I was reading a Top 10 list of things to ask a lender when getting a mortgage. The number 1 question to ask a loan officer at the bank is, “what is the interest rate?” I’ll stop at number one instead of going through the rest of the list simply because asking the rate is simply a common question, but in reality, asking the rate should not be the number one question to ask.

When borrowers ask the interest rate of a mortgage first, they are simply asking the price of the money.

Money, however, is similar to any other product; cars for example.

When buying a car, is the first question to consider the price of the vehicle or the vehicle itself? The answer, in my opinion, should be the vehicle is the first importance, not the price.

Does the car have two or four doors? Is a third seat needed? Am I looking for a family vehicle or an economical vehicle to mainly drive for myself with a passenger or two from time to time. After I answer the question regarding the purpose of the vehicle, then I would look at the price.

Instead of asking the price first when getting a mortgage, or any loan for that matter, the question should be, “what’s the purpose of the loan?” Is the money simply needed to buy a house? Well, yes. Why else get a mortgage?

Obviously, mortgages are to buy property. However, before asking the rate, or price, more considerations should be delved into regarding the loan.

Questions might be, am I wanting to save money or build wealth? A distinction exists between the two.

Saving money, the choice would be to get a low rate with short-term payments, such as a 15-year mortgage. However, the cash flow is greatly reduced with a short-term loan, which can in reality be a very risky move, especially in a slumping and uncertain economy.

Building wealth can come from the use of a loan to buy a potentially appreciable asset, i.e. the house, but also by using debt management, cash flows, etc. to purchase additional assets of value or income generating assets, building for retirement, etc. using the same budget.

Businesses borrow money because the cost of money is lower than other costs as well as considerations for lost opportunities versus not borrowing money. Individuals can do the same. The amount of money people earn can greatly exceed the amount of interest paid. A mortgage can buy the house, but the payments, which are determined by the loan type and interest rate, are a major deciding factor. The payments can be used in pursuing financial goals, which is where the use of the money enters the picture.

When you get right down to it, personal finance and business finance are really not any different. Just because the clock says 5 o’clock time and it’s to go home doesn’t mean the financial brain should shut down. The same business principles of using money to make money can be applied after hours in a personal setting as well.

The realization is buying a house and buying money, the loan, are independent processes. The house serves purposes such as a place to live and maybe investment potential to boot. A loan has its purpose too. The loan provides access to capital in a short amount of time, wealth building potential and the use of OPM (other people’s money) just to name a few.

The purpose of the vehicle needs to be addressed before asking the price, and the purpose of the money needs to be answered before asking the price, or rate, as well.