⚖️Weighing the pros and cons...
Mortgage interest rates are at historic lows. Many of us never expected to see the rates fall below 3%. Yet here we are!
I specialize in helping my clients get the most out of their home value when buying or selling. Yet, I also want to save my current homeowners as much as possible.
If you have not already taken advantage of these low rates, call one of my lender partners today. Right now! I am hearing that the refinance rates are inching up.
💸Consider your options regarding paying off your mortgage debt or diverting your extra money to other investments.
When it comes to paying off your mortgage debt, you will find two points of view:
- There is no such thing as good debt. Pay off your loan as soon as you can. Avoid excess interest charges. Live a debt-free life.
- Interest rates are so low; it is practically free money. Take the extra money you would use to pay down the mortgage debt and invest it in other places that give you a higher return.
The benefits of paying off your mortgage early...
Here are some of the positive outcomes of paying off your mortgage.
- Peace of mind - The most significant advantage of paying off your debts is peace of mind. Many people enjoy the freedom that accompanies a debt-free life. There is something to be said about freeing up cash flow for other opportunities.
- Higher income - Your mortgage payment is likely to take up a large portion of your monthly income. Freeing up this burden will ease your monthly expenses.
- Interest savings - Have you ever looked at an amortization chart for a home loan? A 30-year mortgage chart is several pages long, and it reflects exactly how much the loan actually costs. For example, a $300,000 mortgage at 3% interest for 30 years will cost you an additional $155,333 in interest payments.
- Predictable return - investments can go up or down. We recently saw how fragile the economy could be. However, no longer paying interest on a loan can be like earning a risk-free equivalent to the mortgage interest rate.
The benefits of keeping the low-interest debt...
There are plenty of advisors out there backing the idea of keeping the low-interest loan and divert that extra money to higher yield investments. These are the reasons they support this action.
- Not a liquid asset -The money tied up in your home is considered dead equity. There is no return and no immediate benefit. A house is not a liquid asset. The only way to get access to the value is to borrow against it or sell it. If you need the money tied to the value of your home because of unemployment - you will not likely qualify for a loan, so your only option will be to sell it.
- Lack of diversity - A paid-off home might be disproportionate to your net worth. This poses risks as well since the real estate market can also fluctuate. You want to be sure that your portfolio is diversified.
- Higher returns elsewhere - The most common argument is that the stock market has historically gained 10% annually. Making smart investments in the market could provide gains that make up for the interest you pay on the mortgage.
Is there a middle ground?
If you plan to stay in your home, but don't want to put all of your money into your investment, here's some fantastic information.
⌛ You can knock eight years off your mortgage!
This mortgage hack is not a new concept, but it's brilliant. All you have to do is make half of your mortgage payment every two weeks. That results in 26 half-payments, which equals 13 full monthly payments each year. That extra payment can knock eight years off a 30-year mortgage, depending on the loan's interest rate.
Before you start making extra payments, check with your mortgage company first. Some companies only accept additional payments at specific times or may charge prepayment penalties. If your moneylender isn't open to biweekly payments, open a new bank account exclusively for your mortgage payment. Deposit your half-payment every two weeks and use that money to make your full mortgage payment on every second deposit. This method will allow you to save for that extra yearly payment. In any case, I don't recommend paying a fee to initiate a biweekly mortgage plan when this is something you can accomplish on your own.
Hopefully, this information was helpful to you, and feel free to pass it along to someone you know. As always, when you are looking to buy, sell, or invest in real estate, I would love to help you.