For many Americans, a home is still the largest investment that they will make. However what is often overlooked is the ability to make a home more than just another monthly payment. Most homebuyers are ill-advised in how to make a mortgage product choice.

Today, while rates are still near their lowest point in the last 40 years, more Americans have become homebuyers than ever before. According to the Homeownership Alliance, approximately 68% of Americans were homeowners in 2003. By 2013 this number is expected to exceed 70%.

For most people, a mortgage consists of a 15- or 30-year fixed mortgage loan product and however much money they have available for a down payment. What many homebuyers do not know is that small changes in their investment strategy and their choice in mortgage product can have large consequences down the road. It is the same principle that affects ocean navigators: Only a small error on their compass today will put them thousands of miles off course three days from now. Small differences can become quite large when you begin to factor in the time value of money…whether or not you take small monthly savings and apply them to the principal…the tax advantages of one loan over another…and how fast one loan builds equity compared to an alternative choice…and many other options.

One common myth is that a homebuyer should put 20% or more of the purchase price for a down payment. In most cases, homebuyers can qualify for less down payment, even "no down payment" mortgages. The idea is simple: you maintain the money in your pocket today to re-invest and grow.

Your choice in a mortgage loan product and debt structure, combined with the tax deductibility of mortgage interest, can provide a significant advantage to your financial goals. Let’s say you are buying a $350,000 home and plan to put $100,000 down on a 30-year fixed mortgage. You have a $250,000 mortgage loan balance and assuming you do not make any extra payments to the principal, that mortgage will be paid off in 30 years. After 5 years you will still owe $232,992, and have 25 years remaining to payoff the mortgage.

Conversely, the $100,000 you put down was money that that could be invested in another investment that earns a 10% return. The money can sit dormant in equity in your home – or it can sit in an investment and work for you by earning a return. Before I get to the calculations, a lot of you are saying "but the down payment makes the monthly payment lower"…yes it does, but don’t worry, I will address this as well.

So let’s say you buy the home, put nothing down and put that $100,000 to work. After 5 years the $100,000 investment will be worth $164,531, and in 10 years it will have grown to $270,700. The approximate tax benefit based on a 28% tax bracket for $350,000 mortgage balance is approximately $546 dollars per month, versus $357 for a $250,000 mortgage. This results in an additional $189 per month tax savings. The gross monthly payment is about $737 per month higher, subtracting out the tax benefit results in a $548. This $548 represents the effective cost of putting nothing down on the home. This difference means that over 5 years, you have paid out an additional $32,880 in monthly payments (which has reduced your principal balance) and you managed to net $31,651, or approximately 23% return on your investment ($164,531 minus additional monthly payment of $548 times 60 months minus the original investment of $100,000)!

Effectively, after 9 years your $100,000 investment, along with the reduction to the principal made by your monthly payment, has enabled you to accrue assets that exceed the remaining mortgage debt. Basically, your mortgage has been paid off in 9 years!

For a lot of people this represents a huge shift in the conventional thinking when it comes to purchasing a home.

Another option is an Interest-Only mortgage. Interest-Only Mortgages can be a huge financing tool for a homebuyer’s financial portfolio. The idea is simple. Use an Interest-Only mortgage to free up additional cash to re-invest. Using the time value of money, this money invested will grow because it is earning a return.

So let’s say you really just don’t want the monthly payment that comes with 100% financing. You can use an interest only program to reduce the monthly payment and still re-invest your additional cash. Your monthly payment would be only about $266 more per month and because you are not reducing your principal in your monthly payments, it would take about 10.5 years for the investment to accrue enough to payoff the mortgage. When you think about it, you are paying an additional $266 per month in order to reduce the time it takes to payoff your home by 20 years or more! Keep in mind that you still have the $100,000 that you were going to put into a down payment! And for those of you that are still concerned about the increased monthly payment, remember that most salaried employees experience an increase in salary at least at the level of inflation or approximately 3.4% in 2005.

Note that we are not even taking into account that the value of the home should appreciate - increasing the overall net worth of your portfolio!

Even if we reduce the outside investment return to 6% in both examples, the time it takes for your investment to grow enough to pay off the mortgage only increases to 13 and 17.25 years, respectively. I frequently like to tell people "bring me $100,000 for a down payment and I will show you how to buy 3 homes – 1 to live in and 2 for investment"! But the examples work if you have $10,000; $25,000 or $50,000, so do not let the down-payment or lack thereof be a barrier!

What I want to stress is that the object of this article is conservation, not consumption. Many homebuyers have been sold interest-only mortgages in an effort to make the home more affordable or so that they can qualify for the price of the home they are buying – a home they couldn’t afford in the first place. The responsible mortgage loan consultant can show you how to make these scenarios work and tell you when you are buying more than you can afford!

Here are some questions to ask yourself and your mortgage consultant when you are ready to purchase your next home:

• Which home loan will help you build valuable equity the fastest?
• Which loan is easiest on monthly cash flow?
• Which loan option will get you debt free the quickest?
• What loan has the best tax breaks?
• Which loan has the lowest total cost over the time you will live in the home?

Robert M. Spiegel is a Mortgage Advisor with The Spiegel Group, Mortgage Advisors, a Mortgage Banking and Brokerage firm in Houston, Texas. Robert is designated as a Certified Mortgage Planning Specialist as issued by the CMPS Institute, and is a recognized expert in the area of mortgage planning, cash flow management and real estate equity management.