you owe more than it's worth, do nothing. Pay your mortgage and wait. Do everything possible to keep your credit in tact and maintain the status quo. There are a number of things that will be developing in the future to help you out. You may want to contact your lender and see if they will re-negotiate your balance. It's not likely that they will do anything immediately; however we will need to see if any Federal intervention materializes to help you out. I realize that this is not the answer you may want, though it's the only answer available at the moment. Worse case scenario, your home will eventually appreciate.

If you are in the middle of a career change, or if hard times are coming your way, you may want to take a look at your long term picture regarding what you are going to need in the near future. Is your car lease coming due? Do you need credit for anything in the next year? If so, take care of that before you change jobs. Maintain the status quo for as long as possible and take care of any needs you may have in the immediate future before letting your credit take a hit or allowing your house to go into foreclosure.

If everything is stable in your life, and you are doing nothing, this could be the biggest mistake of all. There has never been a time in history with as much opportunity for people who are able to maintain their current quality of life. The WORLD IS ON SALE. Now is the time to invest in the future. Through the stock market, life insurance, or annuities you can make major gains towards your retirement. Furthermore, interest rates are at historic lows and likely to go lower. It is a great time to assess the value of your home and the opportunity cost that you may incur by not taking advantage of these rates. For instance, if you take $100,000 of equity out of your home at 5%, you will have a net after tax rate of roughly 3.5%. You could take that money and buy an annuity that guarantees 7%. After 20 years, that $100,000 is worth $386,968. It would have grown tax free and could be set up to give you income for life. Can your home equity do that? No. Furthermore, there is no possibility of loss. You can't lose your money. This is just one method. There are several. Though now is the time to explore your options.

My point here is simple. Assess where you're at. Look at your resources and make the most of them. You could look at this time as the launching pad to a long and prosperous life.

If you would like to discuss these options and how they relate to your particular situation, please give me a call (540) 761-7868 or send me an email at rlusk@1stmetro.net I'll be happy to talk with you.

As Christmas rapidly approaches (every year), I often take time to reflect upon the previous 12 months. All I can say is: Wow! 2008 was definitely one to remember. I was on the front lines of the largest financial crisis since the Great Depression. I had a partnership develop and fail within the year. I saw the demise of my company, Elan Financial Group, as a residential mortgage practice. So I switched to 1st Metropolitan Mortgage. I moved my family to Charlotte and then back to Roanoke. I saw many people fail this year. I'm fortunate to not be one of them. I was also able to witness my kids grow a little closer to the people they will become. Man, they are smart and beautiful and most importantly, funny. I was able to watch my wife as she grew closer to achieving her dream of owning her own business one day in the near future. Perhaps she'll have a blog one day........

As with any time spent worthwhile, I learned. I take these lessons from a very tumultuous year and realized the mistakes I have made, as well as the mistakes others have made and I will invest them in my future. What else can I do with them?

Do you know what I've learned? I've learned that there is always a way. A way to find what you want and work towards it. You can have whatever you want, as long as you know what it is. 2009 is going to be a tough year for many. Though tough times don't last. Tough people do.

Figure out what you want. Make the concessions in your life to obtain them. Be bold, and mighty forces will come to your aid.

Oh yeah, and don't forget to call me to refinance your house! Great mortgage rates are coming!

Ok folks, here it is! I posted an article on Realboomtown.com back in September that mortgage rates may hit 4.5% and it looks like it could happen.

Can I get an AMEN? Here's the way it breaks down, the Fed plans on throwing money at mortgage backed securities like there is no tomorrow. In doing so, mortgage rates are going down.

Fortunately, I'm able to do loans in all 50 states (hint, hint.) So if you need help, advice, or consultation feel free to call me.

On other news, the Fed announced today that they are dropping the Fed Funds Rate to a range between 0%-.25%. This will have an effect on your equity line, car loan, credit card, etc. It does NOT have an effect on your long term mortgage rate (30 yr, 15 yr, etc.)

And the best part? They are going to do this for a long time.

Just about everyone with a television, access to the internet, or a newspaper probably knows, the economy is floundering. While this is based on multiple factors such as sub-prime mortgages, bad investment advice, the housing market, etc. (this list is long and distinguished,) there may be light at the end of the tunnel. At the minimum, there may be a method to the madness regarding the injection of money into the economy by the Federal Government.

The "bailout," formally known as the Troubled Asset Relief Program (TARP) has many confounded and wondering if dumping money into financial institutions is all for not at the tax payers expense. While many are angry over this, I am starting to piece together what I hope is happening with this program and the other funds being funneled into the economy. And I'm very excited about it.

Let's walk through it. The Government approved a 700 billion dollar bill to cover the potential loss to financial institutions throughout the country. They immediately made 350 billion available to those institutions, thus providing liquidity (liquidity is money in financialese) to the banks to lend. So in essence, they put a base under the problem. They soon realized that this wasn't enough to get the economy moving in the direction that they wanted it to go. By this point, the damage was done in regards to consumer confidence. You may remember that immediately after they approved the bill, the stock markets' decline escalated rapidly. This decline along with the significant downtrend in real estate had everyone tightening up on every level.

Shortly thereafter, the Federal Reserve Bank realized that simply lowering the Prime Rate (which controls car loans, commercial loans, credit cards, home equity lines, etc.) was not having an impact. In an attempt to push their agenda further in the right direction they announced that they would be putting an additional 600 billion into Asset Backed Securities. These securities include credit cards, student loans, and more importantly, Mortgage Backed Securities. This is where it gets good. When this happened the 30 year rate dropped from around 6.5% to 5.5% for residential mortgages. Thus creating a very large jump in mortgage applications.

Since this announcement, there have been other suggestions floating around about how they will continue this initiative, and perhaps guarantee it for a reasonable period of time. One suggested approach, which I believe will come to fruition in some capacity, is that the Government will guarantee the mortgage rates at 4.5%, though only for the purchase of owner occupied homes. They can accomplish this through various subsidies and tax credits to the lenders. And by forcing the rates down through mortgage backed securities, they are reducing the spread that they will have to pay on a case by case basis to get to 4.5%. Ultimately, lowering their cost for reducing the rate.

While I am not an economist, I do have a simple theory on this. Let's tie it all together. The TARP provided necessary capital to the lending institutions. Now the banks have the money to lend. They followed that action by lowering the short and long term interest rates, which enticed people to borrow money against their home and business. Eventually, they will push rates down even further with incentives for people to buy homes. Ideally, this will only be offered for a limited time so that homebuyers will feel a sense of urgency to buy. In doing so, they will actually jump start this economy from the root of the problem, which is housing. In short, people's houses will sell, people will buy new houses, builders will build new houses and create jobs, people will refinance and save money or they will pull cash out of their homes to pay off debt. All of this will contribute to a stable economy. It will actually get us moving in the right direction. From that point, the stock market will find a bottom due to consumer confidence being restored.

And the best part about it is that the Government is actually investing in itself through Fannie Mae and Freddie Mac. So "we," the American taxpayer, could actually make money on this deal. Go figure.

And hopefully, after all of this we will have learned something.

I see a lot of negative press regarding Interest Only mortgages. People talk about them like they are the plague. Most feel that if you took an interest only loan that you are inevitably in trouble and shouldn't have bought a house in the first place.

In some cases, they are right. There are a lot of people who took out interest only mortgages who had no business doing so. There are a lot of people who were coerced into a mortgage that they couldn't afford. There are a lot of people who will default on their mortgage. But interest only mortgages will not necessarily be the cause of it. Believe it or not, you typically don't save that much money monthly by avoiding principle (the part you don't pay initially in an interest only mortgage.) Furthermore, most of the people defaulting on their mortgage right now were probably doing "light" or even "no" documentation loans. Meaning that they, or their Loan Officer misled the Lender. Basically, a lot of people got mortgages who shouldn't have. And that's what's causing the mortgage meltdown and credit crisis. Not interest only loans.

Let's crunch some numbers to shed some reality on this subject. Let's assume that you are an honest person and can actually afford a $250,000 loan (100% Loan to Value) with a 6.25% amortized interest rate. Let's also assume that you will follow the normal trend of keeping this mortgage for 5 years (most people do something with their mortgage or move every 3-5 years.) In 5 years you would have paid $75,700.74 in interest and $16,656.66 towards priciple. $16,656.66! That's $3,331.33 per year! Do you find that to be a significant amount of money? Perhaps, let's proceed. Now, let's try an interest only mortgage of $250,000 at 6.25%. In 5 years, with an appreciation rate of 2%, you would have made $21,020. If you took $278 ($3331.33 broken down monthly) a month and put it in an account with a 5% return you would make an additional $18,894 over the 5 year period. So basically you just made $39,914 by using an interest only mortgage. And that doesn't factor in your tax savings. This is often referred to as equity repositioning. It's not for everyone. It's not for the undisciplined. Though if you are disciplined, than this is very much for you.

OK. I know this is dry. But it will make you money. Over time, a lot of money. Possibly enough money to retire on or buy your next home. The power is the difference between simple interest (interest only) and compounded interest. Here is the best example I can use:

If you borrow $100,000 at 7% simple interest for 15 years, you would be required to pay $105,000 in mortgage payments. If you took that $100,000 and invested it with an average compounded return of 7% for that same 15 years, you would have $275,903. You just made $170,903! That's the difference between simple and compounded interest. And again, that doesn't factor in the tax deduction.

Dry content? $170,903 worth of dry content.

If you made it through this post, congratulations. I know it's boring content, but it's good to know if you're willing to do the work.