Where as, Lori is sending that extra $250 each month to her mortgage lender, Lisa invests these savings of $250 each month for five years, earning 8% before taxes per year.

The result: At the end of five years, Lisa has a total in savings of $17,599. Lori has no savings.

Suddenly and without warning, both women are re-

This story is all about mortgages and how we deal with them.

As you read along ask yourself which one are you?

Lisa and Lori each earn $55,000 a year from their respective jobs. Both have $35,000 in savings. They live in Vancouver, British Columbia so a starter condo will set them back to the tune of $350,000.

Both Lori and Lisa got pre approved mortgages and were able to go condo shopping knowing that their financing was in place. The pre approvals were no problem for the banks to OK as they felt that these women would be good “risks” for the loans and able to service the mortgage payments based on their respective incomes.

On the one hand, just as her parents had told her to do - Lori wants to get rid of her mortgage as soon as possible. She spent some time on her banks Web Site with their “Mortgage Freedom Calculator”. Based on her inputs she decided on using her entire life savings of $35,000 as a 10% down payment, and chose a 5 year closed mortgage at 6% with an 18-year amortization period.

Her mortgage of $315,000 means that her monthly payment is $2,375. She will reach her goal of being mortgage free in 18 years - 7 years earlier than the standard 25 year amortization and saving a whopping $107,804 in interest costs alone!

Lisa on the other hand chooses the same 5 year closed mortgage term at 6% but with a 25-year amortization. She goes for the 5% “down” option with $17,500 of her $35,000 savings and finances the remaining balance of $332,500. Lisa’s monthly mortgage payment is $2,127. The monthly difference between the two mortgage payments is $248. (Let’s say $250 to keep it simple).

Lisa’s mortgage balance is higher than Lori’s, $332,500 compared to $315,000 but her monthly payment is just $2,127 because she went with the 25 year amortization.

Where as, Lori is sending that extra $250 each month to her mortgage lender, Lisa invests these savings of $250 each month for five years, earning 8% before taxes per year.

The result: At the end of five years, Lisa has a total in savings of $17,599. Lori has no savings.

Suddenly and without warning, both women are re-e

Both Lori and Lisa got pre approved mortgages and were able to go condo shopping knowing that their financing was in place. The pre approvals were no problem for the banks to OK as they felt that these women would be good “risks” for the loans and able to service the mortgage payments based on their respective incomes.

On the one hand, just as her parents had told her to do - Lori wants to get rid of her mortgage as soon as possible. She spent some time on her banks Web Site with their “Mortgage Freedom Calculator”. Based on her inputs she decided on using her entire life savings of $35,000 as a 10% down payment, and chose a 5 year closed mortgage at 6% with an 18-year amortization period.

Her mortgage of $315,000 means that her monthly payment is $2,375. She will reach her goal of being mortgage free in 18 years - 7 years earlier than the standard 25 year amortization and saving a whopping $107,804 in interest costs alone!

Lisa on the other hand chooses the same 5 year closed mortgage term at 6% but with a 25-year amortization. She goes for the 5% “down” option with $17,500 of her $35,000 savings and finances the remaining balance of $332,500. Lisa’s monthly mortgage payment is $2,127. The monthly difference between the two mortgage payments is $248. (Let’s say $250 to keep it simple).

Lisa’s mortgage balance is higher than Lori’s, $332,500 compared to $315,000 but her monthly payment is just $2,127 because she went with the 25 year amortization.

Where as, Lori is sending that extra $250 each month to her mortgage lender, Lisa invests these savings of $250 each month for five years, earning 8% before taxes per year.

The result: At the end of five years, Lisa has a total in savings of $17,599. Lori has no savings.

Suddenly and without warning, both women are re-

Her mortgage of $315,000 means that her monthly payment is $2,375. She will reach her goal of being mortgage free in 18 years - 7 years earlier than the standard 25 year amortization and saving a whopping $107,804 in interest costs alone!

Lisa on the other hand chooses the same 5 year closed mortgage term at 6% but with a 25-year amortization. She goes for the 5% “down” option with $17,500 of her $35,000 savings and finances the remaining balance of $332,500. Lisa’s monthly mortgage payment is $2,127. The monthly difference between the two mortgage payments is $248. (Let’s say $250 to keep it simple).

Lisa’s mortgage balance is higher than Lori’s, $332,500 compared to $315,000 but her monthly payment is just $2,127 because she went with the 25 year amortization.

Where as, Lori is sending that extra $250 each month to her mortgage lender, Lisa invests these savings of $250 each month for five years, earning 8% before taxes per year.

The result: At the end of five years, Lisa has a total in savings of $17,599. Lori has no savings.

Suddenly and without warning, both women are re-

Lisa on the other hand chooses the same 5 year closed mortgage term at 6% but with a 25-year amortization. She goes for the 5% “down” option with $17,500 of her $35,000 savings and finances the remaining balance of $332,500. Lisa’s monthly mortgage payment is $2,127. The monthly difference between the two mortgage payments is $248. (Let’s say $250 to keep it simple).

Lisa’s mortgage balance is higher than Lori’s, $332,500 compared to $315,000 but her monthly payment is just $2,127 because she went with the 25 year amortization.

Where as, Lori is sending that extra $250 each month to her mortgage lender, Lisa invests these savings of $250 each month for five years, earning 8% before taxes per year.

The result: At the end of five years, Lisa has a total in savings of $17,599. Lori has no savings.

Suddenly and without warning, both women are re-

Where as, Lori is sending that extra $250 each month to her mortgage lender, Lisa invests these savings of $250 each month for five years, earning 8% before taxes per year.

The result: At the end of five years, Lisa has a total in savings of $17,599. Lori has no savings.

Suddenly and without warning, both women are re-engineered out of their positions due to corporate downsizing. This comes as no big surprise given the instability in today’s job market. Who will survive? But, is Lori or Lisa in a better position? Well, let’s see…

Remember, Lori wanted to get rid of her mortgage as soon as possible and so used all of her money as a down payment, so she now has no savings to rely on. However, she has $57,369 worth of equity built up in her house because she started with such a large down payment and has been making larger monthly payments since the beginning of her mortgage.

Unfortunately, that won’t help her to put food on the table and she now has no money coming in.

The only thing that Lori can do to support herself is to use her credit cards, thereby creating consumer debt for which she cannot afford to pay because she has no income. As she is now unemployed, she cannot refinance because her bank denied her application for a home equity line of credit due to lack of stable income! If Lori is to access her home equity in order to support herself, she will have to sell her home. This would force her to do the one thing she wanted to avoid to begin with - lose her home.

Sadly, Lori has just discovered the biggest secret of home ownership the hard way: Your mortgage is actually a charge against your income - it is not a loan against the value of your home. With no income, you are powerless to borrow money against your equity. Lori must land another job, and fast! Not something that is easy to do in an unstable job environment. Not only can she not afford to feed herself, Lori is about to lose the roof over her head!

Now, let’s see how Lisa is doing. Lisa has only $33,793 in equity built up BUT she has $17,599 in savings! She will be able to make her monthly mortgage payment with ease, even with no job