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Why Paying Off Home Mortgages Is A Dumb Idea
If you're planning to refinance you're home or apply for a home
mortgage. This could be one of the most the best tips you'll
ever recieve. If you're like majority of the population which
applies for home mortgage and chooses to put a large down
payment, with the shortest term attainable and paying if off as
soon as possible and thinking that their doing it smart. Well,
I'm sorry to burst the bubble, but frankly its not smart from a
financial standpoint and such idea could lead you to a big
mistake.
Now I know that could be a shock to you, or make you feel
uncomfortable and you should. This goes against the grain of
what the majority of the population's concept of smart handling
of home mortgages. Nevertheless, read on. I'll share to you the
smart way of doing it.
The answer of how to do it smartly is exactly the opposite what
the majority's idea of smart. Yep, you heard that right! This
means the smart way is applying little amount of cash as down
payment (But just be sure that monthly home mortgage payments
only consist 30% of you're total debt just to be safe), taking
the longest term available and never pay off you're home
mortgage! Now this strategy may not be applicable at all times.
It depends, like most financial strategy, on economic climate.
Specifically factors such as home mortgage rates and you're
ability to find a profitable investment vehicle. Yes, you need
to start investing, we're talking about being financially smart
and you cant achieve that if you don't or cant invest.
Lets start to elaborate why our strategy is more financially
smart than the majority's "smart". To better illustrate I'll
share to you a technique that's one of the pillars of wealth
building. The technique I'm talking about is you borrow money,
lets say $10,000 with an interest rate of 5% per year and you
invest that money with an investment
vehicle, lets say a mutual
fund, with a 10% growth per year. Now let's do the math.
Borrowed Money 10,000
Total Earned 1,000 (10% of 10,000) Total Interest Paid 500 (5%
of 10,000) ----------------------------- Total Earned $ 500
You could be sitting on a 500$ net profit! This may not be large
amount of money, but remember you invested nothing of you're
money giving you a Return On Investment of infinity.
How does this relate to applying home mortgage? It's the same
thing concept.
* You pay as little amount of cash possible.
- This will increase you're good debt
- Put you're "down payment to be" cash to an investment vehicle.
Earning you 10% or whatever then paying the home mortgage with
their 5% or whatever. Giving you a profit. Important! The
numbers may not be the same for you, but just be sure you're
earning percentage is higher than home mortgage percentage.
* Choose the longest term. This lowers you're monthly payment
and most occasions lowering you're interest rate.
* Don't pay it off as soon as possible. Don't join any programs
that help you achieve that. Instead invest the extra cash to
you're favorite profitable investment vehicle. What you'd rather
want? paying 5% or earning 10%?
By following such steps you're actually borrowing money with 5%
interest rate and earning with 10% interest rate giving you a
profit of 5%! Important, this is not an exact calculations, in
fact this an oversimplified example. This articles also is not
aimed as an How To, but rather to give you an idea of the things
possible. I still advice that you sit down with a financial
advisor to have solutions tailor made to you're situation.
About the author:
his article is written by Jed Baguio. For More Home Mortgage
Tips please visit my site
http://www.home-mortgage-infocenter.com/
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