Owning A Home: The Most Misunderstood American Dream #5

January 25, 2011

I made the statement on a previous post that if you think proper mortgage planning is primarily about the amount of interest you pay (i.e. Dave Ramsey) then you’re hugely mistaken.  So what else is there?

Please read Ramsey’s link above. It is important to understand this type of conventional thinking.  It’s a wonderful mis-direction that ironically benefits the bank the most.

So, let’s look at it from the bank’s perspective: remember, they do NOT have your best interests at heart but instead their priority is to make a profit for their shareholders.  So, get ready for the “bigger box” here folks.  This is data that you must understand in order to properly address the answer to the question: “Which mortgage strategy produces the least amount of wealth transfer (a video link) for me personally?”

30 Year vs. 15 Year

This one is fun.  The old 30 year vs. the 15 year mortgage.

So let’s start with a couple of questions. You’ve heard this one already: do the banks have your best interests at heart?  If you answered that “no” (which you should have) then have you ever thought about why the bank offers you a lower rate on a 15 year mortgage than a 30 year?  Please don’t just skim over that question.

If they [banks] are in the business of collecting interest then why would they possibly provide an incentive to a borrower in order to bring in LESS interest?  This is the key component to Dave Ramsey’s advice (go 15 year because of the interest savings).  So please answer me that previous question.  Here it is again: Why would they give you an incentive to pay them LESS?

First, if you haven’t read our “Defining Moments” blog posts then please do because the first one plays a major role in this discussion.  We’ve even recorded some videos on this – watch this one: Banks and the Velocity of Money.

You see, Defining Moment #1 states that your money will never be worth more than it is today…due to inflation.

So, your money will never have as much buying power as it does today, and banks need money to move and recycle (preferably at a high value), and they offer a lower rate for you on a 15 year, and they advise you to pay it off by accelerating your principle payments.  Interesting.

Would you believe that banks make far more money on a 15 year mortgage than a 30?  They either collect interest for 30 years or they get your most valuable dollars sooner and spin that money out again and again about 5 to 7 times…note the discounted rate.

Math Behind Defining Moment #1

Let’s simplify this a little and use Dave Ramsey’s example from his link above.  If this month was your first payment on a new 30 year loan at 6% and your payment is $1,349, how much is that $1,349 worth when you make the last payment at month 360 assuming an inflation rate of 3.5%?

Only $481. How much is that $1,349 worth at month 180 (end of year 15) assuming the same inflation rate of 3.5%?

$805…over 65% more valuable than the last payment at month 360. You see, because of inflation, our fixed monthly payment slowly loses buying power.  Which do you think the bank would rather have?

  1. Your money stretched out over 30 years where the value and buying power of that fixed payment continues to decline as it comes back in to their coffers to re-lend? Or,
  2. Your money condensed over a shorter period where the money retains as much buying power as possible for them to use again and again and again?

Hmm.  Seems pretty simple to me once you apply some math and the first Defining Moment. But there’s even more.  Folks, this is where the real math gets good. I will provide links to spreadsheets, past blogs and even video to back up every calculation in this post so please check’em.  I always say that math proves Mr. Ramsey wrong and I’ll prove it to you so stay with me because this could be a little long…if anything, I ask you to challenge me. Actually, challenge yourself.

Life Happens

Okay, first a quick comment to Ramsey’s human behavior issue. In the link above, his first argument against the 30 year mortgage is the claim that “life happens”.  He says:

“You might decide to keep that extra payment and take a vacation. Or maybe it’s time to upgrade your kitchen. What about a new wardrobe? Whatever it is, you’ll find an excuse to spend that money somewhere else.”

First of all, if you don’t have discipline then you are not a candidate for any financial plan except a plan of failure.  Maybe this is why one of Dave’s top executives told me over the phone that 80% of you are financial idiots.  Here’s my issue, why wouldn’t Dave make the same claim about those who take a 15 mortgage and pay it off; after all, these people have to then make every equivalent “mortgage payment” to their savings for another 180 months (15 years).  Won’t this same “life” happen to them?  Won’t they decide to take a vacation or get a new wardrobe?  Ask any sociologist and they will tell you that you have to apply the same conditions and outside forces in your test in order to get an accurate result. The “life happens” issue is therefore a non-issue because it applies to both parties.


With that being said, here are the conditions: JACK has a 30 year mortgage, $225,000 loan amount, interest rate of 6% and a monthly payment of $1,348.99. JILL who has a 15 year mortgage, $225,000 loan amount, interest rate of 6% and a monthly payment of $1,898.68. Again, these are Dave’s numbers from above.

The monthly payment difference between the two is $549.69.  JACK invests the $549.69 each month beginning Month 1 until Month 360 in an account that earns 6% and JILL invests the entire $1,898.68 beginning Month 181 thru 360 (had to pay her mortgage off first) in the same account that earns 6%.  Who’s ahead at the end of 30 years?

Ramsey would make you believe that JILL is better off because she paid less interest and had more to invest.  The answer: they are identical at Month 360.  JACK would have his home paid off and an investment account balance of $552,171.  JILL would have her home paid off and an investment account balance of $552,171.

They are the exact same but who is in a better position along the way to ward off “when life happens”?  JACK. All of JILL’s money is tied up in her house.  “But JILL has an emergency fund.”  So does JACK and his is much bigger.  Let’s go deeper.

What happens if they could earn 8% in the investment account (also known as a ‘side fund’)?  Well, JACK would now pull ahead.  His account would total $819,234 at the end of year 30 and JILL would have $657,015.  That’s interesting. As the side fund begins to achieve a higher rate of return than the mortgage then JACK begins to win big.

Average vs. Actual Rate of Return

Now Dave Ramsey tells his followers that they can expect a 10% average rate of return (Average ROR is garbage by the way and you must educate yourself on this and understand the Actual ROR).

So what happens if JACK and JILL both get a 10% rate of return?  JACK ends up with $1,242,566 and JILL has $786,946.  That’s a difference of $455,620!  Wait, I thought we should be focused on what the bank makes on our 30 year loan?  Unbelievably unwise!  Let’s go even deeper.

You might be saying, “But Kelly, in all reality, I can get a lower rate on my 15 year loan so your math is wrong. “  First, that was Dave’s math since we used his example but let’s look at it using a lower rate.  Let’s use rates as of today (January 24, 2011) according to Yahoo Finance.  A 30 year mortgage is averaging 4.82% and a 15 year is averaging 4.09%.  Perfect. Now that is a serious discount provided by the bank that does not have our best interest at heart.

Seriously?  That Can’t Be Right.

Using these real market rates, what rate of return does JACK need to get between Month 1 and Month 180 (remember, he’s saving the monthly payment difference) in order to have enough in his side fund to write the check if he wanted to payoff his 30 year mortgage at the end of the 15th year?  Take a guess.  Come on, don’t read further, take a guess!

After 15 years, a side fund rate of return of 4.47% net after tax will provide an account balance of $151,413.  The loan balance on JACK’s 30 year mortgage after 15 years will also be $151,413. These results are for a tax bracket of 31%.  That doesn’t sound too risky to me…only 4.47%.

Now I know what most people say, “You should never put this money at risk because what if you lost it all?  What if the market tanked?”

They’re right!  What?  Yep, you should not play this game in a risk-based environment because you could lose it all and be stuck with a mortgage that you couldn’t afford if your savings was depleted.  This has happened and many people have lost their home.  I know Dave likes to say, “Only homes with mortgages go into foreclosure.”  So, how can we combat this point?

Here’s the kicker, what if you could get the 4.47% in a guaranteed and predictable side fund? Meaning you COULD NOT lose your money.  No risk.  Would that make any sense for you? Of course it would and it exists today.

Here’s a better question: assuming the side fund actually gets a return of 8%, when will its balance be adequate to pay off the 30 year mortgage? If we only need 4.47% then an 8% return should be much better.  It is.

JACK Wins!

If the side fund returns 8% net after tax it will be larger than the 30 year mortgage balance in 13 years and 3 months (a total of 159 months).

What about the tax savings?  JACK continued to save until Month 360 for a total of $62,297 and JILL stopped receiving her tax benefits after Month 180 giving her a total of $23,685. If you read enough of my blog you know it doesn’t end there. You see, a penny saved is not only a penny earned but also a penny that CAN earn.  JACK’s $62,297 (that he did not have to pay to the IRS) over the 30 years at 8%, earned his portfolio an additional $327,557.85.  JILL’s tax savings over 30 years (remember it stopped after year 15) earned her an additional $176,537.96.

Taxes are the largest wealth transfer anyone faces and the second is mortgages.  Now, I’m confident that you, the reader, do all you can do to minimize your taxes.  I’ve yet to meet someone who pays a tax they don’t have to pay.  I’m sure you’ve even hired a professional to help you pay as little as possible in taxes.  It’s time you took a look at the second largest transfer of wealth – your mortgage.  It can literally mean hundreds of thousands of dollars to your family…or, you can keep allowing the bank to win.  If what you knew to be true turned out not to be, when would you want to know about it?

Math proves every time that JACK can pay off his mortgage quicker with a 30 year mortgage than a 15 year using the exact same monthly outflow as JILL. It also proves that even in a guaranteed and predictable environment he comes out ahead. You see, you can accomplish this with no risk.

Malcolm Forbes very wisely said, “The dumbest people I know are those who know it all.”  Don’t be that person, it’s not worth it.

I’d like to end with this great bit of wisdom from my buddy Dave Ramsey:

“If you think you’re getting a better deal with a 30-year mortgage simply because you save a few hundred bucks each month, then you’re only thinking short-term.”

Seriously?  Short term?  Unbelievable.  Since when is 15 and 30 year time frames “short-term”?

My clients, friends and family learn the truth and are ahead of the game year after year.

I’d value your comments and challenges to the math.  More importantly, I just hope you decide to challenge your own thinking and be willing to look at your own situation.  After all, it’s only your financial future you’re dealing with here.

We call this Financial Caffeine because you get An Edge On Education.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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Owning A Home: The Most Misunderstood American Dream #4

November 5, 2010

“A large down-payment will save you more money on your mortgage over time than a small down-payment.”

This one is long…most likely will be the longest in this series but it’s worth it. This topic cannot be “glossed” over if a paradigm shift in your thinking is to occur.  I heard recently,

“Have you probed your paradigm lately?”

Thought that was funny and yet so great of a question. Let’s face it, even the Bible tells us to ensure those who teach the Word are in fact teaching accurately…basically, don’t take anyone’s word for it.  We have to stay diligent in our learning or we can simply become dead in our thinking. Or worse yet, a blind follower of that which is not true. Case in point here with Dave’s mortgage advice.


In the previous post, we discussed a basic financial truth: you finance EVERYTHING you buy.  This happens because you either keep your cash and borrow thus paying interest (finance) or you use your cash to purchase (Dave Ramsey’s method) and thereby lose interest you could have earned on that money going forward (lost opportunity costs – aka a finance expense).

So it begs the following two questions:

  1. Which of these two situations will cause the least amount of wealth transfer for you personally?
  2. Which option makes the most money for the bank?

I’ve yet to meet an individual who intentionally desires to transfer large amounts of money away.  Also, I do not know one single person who wishes to make financial decisions that benefit the bank the most.  Unfortunately, very smart and well-minded individuals do this everyday…and the mortgage is just the tip of the iceberg.

So, will a large down-payment save you more money on your mortgage over time than a small down-payment?

Yes or No?


If you said “Yes”…you’re wrong. Remember, it’s NOT my opinion but rather it’s the MATH that proves it wrong.  Unfortunately, Dave Ramsey’s advice, compared to that which is mathematically true, is similar to the comparison of Rocky Road Ice Cream and Insulin.

Dave is saying that Rocky Road Ice Cream is the best (Subjective Opinion – you see, I think Mint Chocolate Chip is the best) yet he’s presenting it as an Objective Truth.  His teaching on this (make a large down payment to save you money) is only backed up by his personal attitude and feelings.  It’s like Dave saying that Rocky Road Ice Cream is medicine to help the diabetic.  That’s just false. Insulin is the medicine that helps the diabetic (Objective Truth – doesn’t matter if you like it or not).

When we present our opinion as an objective truth we set ourselves up to be proven wrong…that’s what Dave has done.

Dave can claim all day that the above statement from our quiz is True but it’s not.  He’s giving you ice cream to heal your diabetes (your financial plan).  We give you Insulin.

So, if something you thought to be true turned out not to be, when would you want to know about it?

Right away!

If you believe that a large down-payment saves you money then logic would follow that you feel the best down-payment is paying cash in order to pay no interest on a mortgage.  So, if “cash” is the best down-payment, then let’s take a look.


First, you have to understand that equity has no rate-of-return.  A down-payment, or paying cash for a home, is like putting money in a tin can and burying it in the back yard.  The day you sell the home you get to dig the can up and blow off the dust.  Since a home appreciates or depreciates the same if it is financed 100% or is free-and-clear, makes the cost of having our money tied up in the house something we should consider.

As a matter of fact, every dollar you pay to equity actually decreases in value each year due to inflation.  If you put $10,000 towards your equity this year that same $10,000 is available to you in the future (assuming of course the bank allowed you access or you sold the home), but, at that future date it has less buying power because of the inflation factor.  Yes your home may have appreciated but it would have appreciated anyway whether you put the extra $10,000 towards equity or not.  Now, most “wise” mortgage Ramsey followers will say “No, what I pay in principle DOES have a return because I’m paying less in interest.”  Not so fast.  Keep reading.

$31,693,128…now that’s a MISTAKE Dave!

Recently, some news came out about Dave Ramsey’s new house. I contacted Peter who heads up the blog I read about Ramsey (and just linked to) and I sent him a quick video on the math for Dave’s very own purchase.  This video is personalized for Peter but go ahead and take a look of Dave’s HUGE mistake.  If you recall earlier, in my first mortgage post…this is where you either start to get a bigger box or you choose to keep following an opinion because it “feels” good.

Banks aren’t in the business to make me “feel good”.  They’re in the business to make money from my money…period!

Let’s recap the video:

Dave has $4.9 million to buy his home. He decides to pay cash.  What Dave must understand is that it costs him the same amount of money to live in the home whether he finances it or not.  How’s that possible? Well, with math…that’s the whole point.  Remember, this is Insulin not Rocky Road Ice Cream.

If he could have invested that $4.9 million at 5% he would have a balance of $21,891,947 after 30 years.  If he financed $4.9 million at 5% he’d have a monthly payment of $26,304.  If that $26,304 is going to the bank and not being invested at 5% then the principle and interest PLUS the lost opportunity costs (not able to invest those payments if they’re going to the mortgage) equal $21,891,947.  They are identical.

Now, you Ramsey followers are told, and very foolishly by the way, that if you put your money in a “good growth mutual fund” you can average 8-12%.

Unfortunately, his position here is even wrong because the average rate-of-return means nothing…only the actual rate-of-return is what you should concern yourself with regarding your money.  Watch this video of us explaining this very thing.

So, if Dave took his own advice, because he certainly claims that over the “long haul” you can in fact average 8-12% so it would only make sense that he could also, then his $4.9 million could have been invested at these rates.  Let’s take the 8% and be nice (keep in mind, you have to take the Expense Ratio and 12b1 fees into this as well so you can typically add another 1 -1.25% on top of this “average”).  If he invested the $4.9 at 8% in 30 years his account would be $53,585,075.

Wait, you mean, if he took a mortgage at 5% it would cost him $21,891,947 (far more that what he even claims because he only takes the principle and interest into consideration we add the lost opportunity costs because let’s face it, he’s making a mortgage payment and that payment can’t be saved anymore) and if he took his own investing advice that $4.9 million could become $53,585,075? Yep.  Ummm…that’s a $31,693,128 difference!   No small change here folks.

If he can’t sell that home in 30 years for $53,585,000 then Dave Ramsey made a minor financial error. But there’s more.


A lady on the blog I mentioned above made this comment to me,

“But Kelly you are not taking the risk factor into this.  He could lose everything.” (not an exact quote)

She’s right; however, does Dave ever say that statement concerning his recommendations?  Does he ever say that if you invest in a “good growth mutual fund” that has a track record of at least five years that you could lose everything?  Nope.  As a matter of fact, all of his calculations assume that the 10-12% WILL in fact happen (by the way, feel free to send me any mutual fund that you think would make Dave happy and I’ll break down the ACTUAL rate-of-return for you).

Take me up on that last offer!

Even though he believes that it WILL happen, let’s say that he could in fact lose everything (which he can) and chose to NOT take on the risk to ensure he wasn’t under risk of foreclosure if the “Fit-Hit-The-Shan”.  Let’s break it down.

As a matter of fact, that’s exactly what he recommends (and wisely too):

“You’ve compared a zero risk investment [free and clear home] with a risk investment [investing in mutual funds] , and you don’t do that.”

He’s right but that does beg the question: Dave, can we take a zero risk investment with a zero risk investment? Maybe we’d want to do that if we could.

What would it look like, assuming he decides to go with his own recommendation here and take no risk, if he chose something that has guarantees at a measly 5%?   Remember, this account CANNOT lose so it’s an absolute certainty that the 5% will happen.  Well, we’ve already proved earlier that investing the lump sum at 5% and paying a mortgage at 5% would come out the same.  So what are we missing?

Any guesses?  His tax deduction. You see, this new home of his is a primary residence.  Let’s be nice and say he’s at a 35% tax bracket.  This changes his GROSS rate of 5% to a NET rate of 3.25% after the tax break.  Now, once we consider the mortgage payments at 3.25% that we can’t invest since they’re going to the bank (again, opportunity costs), it’s costing him $12,973,610…no longer the $21 million figure.

His puny, wimpy, guaranteed account earned him $21,891,947 and his mortgage cost him $12,973,610.  A difference of $8,918,337! With how much risk?  COME ON, with how much risk!?

NONE!  It was all guaranteed.

Who had control of the money?  HE DID!

What happens if values plummet?  THE BANK FREAKS OUT NOT DAVE!

What happens if his income stream completely dries up?  HE’S LIQUID!

Dave’s all about emergency funds so what happens in case of emergency?  HE HAS THE MONEY NOT THE BANK!

What happens if he comes across an investment opportunity?  HE HAS LIQUIDITY AS OPPOSED TO EQUITY!

Here’s two bonus questions:

What if the account where he has this money has no penalties to access?

What if this account can be used later tax-free?

Answer me this: do you think that banks have a faulty model of making money?

I mean that seriously.  Do you?  Can you literally “look me in the eye” and say that the way banks make money is ineffective?

Of course you can’t. Yet you then discredit the same model when it’s presented on a personal level.  Maybe not you…but Dave sure does!  You see, in this example Dave did exactly what a bank does:

  1. He borrowed money with a low cost (3.25%). (He’s all about getting a deal)
  2. He used his money in a guaranteed and predictable environment (at 5%) to earn a spread. (Remember, he said no risk)
  3. His mortgage is fixed so it will NEVER go up or cost him more and
  4. His earnings are FIXED because it’s in a guaranteed environment.

No matter what happens he wins. He created a banking environment for himself because both of these two financial tools were guaranteed to happen.


You see, I just about exploded when Dave’s right-hand man (I won’t use his name or title because he is an old friend of mine from church), told me (after seeing this math for himself) that “80% of our clients Kelly are financial idiots”. Honestly, that pissed me off…in a big way.  I asked him, “Then why are you following his advice?”  He had no answer.

You’re not idiots. You’re just being served Rocky Road Ice Cream for your diabetes.  It’s time for some Insulin.

Next up, the math behind his bogus advice about 15-year mortgages versus 30-year mortgages.  The banks would love for you to choose a 15-year mortgage…that’s the problem!

You don’t want to miss this one.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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Owning A Home: The Most Misunderstood American Dream #3

October 22, 2010

We’re very close to jumping into the math but we do need to cover a little bit more so you understand the mortgage issue.  It is a complex issue but ironically the math is simple…and we’re almost there.

The dilemma any homeowner has when choosing a mortgage product is that no matter what type of mortgage the owner selects, major wealth transfers will occur. The solution to reducing these transfers is understanding the opportunities that lie inside the mortgage itself.

What do we mean by “transfer”?  Well, if you get a mortgage, you’ll pay interest to the lender (a transfer of your money), and if you pay cash not only will you lose the money that you paid for the house, but also the ability to earn more money from that money (lost opportunity cost).

People like Ramsey say, “Wait a minute! I’ve got the house.
I didn’t ‘lose the money’
and my
money does earn
because the value increases.”

Not quite.  The value of your home has nothing to do with the mortgage or lack thereof.  Your home appreciates or depreciates either way.  And, as a matter of mathematical fact, you do lose money because equity has NO rate of return – I’ll prove that later.

So you either pay interest or you lose interest; however, you must answer these two questions (and this is what all of our math will be based around):

  1. Which of these two situations will cause the least amount of wealth transfer for you personally?
  2. Which mortgage option makes the most money for the bank?

These two questions are by far the MOST important issue and we’re confident your Realtor, mortgage lender, CPA, financial planner, and certainly Dave Ramsey did not deal with this properly.  We will!

Now that we’ve set the foundation let’s get moving. We’re going to address each one of the True / False statements on the quiz in the previous post.

We call it Financial Caffeine because once you understand the truth, it’ll keep you up at night.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


Website  –  YouTube  –  Facebook

Owning A Home: The Most Misunderstood American Dream #2

October 18, 2010

Now that we’ve stated our purpose , let’s get started.

You’ve seen how many mortgage options a home buyer has these days.  If the banks made the same amount of money on every mortgage loan then truly how many options would we have as borrowers?


But we don’t have just one.  There are several to choose from.

That then begs the question, do the banks have our best interests at heart? I believe most of you reading would say no.  More like, HECK NO!

So, if they don’t have our best interests at heart and they offer us so many different options that provide various profit margins for them then maybe, just maybe, we should do a little math.  But how many of you have done so?  More importantly, how many of you have financial professionals who have done so in your life?

If you think it’s only about the amount of interest you pay (i.e. Ramsey) you are hugely mistaken. Check out his own words on his website and read the “Want More Proof?” piece.

Our guess is when you chose your mortgage you simply took the product that:

  1. provided you the lowest rate,
  2. provided the payment structure that satisfied your budget,and 
  3. satisfied your plan to pay the house off early.

If you followed Dave Ramsey’s advice then you took the 15-year mortgage.  Unfortunately, you chose the one mortgage that makes the most money for the bank of all options available to you.  Hey, at least your bank has profited from your choice…heck you might have even scored a toaster.

What if you missed a crucial piece to this plan?  Would you want to know about it? You’re reading this so you’re at least interested or you’re secretly hoping that I make myself look like a fool.  I mean really, can I back up the statement that 15-Year mortgages are a dream to the banker?  Yep, and I will.

We educate on what we call financial transfers.  This is money that you’re losing unknowingly and unnecessarily and the largest transfer of wealth, next to taxes, anyone will ever encounter is the purchasing of a home and the mortgage associated with that transaction.  It is part of the traditional American dream. It’s also the most misunderstood.

As promised, let’s take a quick quiz to see how you’ve understood mortgages so far.  Ready?  Go with your first reaction.


  1. A large down payment will save you more money on your mortgage over time than a small down payment.
  2. A 15-year mortgage will save more money over time than a 30-year mortgage.
  3. Making extra principal payments saves you money.
  4. The interest rate is the main factor in determining the cost of a mortgage.
  5. You are more secure having your home paid off than financed 100%.

Imagine if math, not some theory or new “latest and greatest” product, but math proves that each of these statements are actually false.  Would you think it was worth your time to learn just how that’s the case?  It’s certainly worth it from a financial standpoint.

If you’re a Dave Ramsey follower then you certainly answered “True” for each one of the above statements.  Soon you will understand why I have such a hard time with what he teaches and specifically that churches continue to hold his classes.  My fellow Christians need to know the truth.

I will say this though about Ramsey: what he teaches about snowballing debt and creating a savings cushion is right on the money and very much needed in today’s “spend now and pay later” culture.  I just wish he stopped there.  It’s his instruction on mortgages and investments that are incredibly off the mark and unfortunately it’s these two topics where people lose the most money.

Stay with us, we’re about to dig in the heels…remember the Bigger Box?

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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Owning A Home: The Most Misunderstood American Dream #1

October 15, 2010

How could a blog about the truth behind mortgages start with a quote from Madonna?  Well, because she’s right.

Better to live one year as a tiger than a hundred as a sheep.
~ Madonna

Why is it seemingly “uncool” to call someone out?  Maybe because most live like sheep.  I’m tired of this attitude…no more.  We’re going to be tigers here and actually hope that the “sheep” decide to come after us.  Let’s be real clear on the intention of this upcoming series of mortgage blogs.


There are three purposes behind this series:

  1. Dig into the math behind your primary mortgage options and which one benefits you or the bank the most.
  2. Teach people the truth about this huge financial transfer, known as the mortgage, in order to challenge the “false teachers” out there today…primarily Dave Ramsey.
  3. To PROVE with good ‘ol 8th grade math that Dave Ramsey is mathematically challenged.  Afterall, one of his very own (and high-up-the-ladder) executives told me personally that “80% of our (Ramsey’s) clients are financial idiots”…that’s a quote folks.  So congratulations, they think you’re financial idiots.

This will be fun but frustrating for those who have actually followed his mortgage advice…don’t forget how they defined 80% of you.


Like Dave, I’m a Christian. Unlike Dave, I was willing to learn.  Malcolm Forbes said:

“The dumbest people I know are those who know it all.”

When an idea is presented that is “outside the box” of your belief system about what you know to be true, then you have two choices: you can throw it out or get a “bigger box”.

I’ll be asking you to get a bigger box.  Why? Because if what you knew to be true turned out not to be, when would you want to know about it?

Followers of Dave Ramsey will have a choice after math proves him wrong: to keep their box-of-truth the way it is or get a bigger box because they were willing to learn.  Your choice. If you want to remain a “sheep” under his protection fine, we’re looking for tigers.

Get ready for some serious Financial Caffeine. Keep reading, we have a quiz for you next.

I’m Kelly O’Connor and as I dig deeper I’d like to get your comments…I’ll post ‘em all.



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Velocity of Money Part 4

September 24, 2010

We just discussed how this first Defining Moment, that your money will never be worth more than it is today, motivates banks and why they live by it, but how does it impact your mortgage?

If you own a home and have a mortgage on it you are probably the proud recipient of a lot of junk mail. Much of this mail is from financial institutions who want to inform you that making additional payments on your mortgage is a good thing. For whom it is a good thing is not clear to most but for those who understand this Defining Moment it’s very clear.

We touched on this a little bit before but let’s take it a little deeper.  Let’s start with this question: would you like to make more house payments now with dollars that will never be worth more than they are today? Or, make more payments later when the buying power of that money is far less?

Let’s look at some math.  If your mortgage payment is $1,000 per month, do you want to make more payments now when your money has the buying power of $1,000 or make more payments later when the buying power of that money is $412 thirty years from now? (Which is the buying power of $1,000 with a 3% inflation rate for 30 years).

What you need to understand is that the value of your home is going to go up or down no matter what your monthly payment is as well as no matter what your mortgage balance is at the time.

To prove that point, if there are two identical homes side by side and one is paid for but the other is mortgaged, at any point, the houses are worth the same.  Neither the payment nor the mortgage have any effect on the value of the property.

But by making additional payments or paying cash up front for the house, you have used the most expensive buying power dollars you could to do this. At the same time by using today’s money to make additional payments you have made the banks and mortgage companies very happy. Remember they are in a win-win situation. So what do you do?

We’d highly recommend you read our Mortgage blogs when they’re posted…so that means you’d have to subscribe. There is one thing I know that WE can do for you right now.

We can prove, again not with concept or fancy theory but good ‘ol 8th grade math, that paying extra and sending more of your most value dollars to the bank ahead of schedule actually hurts you financially.

Big paradigm shift, we get it.  Call us crazy but we also can prove that a 30 year mortgage can actually pay off FASTER than a 15 year mortgage using the exact same budget for both…even with a higher interest rate on the 30 year. Read that again. This can be proven with math and no investments are needed to accomplish this fact.  It’s true and can be backed up with simple math.

So, we’ll do our part for free by showing you. You just have to challenge us and be willing to learn something new.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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Velocity of Money Part 3

September 18, 2010

We hear every day, “I thought that I should pay extra principle to lower my interest expense?”

First, the banks are in a win-win situation no matter what you do. You see, if you don’t make additional payments because you understand that you are giving the bank control of more money, then they will just collect more interest over time.

If you do make additional payments the bank doesn’t just sit on it. Remember, they’ve mastered Defining Moment #1 and the velocity of money.  That additional money from you is used and lent back out to start the process all over again.

What would you rather do, follow traditional planning and make all attempts to have your $10 earn $1 more?  Keep in mind, you have to deal with all the other flexible factors that we discuss in our Why Traditional Planning Fails To Reach Its Goals (future posts).  Or, function more like a bank and have your $10 do the work of $50?

Yeah, I think the bank model works quite well. So what do we do? Well, here’s an important question: do you believe banks have your best interests at heart?  Most people say no. If you said “no”, then have you ever asked yourself why banks offer a lower rate on a 15 year mortgage than a 30 year?  If they don’t have your best interest at heart and they are giving you an incentive to go with a particular product, then maybe we should do a little math.

They understand perfectly AND IMPLEMENT the Defining Moment that money will never be worth more than it is today? They want as much of your money as soon as possible (ie a 15 year mortgage) in order to keep it moving, working, and earning for them.

They’ll even entice us by offering gifts for our deposits and they promote like crazy just how convenient it is to deposit our money.  You’ve seen the recent TVcommercials about the new technology for ATM deposits.  Isn’t it ironic that they also make us rely on credit scores which are a directly determined by just how quickly we pay them back?

If we apply this defining moment to our everyday lives the lesson becomes more and more apparent.   By taking a look at the country’s savings rate, there’s no doubt that our ability to hang on to today’s money, the money that has the most buying power, is dwindling.

In reality more of our dollars are going to someone else in the form of debt payments, taxes, and other financial transfers more than it’s working for us. The ability for Americans to save “today’s” dollars has all but diminished.

The traditional approach must change, and the sooner the better. What is really needed is more financial literacy.  It is so important to understand that “your money will never be worth more than it is today.” And equally important, how it may impact your thought process in your everyday life.

If you do, then maybe you’ll question the various strategies recommended to give your money as soon as possible to other entities.  Even if it means incurring some more interest expense.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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