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Ignorant Homeowners?

Nice-House Jonathan Chevreau of the Financial Post says “The No. 1 financial tip I can dispense is to pay off your mortgage as soon as possible.”

That’s definitely not the worst advice in the world (although some might feel that certain tax sheltered or high-return investments are preferable).

Jonathan, however, goes on to say that “homeowners are getting more ignorant.”  He says, “The rise of interest-only mortgages or 40-year amortization periods can only be possible in a world where consumers are oblivious to the arithmetic of compounding interest.”

Well, that may not be the case.  In fact, our 40-year “am” clients know exactly what they’re getting into–because we tell them.  They’re not oblivious at all.  They simply want more house, or need to lower their payments to meet debt service ratios.

In addition, most plan to pre-pay their mortgages well before their amortization period.

It’s an instant gratification society we live in.  People don’t want to wait 20 years to afford their dream home.  Right or wrong, they want it yesterday, and long-am and interest-only products permit that.