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R AISING M ONEY

Borrowing as much as you can for as long as you can doesn’t neces-
sarily mean that you should seek a loan in excess of the value of the
asset you’re pledging. But don’t think that’s a terrible idea. If you mort-
gage a property for more than your investment in it, you have a built-
in profit even if you can’t pay the mortgage at maturity. Failure to pay
a loan at maturity is the basis for foreclosure and potential loss of prop-
erty and any equity that you may have in it. However, if the value of any
real estate has dropped precipitously since you financed it, a loss by
foreclosure may be better than continually adding money to protect
your investment when the possibility of recovery is very slim. The less
money you have in it at that time, the better it is for you.

Why Shopping for a Home Mortgage Is Important

Did you know that the most expensive thing you’ll likely ever buy is
not your home—it’s the cost of financing required to purchase that
home. Over the long run, you’ll pay more in interest than you will
pay for your house. Many home buyers fail to take into consideration
the aggregate interest cost of the mortgage placed on their home. For
example, suppose you buy a home for $165,000 and borrow $150,000
at 7 percent for 30 years. That mortgage, if amortized over the entire
30-year term, will cost you $359, 640—which is more than twice the
amount you borrowed, and more than double the price of the home.
Now in a different scenario, if you bought the same home and bor-
rowed the same amount of $150,000, but instead took out a cheaper
mortgage at 6 percent for 30 years—a seemingly meager 1 percent
differential from the 7 percent mortgage—look at the aggregate sav-
ings. The cheaper 6 percent mortgage, if amortized over the same
30-year term, will cost you $324,000, a savings of $35,640. Since
home ownership is a long-term investment (in contrast with many
business investments), financing conservatively, at fixed rates, with-
out excessively high payments, is without a doubt the best approach

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