Fear and greed are the two basic human emotions I have to deal with every day. Below are typical questions and answers to help you understand my approach to mortgages and financial planning.

You: I want the lowest fixed rate loan you've got.

Duffy: Most people assume that a 30-year fixed rate is the safest way to go. The first question I ask potential borrowers is, "Are you planning to stay in the house for the next 30 years?" The next questions are,
"Have you been in any previous homes for at least 30 years?"
"Have you ever refinanced a mortgage?"
"Do you have a Home Equity Line of Credit?"

I don't get it. Why are you pigeon-holing yourself into a 30 year fixed rate mortgage? Given today's climate, a 30-year fixed mortgage might be as financially appealing as an ARM, but take serious consideration to the questions I've asked above and you could save yourself thousands of dollars over the life of your loan.

You: If I get one of those ARMs that are fixed for only 3 or 5 years, based on my current income, I won't be able to afford the monthly payment when the rate goes up at the end of 3 or 5 years.

Duffy: Previously I asked how often you had kept a mortgage for 30 years. Now I ask the question how long have you kept a mortgage for even five years?

Look back at your life over the last five years. Anything interesting happen over that period? A wedding, the birth of a child, a divorce, a raise? A change of jobs, a new car, an attempt to get control of your debts, lower interest rates than what are being offered today? Need I go on?

Let's assume, though that you are one of the very few people whose life is so static that there have been no changes. If there were a repeat of 1984 when rates were at an historic high (which, by the way never happened before or since then) then wouldn't you have received cost of living increases during that time which would have no annual cap?

Comparatively, 3 or 5 year ARMs have caps which prevent them from going up more than 2% each year after the fixed period of 3 or 5 years and a lifetime cap that prevents the rate from increasing more than 5 or 6% over the life of the loan.

So instead of not being able to afford the higher payment, the higher payment in your worst case scenario would represent a smaller percentage of the income you would be earning than the payment you would have today based on your current income.

Please keep in mind that I do fixed rate conventional, FHA and VA loans at very competitive rates. If you feel most comfortable with a fixed rate mortgage then I will be happy to provide one for you; but please do so because it is best for you, not because your parents or the media told you it was the best loan.

You: OK, but don't try to talk me into one of those interest only loans since I still want to own my home some day free and clear. After all isn't that the ultimate goal we should all be striving to achieve?

Duffy: Sorry but quite the contrary. The first goal is to become totally debt free except for the mortgage. Debt is a lot like cholesterol: too much of either will kill you, but doctors preach that you should increase your good cholesterol and decrease your bad cholesterol and I am telling you to eliminate your bad debt, credit card, auto, consumer, and increase your good debt - mortgages.

The next step is to increase your net worth so that you have enough assets outside of your home which are earning you a rate of return greater than the rate I am charging you on your mortgage so that you could pay off your mortgage. But obviously you do not! Quite the opposite.

You: But what if instead I want to pay off the mortgage so that I can live in a house "FREE!!!" when I am ready to retire.

Duffy: Sounds good but unfortunately wrong again. It is impossible to live free. Let's say that when you were working you could afford a nice big house with all the extras. Shortly before you retire you accomplish your dream and finish paying off the mortgage. While you have been living there the property taxes have gone through the roof, Insurance on the home has sky rocketed, and even utility costs have gone up.

I have done quite a few loans for people in their eighties who came to me saying that they had made the mistake of paying off their mortgage only to realize that they could no longer afford to live their on their social security check. They wished they had invested in real estate or corporate bonds or REITS or anything that gave them additional income as they were growing older.