At the recent American Mortgage Conference held this past September, a new, yet classic, type of mortgage was introduced. Referred to as the wealth building home loan (WBHL), many elements of the structure of this loan hearken back to an older time when lenders and borrowers were open and transparent and only agreed to loan terms they could understand and actually manage.
One of the key features of a WBHL is that, as opposed to a traditional home mortgage, a WBHL is repaid in 15 years, rather than 30 years. Thus, home equity is built faster, and actual home ownership is achieved in half the time.
WBHL allows many people, including first-time homebuyers and minorities, the ability to obtain an affordable loan that allows them to gain home equity faster, and unlike so many people, to truly own their home.
WBHL enables a higher percentage of monthly payments towards paying down the principal costs of the home. In the beginning, some 68% of a monthly mortgage payment goes towards paying interest on a traditional, 30-year home loan. Consequently, it takes much longer to pay down the debt, and even longer to see the proverbial fruits of one’s labors.
One drawback is that WBHL have stricter terms; however, they are still available to those with a wide range of credit scores. These loans also do not require incredibly large down payments, which can make home ownership prohibitive to some. However, nobody will be extended unreasonable sums of money with terms they cannot afford and barely understand.
One of the biggest reasons this is referred to as a “wealth building” loan is that when people actually own their home outright, they have more expendable income, assets, and overall wealth. With WBHL, homeownership is possible in just 15 years. For many, a 30-year loan means continuing to pay on the home even beyond retirement, taxing what can be very tight budgets in what are supposed to be the golden years. A paid-off mortgage allows for retirement to be golden indeed.
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