Mortgages

Answer True or False to the following statements:

  1. A large down payment will save you more money on your mortgage over time than a small down payment.

  1. A 15-year mortgage will save more money over time than a 30-year mortgage.

  2. Making extra principal payments saves you money.

  3. The interest rate is the main factor in determining the cost of a mortgage.

  4. You are more secure having your home paid off than financed 100%.

If you answered true to any of the above statements, you may actually be transferring wealth while believing you are “saving” interest.

The size, location, and type of home you choose to buy is a life-style decision.  A home can serve as a place to accumulate wealth and at the same time be a potential source for major wealth transfers that may erode your financial future.

We are taught to accelerate our mortgage payments through a 15-year mortgage rather than a 30-year, paying extra principal each month, biweekly payments and large down payments.  What if these methods you thought were saving you interest actually end up reducing your overall wealth and dramatically reduce control?

We are encouraged to pay our house off as fast as possible, to build equity, and to save interest.  It is true, you do build equity faster by accelerating mortgage payments and you do reduce interest, but what are you giving up?  What if paying off your mortgage early turned out to be one of the worst financial decisions you could make?  If the equity becomes trapped, meaning the bank refuses to allow you to access it in a time of need, would that be a problem?  We become so focused on “saving” interest that we lose sight of the potential growth and opportunities we could earn on our money in our account.  We try to save interest, but forfeit liquidity, use, and control of our money which can result in more borrowing and a decreased ability to save enough for retirement.

When a mortgage is involved in a financial plan, you should follow a process that has the least amount of transferred dollars, with the best tax advantages, and the best control over your money.  Let us help you find the best and most efficient way to pay for your house.