Home Ownership, Financial Freedom, and Benjamin Franklin
Tom Levine
1. ON BENJAMIN FRANKLIN:
In 1757, Benjamin Franklin published "The Way To Wealth", a basic summary of his 25 year Poor Richards Almanac. In "The Way To Wealth", Honorable Mr. Franklin states the following:
"Then since, as he says, the borrower is a slave to the lender, and the debtor to the creditor, disdain the chain, preserve your freedom; and maintain your independency: be industrious and free; be frugal and free. At present, perhaps, you may think yourself in thriving circumstances, and that you can bear a little extravagance without injury; but, For age and want, save while you may; No morning sun lasts a whole day..."
Theres a chock full of great wisdom to be gleaned from this paragraph of text. I encourage you to read it carefully, and absorb as much as you can from this man. He was, after all, just a man. But a great man. In fact, Benjamin Franklin believed that you are no different than he. He also believed in hard work, and perseverance, and the value of time management. These basic precepts, if mastered, could lead you down the same path of immense wealth as Benjamin Franklin..
I also want you to notice, that Benjamin Franklin refers to the borrower as a "slave to the lender."
2. ON HOME OWNERSHIP:
Now, I personally advocate a strong belief in the power of home ownership, but of course, that requires taking out a rather large loan. So, I would submit to you that this is in direct contradiction to what Mr. Franklin said, because by taking out that loan, in order to take ownership of your first piece of real estate, you are, in fact, becoming a borrower to the lender, or as Mr. Franklin would say, a "Slave to the Lender".
But, I simply must, initially, sway from our founding father, on this one. Times have, in fact, changed. It is impossible for any of us to purchase a home in todays times without placing oneself in the position of slave to the lender. How is it possible that an average working American, with no assets, no rich uncles, and no magic potions...How is it possible for that guy to buy a house, without a loan.
Well, frankly. Its not possible.
So, I am indeed, OF COURSE, advocating a mortgage for the first time homeowner. In other words, I realize that I am advocating the idea of intentionally becoming the indentured servant to lender of your choice. But, what are the alternatives really, Mr. Franklin What can a 21st Century American do, to get into real estate, without borrowing money
And with that all said, I absolutely agree with every word spoken by Benjamin. I do think you are, in fact, a slave to the lender when you buy your first home.
I also think its the easiest way for you to make it to your first, cool million.
3. ON FINANCIAL FREEDOM:
So, Im about to put a Twist on the whole subject. For me, anyway, the story begins with the signing of your first deed of trust, and with the singing of your first, big mortgage.
From there, you are on a quest to freedom.
From there, you are on a quest to independence.
From there, you are on a quest to removing the lenders bonds which shackle you.
From there, you are on a road to pay off your loan....and pay it off, as quickly as possible.
Do this, and I say, you will be eons ahead of everyone else.
You will no longer be a Slave to the Lender...
You will be your own Benjamin Franklin.
You will be FREE.
You simply must restructure your loan to pay it off faster, either in the beginning, or during a refinance process later on in your journey. Most people pay their mortgages off in 30 years. Some people walk down the dangerous road of messing around with Adjustable Rate Mortgages, and taking risks that probably shouldnt be taken, only to discover that they are later in a required position to refinance their loan, irrespective of rate, and subsequently add an extra 5 years on to the fully realized term of their loan. So for them, and many home owners, the lender bonds them to 35 years, 40 years, and beyond.
Benjamin and I want you to pay your loan off much, much, much sooner than that.
4. ON THE BI-WEEKLY MORTGAGE:
Bi-Weekly Mortgages, otherwise known as "Accelerated Payments"is nothing more than a 30 year, fixed rate loan, in which you add one additional payment a year. Thats ONE. So, if you pay $1000 a month, for example, a Bi-Weekly mortgage is structured so that after 12 months, you will have paid $13,000.
A Bi-Weekly Mortgage can be set-up so that a payment is due every 2 weeks instead of every month hence, the coined term, Bi-Weekly Mortgage, which ultimately amounts to 1 extra payment at the end of the year...Hardly noticeable in the pocket-book, by the way.
Another similar structure, is to just pay one extra payment, like in December.
Another similar structure, is to calculate 13 payments a year, divide by 12, and then pay that amount.
Choose one of the above. It doesnt matter which. They all are Bi-Weekly Mortgages. They are incredibly affordable. Pull out your trusty calculator and figure it out. Lets say your payment is normally $1000 a month for your mortgage. With the added 13th payment combined to the prior 12, your payment would only be $1083 a month!
So, if you just add that $83, using the example above, on each payment, and you just leave your loan the way it is...A 30 year, fixed rate loan...Your principle, will be paid down much faster...Your loan will be paid off in 23 year. You will have shaved 7 years off your servitude.
5. ON THE 15 YEAR MORTGAGE:
Now, theres more that can be done! There are other options as well. How about paying your loan off in 15 Years, instead of 23 years, or instead of 30 years
The 15 year Mortgage is highly under-rated, and unfortunately, under-used by wealth-building Benjamins, such as yourself.
They are surprisingly affordable. If you can commit to the idea of paying a little more each month, then you will be committing to independence, freedom, and financial release from the lender:
As an added plus, this program usually carries an interest rate thats about 1/2% lower than a 30 year fixed.
Because youll be paying this loan off faster, your savings on Interest are HUGE! Example: A $300,000 loan, on a 15 year fixed, at 5.5% APR, will save you $206,289! Is that a smile I see, Mr. Franklin
Your loan is paid off in 15 years...Heck, thats just around the corner.
Now the 15 year loan is not for everybody, and I would say that if you cant afford a 15 year fixed right now, then consider this as a part of your wealth building strategy down the road. It is, however, an essential part of your strategy, and something to work towards.
6. CONCLUSIONS:
You must get into a loan, in order to work towards getting out of it. This is a necessary evil, that must be reckoned with, if you are going to utilize the power of leverage to build passive wealth.
And so once youre in this predicament, you must get out. You must speed up your payments, through either an "Accelerated Payments" program, or through a "15 year fixed" program. If you can move towards this, then you are inching even closer to reaching your goal.
The bottom line is this: If you are going to be a millionaire, if you are going to be like Benjamin Franklin, then you must “disdain the chain”, and you also must become independent and free. You must work towards removing the bonds of servitude, and no longer living your life, as a “Slave to the Lender”, while at the same time, using the power of Home Ownership to reach your 21st century goals, and achieve that level of financial freedom that we all strive for.
We’ve enjoyed providing this information to you, and we wish you the best of luck in your pursuits. Remember to always seek out good advice from those you trust, and never turn your back on your own common sense.
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