April 4th, 2014 → 5:42 pm @ admin
By admin
One of the things we’ve learned about how interest works is that paying off your home as fast as possible isn’t as great as it sounds. Here’s why: Making the maximum mortgage payment is a pricey expense that could be used more efficiently in other ways. Here are 5 reasons you might want to pay less on your mortgage, not more.
1. Principal payments don’t make money for you – neither does paying cash for your home.
Let’s say you’re doing well financially and can make a huge down payment on your home. Good for you! Don’t do it. Increasing your mortgage payments or making a larger down payment both come with heavy opportunity costs. Before you make the decision, do the math and find out how much that money could benefit you by being put in to your dividend paying whole life insurance policy instead. You might find that you can pay off your home and make money doing it.
2. Even in a fixed rate mortgage, you pay more in the first few years than later on.
The first few years of fixed-rate mortgage payments are the most expensive because of inflation. As inflation takes effect over the lifespan of your mortgage, the value of your fixed rate decreases, which means your $2,300 payment today will feel more like $1273 in 20 years. With that in mind, the faster you pay off your fixed rate loan, the more your home really costs.
3. Your home equity is not a liquid investment.
You can’t sell your house quickly or easily, which means you can’t get at your equity quickly or easily either. The alternative: Investing in your own dividend paying whole life insurance policy from which you can take out money at any time, for any reason.
4. Your home equity is not guaranteed – as we learned in 2008!
We’ve heard a lot about market volatility in the last six years, and the housing market is just as volatile as the stock market. Is that really where you want to park your money?
5. You get no tax benefits by having equity in your home.
While you may gain tax advantages by not paying off your home, you get absolutely no credit if you’ve paid it off in full. And, while home equity can improve your credit score, taking out loans will only put you in a worse financial situation – unless you’re taking out loans from your …Read More
Source: McDevlin Financial
