One Washington mortgage originator reports increasing his production by counseling borrowers about wealth-building using a mortgage.
East Bay Mortgage Inc., a company that reportedly targets physicians, attorneys and other affluent individuals, practices a four-step approach to financial planning that can increase borrowers' net worth (assets increase more than debt).
"A loan officer has to want to impact people's lives in a positive way," said Tane Cabe, the company "expert" who said he has funded over $1 billion in loan volume throughout his career. As opposed to setting up a loan, getting a fee and moving on to the next loan, originators can add value to their business by taking more time learning how to help people make wise investments with their money.
Upon the purchase of a home, instead of giving a large down payment, Cabe said clients should be advised to use it toward debt. The same idea goes for refinancing, which he suggests should be "cause-based" (help with finances), rather than "rate-based." A lower rate won't be an asset if homebuyers don't use their home equity wisely.
Cause-based refinancing provides money to achieve an individual's first two steps to financial wellness. The first step recommends establishing a cushion of cash for at least two to three months. Credit cards should be avoided and cash saved to use for emergencies instead.
Secondly, all debt outside the home should be paid. While people think its normal to have a car payment, paying cash avoids interest charges, Cabe said.
Dallas-area accountant Ron Baker endorsed the steps because borrowing from home equity can save people additional debt. Interest on home loans is tax deductible, versus interest on consumer debts like car loans and credit cards that isn't, Baker said.
The third step requires the borrowers to save at least one year's income, which helps accomplish the fourth step -- pay off their mortgage in eight to ten years. People usually think 15-year mortgage loans are a smart choice, but they're not a quicker way out of debt, Cabe said.
Edward Harris, president of Northwest Tax Specialists in Washington, agreed East Bay's approach was a "good basic plan," but warned it takes someone who's disciplined and not a compulsive buyer to carry through successfully. Most Americans couldn't go through with it, he said.
Cabe, who operates from his office in Gig Harbor, agreed and reiterated the approach better targets those with a more steady flow of income.
"Add value and get [borrowers] more money...turning people into millionaires is impacting... it's well worth it," Cabe said.