by Trevor Hammond
If there’s one thing I say nearly every day of my life, it is this: “We live lives of cash flow.”
When it comes to providing expert mortgage advice for clients, this is typically what it boils down to for everyone in the short-term, whether they know it or not. The most common questions and decisions our clients have ultimately come down to controlling their cash flow. And this is one of the biggest benefits we provide our clients… a focused plan and advice to help optimize cash flow.
Interest rates
When people call around to various banks, or are looking online for the “lowest interest rate”, what they are really saying is, “I believe that I need the lowest interest rate to lower my monthly payment…to optimize my cash flow.” That’s what you really meant, right? Unfortunately, this is a very limited approach, and more often than not, can put homeowners on a financing path that is actually worse over time. Imagine you just sold your house and have $100,000 of proceeds for the new purchase. What if a slightly smaller down payment on the new house allowed you to use some of those funds to eliminate some consumer debt at the same time? Or, what if you were able to put a lump sum away to fund your children’s college…removing the need to put money away each month for college? And what if this led you to a slightly higher interest rate, but you were able to free up an additional cash from no consumer debt or no longer needing to put money away for college? Well guess what…a slightly higher rate made more sense, and had a much bigger impact on improving your cash flow.
Down payment
The primary benefit to making a large down payment on a new house is a lower monthly payment. Does a large down payment make you more money on the house than a smaller down payment? It depends…but not likely. It simply lowers your monthly payment since you’re borrowing less. It can also provide you a slightly lower interest rate. But is using all of your money the highest and best use of your cash? Most people don’t know, and don’t have the proper tools to make this decision. We do. Many times, our clients find that putting enough down to achieve their payment goal, and then using the rest for other financial goals and needs, is a better overall strategy.
House Price
People just starting the process of getting pre-approved to go shopping for a new home must shift their focus from house price to monthly payment. The monthly house payment typically is the largest monthly obligation for most families. But of course, people come to us with a beautiful house in mind first…and then want to figure out how to finance it. The primary factor should really be what monthly payment they are comfortable with. Once established, we can then equate that to a price range of a house. This way, they know they aren’t spending more than they should on a new house. And something we always explain, that unfortunately is a very unique philosophy here at Aspire Mortgage Group, is that a new house (and mortgage) should ultimately complement all of your other financial goals, not impede your ability to achieve them! When buyers focus on house price more than the monthly payment, they can get into financial trouble.
The bottom line is, when it comes to making borrowing and repayment decisions on your house, mortgage, and other things…optimizing your cash flow should be goal number one. Without positive cash flow, and good cash flow management, helping your kids pay for college, paying cash for vacations, and retiring someday will never be an option. We live lives of cash flow. Because of this, our top priority is to help you learn new ways to optimize your cash and cash flow as a homeowner.