Posts Tagged ‘Mortgage’
Personal Finance and Paying Off Your Mortgage
In the process of buying a home or refinancing a mortgage, personal finance planning is often overlooked or neglected.
For a typical borrower, the plan was to get a loan that stretches out the monthly payments, delays the principal reduction, and use the home like an ATM machine to withdraw cash for various things.
Changes in the economy and real estate market should give homeowners a different perspective on managing their personal finances. Today, a financially practical approach to borrowing money for housing is to consider keeping a home as a long term place to live, while planning a specific time to pay off the mortgage.
When buying or refinancing a home, most people will take the path of low payment over a plan to eventually be mortgage free. The idea of owning a home free and clear of any mortgage may be a far off concept to many people, but it’s only a matter of time, maybe 15 years or less.
For example, a 15 year fixed rate mortgage can provide a realistic goal of being mortgage free, while saving thousands of dollars on interest payments, instead of a 30 year mortgage. Consider that a $200,000 loan with a 15 year mortgage could save as much as $120,000 over the life of the loan when compared to a 30 year mortgage term.
Using A 15 Year Mortgage In Your Personal Finance Plan
Because of economic conditions, personal finance plans are changing, including home financing. A more practical view now is to see your home as a long term place to live, while thinking ahead to prepare for a financially secure future.
When buying or refinancing a home, most people will take the path of low payment over a plan to eventually be mortgage free. The idea of owning a home free and clear of any mortgage may be a far off idea to many people, but it’s only a matter of time, 15 years, or maybe even less.
A 15 year fixed rate mortgage can provide a realistic goal of being mortgage free, while saving thousands of dollars on interest payments, instead of a 30 year mortgage. For example, on a $200,000 loan, a 15 year mortgage could save as much as $120,000 over the life of the loan when compared to a 30 year mortgage term.
There has been an ongoing debate about the pros and cons of paying off a mortgage. Behind the argument for not paying off your mortgage is the reasoning that you could invest the extra money and earn a higher return, while keeping your money more liquid. That may have been a good reason in the past, but the rate of return on investing is questionable, compared to the fact that every dollar paid to reduce a mortgage balance provides a guaranteed return equal to the interest rate.