Part II - The Practise

Introduction

The objective of Part II is to apply the science learnt in Part I by applying it to real schemes, and to enable the reader to have a clear idea on how to choose a mortgage, and how to make money with one.

The aim throughout has been to explain fundamental concepts, and encourage thinking from first principles so that the reader can go forth as a wiser person, rather than simply produce an instantly forgettable list of empirical rules, with little explanation.  As a consequence, the book should not date too much, since the basic principles described can be applied to more or less any new fangled scheme in general – at least as far as I can predict.

The main aspects discussed in this part are as follows: 

• Establish that there are subjective views on which scheme to choose and it is not all just hard logic.
   

• How to decide whether to buy or rent a home.
   

• Pros & cons of interest-only loans and an explanation of the endowment mortgage ‘scandal’ exposed in 1999.
   

• Identifying different mortgage schemes as groups, such as cashbacks, discounts, fixed rates, flexible mortgages, with full explanations.
   

• Presenting some criteria for choosing a scheme to suit an individual’s attitude and experience.  Introducing a “wizard” to help you choose.
   

• Having now understood the basic anatomy of mortgages, use them to make money by buying and renting, exploiting the concept of gearing.
   

• For those wanting more, how to use a geared portfolio of commercial mortgages to make over a million pounds.
   

• The Lender’s perspective and how they would design a mortgage product.
   

• For the retired homeowner, an overview of Equity Release schemes, Home Income Plans and Reverse Mortgages.
   

• The Epilogue summarises and peeks into our digital future.

Then there are some Annexes for general interest.

• Annex A outlines the birth of the original flexible payment mortgage concept out of an index-linked mortgage in 1979.
   

• Annex B summarises the still unstable status of mortgage regulation, including the mortgage code and a summary of CAT standards.
   

• Annex C is a list of the largest thirty lenders as at May 2000.
   

• Annex D lists the spreadsheets available for free download.

Finally, the spreadsheets and the on-line tools included on the web site are really very useful and easy to use.  I urge even rank beginners to give them a go.  At a stroke, you can then become a mortgage connoisseur, able to analyse many different scenarios and get instant answers to all your “what if…” questions. 

Emotions triumph over intellect

Many years ago, I read a leaflet explaining the art of salesmanship, which was written for the Chartered Insurance Institute.  At one point, it stated, “the emotions are a far more powerful motivator than the intellect”.  At first, I thought it was a mistake – how can the heart rule the head?

But soon after these very new sales experiences, the penny gradually dropped.  People did actually seem to judge a book by its cover, or favour a car by its colour and prefer clothes in vogue with the latest fashion fad.  Whether the book was a good read, the car was well built or the clothes were functional was often quite secondary, despite a natural consumer reticence to admit it.

A very early client of mine listened to my carefully worded, mathematically correct argument proving (beyond all doubt I thought!) that it was better to borrow to buy a house and invest her cash, especially when tax relief was at its maximum in those days.  She admitted that my proposal was probably quite correct, but she just did not feel comfortable owing all that money and much preferred to use her cash to buy the house outright.