LeLand Poppe is senior vice president
at NebraskaLand National Bank in North Platte.
Money Matters Cash is king when it comes to mortgage financing
When considering a new mortgage for your home, keep one thing in mind –
CASH IS KING. We have all heard the phrase, “when times get tough
the tough get going”. What that phrase tends to miss is that “the
tough” also have cash. Unfortunately, the US economy does not move
on a steady upward trend, we experience highs and lows in the economy whether
it is a stock market crash, the agriculture crises of the 1980’s (when
land values dropped over 50%) or the oil industry bust. The “tough
ones” (with cash) survive the storm and take advantage of opportunities
during difficult times.
What type of mortgage loan repayment
schedule should you select?
•A 30-year repayment schedule or a 15-year repayment?
A 30-year or a 15-year amortization?
• The loan payments on a $100,000 30-year mortgage at 6% would
be $600 per month.
• The loan payments on a $100,000 15-year mortgage at 5.75% would
be $830 per month.
My advice when considering this option is to take the 30-year mortgage
even if you can support the payments on a 15-year amortization because
CASH is KING. This strategy takes FINANCIAL DISCIPLINE from everyone in
the house. Save the difference in the mortgage payments ($230/month) by
automatically transferred to a separate account that is available for
a rainy day. (PS> Needing a jet ski to ride at Lake McConaughy to explore
the 110 miles of sandy beaches is not considered a "rainy day".)
Taking money out of the account to make your mortgage payments for six
months because you just lost your job, is considered a rainy day.
A good argument against this strategy is that you would pay $67,000 more
on the 30-year mortgage vs. the 15-year mortgage if the loan were amortized
in full. So why take my advice? If that seems expensive keep in mind:
CASH is KING.
After 5 years of saving the difference, the "rainy day fund"
will accumulate to over $13,800.
The additional interest you pay is tax deductible, if you itemize.
The average life of a mortgage is less than 5 years so you likely will
not have the mortgage for the entire life of the loan.
The interest on a home loan will be some of the least expensive borrowed
money you will have due to the efficient secondary market established
in the United States. So use your cheapest funds.
The benefit of making your mortgage payments from your "rainy day
fund" if your income stops due to loss of job or illness and staying
in your home – PRICELESS.
Things happen in our lives that are out of our control. However, the one
thing we can control is planning for that "rainy day fund".
As you are making financial decisions remember that CASH is KING. If times
get tough you can make it through with adequate cash reserves. All it
takes is wise choices and discipline from all.
NPTSummer 2005 Issue
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Platte Traveler 
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