Most people think in reverse terms when it comes to their mortgage, people are always concerned with the interest rate and how to get their payments slashed. No one ever seems to be concerned with getting the mortgage paid off and putting that monthly payment into their own pockets. A low mortgage rate is a wonderful thing, and low affordable payments are key especially in today’s day and age. The uncertainty of keeping a job adds an uncertainty of being able to keep your home. Low mortgage rates and lower payment are a good thing, but not as good as no payments at all.
What we should focus on is the perceived lie that we were told. If you have an interest rate of let’s say for illustration sake 4%. Let’s also say that we just bought a new home for $250,000. Now of course we want a low mortgage rate and we want our monthly payments to be as low as possible. So for our 30 year loan we have a very low interest rate, but does this mean that the mortgage corporation did us a favor How well did we make out The only thing that was accomplished so far is providing you with more realistic platform to keep paying your monthly payments on time. This is insurance for the mortgage company, as they want you to give them 30 years worth of interest, because that’s where the fortune is for them.
I didn’t mean to get off track, I apologize so let’s keep it moving. If you had $100.00 at the same 4% interest rate that we are using with our loan example. When you paid it back that would be $4.00 dollars. So you borrowed $100.00 and paid back $104.00 that would be great if it was true. So in our example a $250,000 mortgage at a low mortgage rate of 4% we should pay back $10,000 in interest which is 4% of our $250,000. We both know that this is crazy and would never go down this way. Mortgage companies, credit card companies, no lender deals in simple interest. Compound interest is how they make their fortunes, Albert Einstein said The most powerful thing ever invented was compound interest. When all the smoke clears and the dust settles at the end of 30 years you would have paid $393,480 for your $250,000 home. That’s an astonishing $143,480 in interest alone.
So my point is regardless if you have a low mortgage rate of 4% or better or a higher rate of 10%, you are going to pay substantially more for your home in the end. When you think about it, no one has it better than the mortgage companies. I understand the typical person could not buy an whole house for cash. However, not a soul should have to devote their entire life to being in debt and paying virtually double the price for their house. If your interest rate is elevated you could realistically be paying almost triple the price. So if there was a way to pay down this huge amount of debt in let’s say 2-3 years, why wouldn’t you explore it.
There has always been a debate about paying off your mortgage early. In my opinion I don’t comprehend that argument, clearly you can see that your money will either go to the bank or mortgage company for the next 30 years as option A. Your second option would be to get rid of the loan off as soon as humanly possible allowing a large portion of that interest money to remain in your pockets. Your retirement account would be quite different if the cash which went towards interest, was instead invested over thirty years. The compound interest formula would suggest that you could easily become a millionaire if that same money were working for you instead of against you.
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