2006-06-21 10:49:12 · 10 answers · asked by renaldo r 1 in Business & Finance ➔ Renting & Real Estate
Here we go...
The thought of adding to the principle, reducing your loan term was a thought that originally spawned from the time of the great depression. At that time, banks (mainly local) had the ability to recall notes at any time they felt, whether you where in default or not. Sooooo, what they did when they needed money was started to take back the money they had lended out to borrowers by way of recalling the notes to properties. Leaving many Americans in the streets. This spawned hysteria in the American Psyche.
The thought of "Mortgage = bad" has been etched in our heads from the passing down of generations ever since. From this, I can tell you it's not logical thinking... WHY???
You see, lets say you take out $100k from the equity in your home and put it in a long term CD earning you 8% (very easy in todays market) and it compounds annually. However you have a loan on the property (interest only) at 6%, the intitial thought is you are going to yeild 2% on your money in a positive. NOT TRUE! you are going to yeild much more than that because the money in the CD is compounded on an annual basis and the interest paid on your home is simple interest. So, in essence you are going to reap the tax benefit of having a mortgage and you are going to be compounding the interest in the long term CD every year...
Ex:
100k x .08 = 8,000.00
108k x .08 = 8,640.00
116,640.00 x .08 = 9,347.20
125,987.20 x .08 = 10,078.98
136066.18
You see wher I'm going with this. After only 4yrs you have made 36,066.18 yet you have paid 24,000.00 in interest to you existing 100k mortgage! Multiply the 24k in interest on your mortgage by 35% (general tax break offered for middle class on interest to a home) and you have really only spent 15,600.00 to make 36066.18.
This is the first four years. Keep compounding the interes for 20yrs and you will be 100's of thousands of dollars ahead.
It's called hedging, it's what the wealthy have been doing for years and years, using other peoples money to make them more money. It's the main reason why the rich get richer and the middle class never accel past middle class.
2006-06-21 11:09:52 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Well even though in it of its self that is a great accomplishment, you have to determine your overall goal with your property. Are you planning to sell, if not are you planning on moving and renting this house out? If you pay off your house, are you sure you will never need a loan from it again? These are all important questions to consider because even though having a mortgage may not be fun, in certain situations having one can be very benificial (ie: tax breaks, better loan for needed cash, etc). Do some serious thinking(with your spouse if you have one) write down some goals, and then do some more research.
For any more question you can email me at apboardshop@Hotmail.com
BTW: i almost forgot, congrats on almost paying your house off!!!
2006-06-21 18:04:14 · answer #2 · answered by Anonymous · 0⤊ 0⤋
Too many factors for a quick decision - I'm not sure, but I read the first entry below:
Sell Now! : The End of the Housing Bubble
Sell Now! : The End of the Housing Bubble by John R. Talbott (Paperback - Jan 10, 2006)
Buy new: $14.95 $9.72 Usually ships in 24 hours
Used & new from $7.03
America's Housing Bubble: The Real Estate Outlook for 2006-2012
America's Housing Bubble: The Real Estate Outlook for 2006-2012 by Clif Droke (Paperback - Jun 1, 2005)
Buy new: $24.95 Usually ships in 3 to 5 weeks
The Coming Crash in the Housing Market : 10 Things You Can Do Now to Protect Your Most Valuable Investment
The Coming Crash in the Housing Market : 10 Things You Can Do Now to Protect Your Most Valuable Investment by John R. Talbott (Paperback - April 28, 2003)
Buy new: $14.95 $9.72 Usually ships in 24 hours
Used & new from $1.14
Bubble After Bubble in The Ongoing Bubble Boom : Oil Bursts, the Housing Bubble Fades and Now Stocks Emerge Into a Greater Bubble that Finally Ends in 2010
Bubble After Bubble in The Ongoing Bubble Boom : Oil Bursts, the Housing Bubble Fades and Now Stocks Emerge Into a Greater Bubble that Finally Ends in 2010 by Amazon.com (Digital - Jun 21, 2005)
Buy new: $0.49 Available for download now
How to Profit from the Coming Real Estate Bust : Money-Making Strategies for the End of the Housing Bubble
An educated decision is usually the best one!
2006-06-21 17:57:46 · answer #3 · answered by Lizzy 2 · 0⤊ 0⤋
That's a noble aim. If you can do that, great. BUT, pay off ALL of your other debt FIRST, especially unsecured debt like credit card debt. Your house payment is linked to a real capital investment that has a high likelihood of increasing in value if well maintained, AND it likely has a lower interest rate on the mortgage than any other loan you have.
2006-06-21 17:56:04 · answer #4 · answered by Anonymous · 0⤊ 0⤋
The more you can add to your principle each month, the less total amount you will have to pay to own your home. If you have the money, even if it is a few dollars, the interest saved will be much more.
2006-06-21 18:00:46 · answer #5 · answered by hkhart 2 · 0⤊ 0⤋
It depends on your overall situation:
* Do you have auto loans, credit card debt, etc.
* What tax bracket are you in
* Do you have a fixed or variable rate mortgage
Given these facts and a comparison to earnings on investing the money in other investments (fixed [CD, Money Market, etc], stocks, bonds...) What's the true rate of return v.s. cost after tax deductions.
Odds are if you have a fixed mortgage you're rate of investment return will be greater than your mortgage costs after taxes. -- thus you should invest {unless you want piece of mind}.
2006-06-21 17:59:57 · answer #6 · answered by koblas 2 · 0⤊ 0⤋
Eliminating any debt is the best thing you can do. The equity you will possess by owning your home far outweighs any income you would derive from other investments.
2006-06-21 17:54:46 · answer #7 · answered by c0ch0 2 · 0⤊ 0⤋
Yes! congratulations. Then, keep giving the monthly payment to yourself in a good mutual fund, or good stock, and be prepared for retirement.
2006-06-21 17:54:36 · answer #8 · answered by stick man 6 · 0⤊ 0⤋
paying it off early is better because its all principle and no interest
2006-06-21 17:53:31 · answer #9 · answered by tonic072780 2 · 0⤊ 0⤋
no. your better out to keep a morgage for taxes reasons.you will be able to get more then paying it off
2006-06-21 18:02:59 · answer #10 · answered by April Z 1 · 0⤊ 0⤋