Difficult Conversations – How to own your house in six years
A home mortgage is the price people pay for having a house before it is fully paid for. The price the unfortunate homeowners must pay is very high indeed – they must repay more than twice what they borrowed.
Why would people choose to repay so much, in an uncertain economy, for 30-years? Why would people agree to risk losing their house, and all the payments they made, if they missed paying their monthly payments? The simple answer is that new homeowners are normally desperate, uninformed, and easily taken advantage of.
Potential homeowners should know that they have a better financing option. Couples can pay for their house in six years, instead of 30, and pay no interest whatsoever. To do this, a group of 12 couples must agree to form a company to build 12 starter houses.
Each person in the group must agree to pay the monthly amount that they would normally pay on a 30-year mortgage for a starter house, for six years. Two strong and durable starter houses (1,000 sq ft, 3 bedroom, 2 bathroom, 1 pantry/laundry room, open concept), that can withstand Category 5 hurricanes and magnitude 7 earthquakes, should be built each year, with the final two being built in year six.
There are several methods of reducing the risks of persons not paying their monthly amounts. First, the time is reduced to 6 years, by having each of the 24 persons make the payments. Second, it is for couples, where a person’s spouse can assist if there is a temporary financial challenge. Third, it is for a starter house, where the payments should be affordable for all participants.
To further reduce repayment risks, all twelve properties (houses and lands) should be owned by a company, that is owned by all the homeowners. After all houses have been built, the ownership of each property should be transferred to the respective couple.
In the event of death or disability, each couple should have term-insurance for six years, where the company is the beneficiary.
To address temporary financial challenges, each couple should have an emergency credit card, with a credit limit of six monthly payments. This card should only be used to make emergency monthly payments. To keep persons accountable, the credit card’s monthly statements should be copied to the company.
If a couple’s financial situation is so dire, that their only option is to use their emergency credit card to make payments for three consecutive months, then they will likely put the program at risk. The other persons will have to decide whether to increase their monthly amounts to assist the couple in need, or terminate the agreement with the couple. If a couple’s agreement with the company is terminated, then the company should take a short-term loan of the total amount that the couple contributed, for a duration of the remainder of the 6 years. The couple in need should receive the total amount that they paid, less the interest on the loan. A new couple should then be invited to take their place.
At the end of six years, the 12 couples can agree to either close the company, or build one house each year to sell and generate wealth.
The question is, if a couple can own a comfortable, strong and durable starter house in six years, and pay no interest, then why don’t they do this? Why would anyone pay more than twice the value of their house, and risk losing it if monthly payments are missed over the uncertainty of 30 years?
The simple answer is that they received bad advice, and should dissuade others from doing the same. However, if 12 couples cannot be found in Barbados, to demonstrate how wealth may be created, then we are doing the next generation of Barbadians a grave disservice.