John Paul Getty once said: “If you owe the bank $100, that is your problem. If you owe the bank $100 million, that is their problem.” Getty’s observation offers an important insight into the value of understanding the incentives of those around you.
When you take out a mortgage, the only secured interest that the bank maintains is the parcel of real estate itself. Understanding this perspective of the lender should serve as an important caveat against paying off your mortgage early. When you owe $150,000 on a piece of property appraised at a value of $300,000, the lender may be perfectly willing to foreclose against you in the event of a default because they know that they will receive the full value of the amount owed.
On the other hand, if you owe the lender $280,000 on a piece of property appraised at a value of $300,000, the lender … Read the rest of this article!