Treasure Your Home
From Renting to Owning
There is no doubt that owning a dwelling of your own is the cornerstone of financial and emotional security. If you have not reached that point yet, it should certainly be your long-term goal. One question to ask yourself is what house you can reasonably afford. The biggest mistake first-time home buyers make is to believe that if they have been paying a $1500-a-month in rent, they can afford a $1500-a-month mortgage. Since it is in the bank’s interest to give you a loan, bankers may say you can afford that high monthly mortgage payment. But remember, just because you qualify for a certain loan does not mean that you can comfortably make the required payments over time. One fact after the housing market crash is that 100% of the homes in foreclosure once were qualified by banks for the mortgage. The reason that you might not be able to afford a $1500-a-month mortgage is because you will have other monthly expenses such as property insurance, property taxes, private mortgage insurance, and maintenance.
You are a Home Owner, Now What?
Once you purchase your dream home that you can also reasonably afford, you can start thinking about paying off your mortgage early. Some financial advisors might advise you against that route since making the regular mortgage payments allows for a tax write-off at the end of the year. But the gains from the write-off are not as significant as the peace of mind from owning the roof over your head sooner than later. You cannot dwell in a tax return. It will require some discipline but you should make it your goal to pay off your mortgage faster.
How to Pay Off Your Mortgage Early
One of the best and easiest ways to pay off your home sooner is to make one extra mortgage payment each year. Depending on the interest rate of your loan, it is quite possible that one extra mortgage payment per year can shorten a 30-year into a 22-year loan. Or it can turn a 15-year into a 12-year mortgage. Some banks have begun to encourage this route by offering clients to make their mortgage payments on a biweekly basis instead of on a monthly basis. This is another way to pay off the loan early but be aware that changing the payment schedule in that matter will have the same result as making that one extra payment per year. So the choice is yours.
What about Refinancing?
With interest rates so low at the moment you can certainly save a lot in the long run if you are able to get a new loan at a lower rate. However, refrain from taking equity or extending the mortgage term in the process. You don’t want to end up paying more in the long run in exchange for some cash now. Your goal should be to refinance only if you can get a lower rate and at the same time if you can afford the mortgage payments for a shorter-term mortgage. At the end of the day, you should feel good because you are investing in what is good for you.