Handling Your Housing Finances – Getting Rid of Your Mortgage?
Homeownership can be an accomplishment for many people. It makes the statement that you have “arrived,” that you are finally “worthy enough” or financially responsible enough to settle down in your new home, make your mortgage payments, build your credit, and “become an adult.” So, now that you’ve gone through the sometimes arduous process of qualifying for and receiving your new loan – what do you do with it? Should you “pay like crazy” to pay down your mortgage and get rid of your house note? Or, should you take advantage of the deductions that come along with homeownership and save yourself some money on your taxes for as long as you can? These and other questions may “plague” new homeowners as they decide the best course of action for their finances. Below are some sound ideas and principles which will guide you along your process to help you make the most out of your equity and possibly even build more assets along the way.
First and foremost, you MUST consider your financial situation. Do you have things “under control,” i.e., do you have a low-interest, affordable car payment, minimal debt with low interest rates, and very few or no personal or business loans to pay? Most financial advisors also recommend that households have at least 6 months of “bills” set aside in case of emergency – like an injury, illness, or disability. A typical “rule of thumb” when it comes to the importance of paying off your mortgage is to consider how your money is being spent or in the case of high-interest loans or credit cards – wasted. If you are in a financial position to be able to make extra payments towards your house note, you should really consider getting rid of interest that’s not doing you any good. In the case of your new home mortgage, the interest you pay is reported to the IRS each year as an expense, and you can deduct this interest from your taxes. However, in the case of credit cards and loan interest (unless you are deducting the interest of a car loan for business purposes instead of keeping track of your mileage), you cannot write off that interest, so the only people that are benefitting from all of those extra interest payments are the credit card companies or the banks and lenders. It is highly recommended that you first pay off your debt that is not benefitting you, save enough money to survive on for 6 months, and then think about making extra mortgage payments.
If you are a savvy investor in life, you know that you want to get the greatest ROI (return on investment) that you can for all of your hard work and income that you make. You have no doubt heard the phrase, work smarter, not harder, and the point of that statement is that you have to decide about everything in life – how you are going to get the most “bang for your buck.” In the case of your mortgage payment and having extra money to pay off your mortgage faster, you should consider how high your interest rate is, and if paying the money towards your mortgage is going to “cash out” for the most amount of money. What is suggested by some financial advisors is that if you have an affordable interest rate with a relatively low monthly note, you should take some of your money you would have used for extra payments and apply it towards investments which have a higher rate of return. However, it is suggested that you either get the advice of an investment savvy friend or use a broker you trust to invest wisely based on the recent, unreliable up’s and down’s of the stock market.
The previous point leads into the next reason you should carefully consider how fast you are able to get rid of your mortgage. Do you need the homeowner deductions to “save” you from your taxes each year? Because tax laws are so “tricky” as well as complicated and volatile, the answer to this question could change over the years for you. Most importantly, you should be aware that the first 5 – 8 years of your mortgage payments are going to account for a large amount of interest payments as the mortgage companies, bankers, and lenders “front-load” the payment structure to be able to make money on the interest at the beginning of your loan. After that, the amount of interest you pay decreases, and your principle increases. Therefore, if you really need the deductions for tax purposes because you are a successful professional with a great job, possible not married, with no kids, the first years of your mortgage are going to save you the most money on your taxes by applying for tax deductions. As your circumstances change with possibly marriage and children, your tax burden may change, and the money paid to your house note will be a hindrance instead of a benefit with your day to day bills and expenses.
Finally, if you are a first-time homeowner, or you have applied a lot of equity into the financial investment of a second home, you should try to plan for appreciation and longevity. If you know that you are not going to live in the home you buy for a very long time, you should carefully consider exactly where you are purchasing your home to get the most advantage out of short-term homeownership. In other words, find a new “up and coming,” hot area of town, buy a home and then sell it for a large amount of appreciation!! In today’s market, you may need a crystal ball to determine where that investment may be. However, working with a Realtor or an experienced builder friend may help in guiding you to the right area of town where your home may either appreciate in a short time period or at least not lose its equity during this time period. If you feel like you have a “sure thing,” and you are looking at the entire experience as a smart investing opportunity, then go ahead and make some extra payments to increase your equity. If you are “playing it safe,” and just trying to make sure that you don’t lose money while keeping equity in the home until you move, you may not want to make extra payments.
Whatever you decide, homeownership can be a tremendous benefit to you in tax deductions, investment, equity, and asset appreciation. You will have to make a decision as to your financial plan based on your specific personal situation. If you are looking for a good investment into a new, single-family home in St. Tammany Parish, you will want to consider Bedico Creek Preserve in Madisonville, LA. To set up a visit Contact Us at 985-845-4200 or E-mail Info@LiveBedico.com.
