Five Reasons To Pay Off Your Mortgage
Article by Mortgage Magic
You decided to purchase a house. subsequent to signing a mountain of paperwork, you are now the proud owner of your own residence. After a month, when your first mortgage payment is due, you realize the responsibility you have taken on. You have taken on 30 years’ worth of massive payments in an economy that makes no promises about long-term job security. In this article, we look at the benefits of paying off your mortgage as soon as possible and give you pointers on how to do it.
Why Pay Off Your Mortgage? The most obvious reason to pay off your mortgage as soon as possible is that it will save you tens of thousands of dollars. Read the papers you signed when you bought the place. In particular, look at your amortization schedule. The mortgage companies disclose right up front that you will pay more than twice the purchase price of the home before you actually own it. Although your interest rate is low, your home will ultimately cost twice the purchase price you paid the seller.
The second reason is the security you gain from owning your own home. With your home paid off, the prospect of unemployment or underemployment will no longer be so frightening. You’ll be able to afford to take a job that pays a whole lot less than your previous position without any concerns about losing your home.
In spite of this, many people argue that paying off your mortgage is a bad financial move. They claim that you will get a higher return over time if you invest your money instead of accelerating your mortgage. While there is some chance that you will achieve such a feat, there’s a bigger chance that you won’t. rate of return (which may be higher or lower), conservative investors will take the There are those who recommend not paying off your mortgage. They say that instead of using your funds to prioritize mortgage reduction, you can get a higher return in the stock market. Frankly, it is highly unlikely that the average investor will be able to beat stock market averages over a long period of time. In fact, just the opposite is likely. In trying to attain above-average yields, investors tend to bet on riskier investments, and often suffer reductions of principal as a result. This is definitely something the average homeowner can not afford to do.
Basics of Home OwnershipHowever, none of this matters when you truly look at the facts of the situation. Most people buy a home so they have a place in which to live. Even if it doubles or triples in value, they aren’t going to sell it, and if they do, they’ll have to pay a similar amount to buy a comparable home in the same area. Besides, since a stock or bond doesn’t provide shelter, most home buyers don’t make their purchase in an effort to beat the stock market returns.
Going further, there’s the issue of the tax deduction for mortgage interest. But this means you still lose money – only not as fast. Your finances are still going in a negative direction. In addition, tax deduction on mortgage interest decreases over time, as interest declines. It’s not a good financial plan in any case. After all, it’s better to pay taxes and have money left over than to use the tax deduction to reduce an obvious loss.
Realize too that no other investment can match the return you get by paying off your mortgage fast. You protect your future income from interest payments and save thousands or even hundreds of thousands of dollars. Overall, by having thousands of additional dollars in discretionary income in your peak earning years, you have much more money to save for retirement and much more time for that money to grow to a high six figure account.
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