Why Paying Off Home Mortgages Is A Dumb Idea
Jed Baguio
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/
The latest information and news on Mortgages:
Mortgage rates hit low of 4.54 percent
Mortgage rates are the most affordable in decades for those who can qualify for a loan.
Mortgage rates hit low of 4.54 pct.
Mortgage rates dropped to the lowest level on record for the fifth time in six weeks, making homebuying and refinancing the most attractive in decades for those who can get loans.
Mortgage Rates Fall Again; 30-Year Fixed At 4.54% - Freddie
Mortgage Rates Fall Again; 30-Year Fixed At 4.54% - Freddie
Mortgage brokers to be fingerprinted, registered
Mortgage loan originators will have to be fingerprinted and sign up to a central registry to do business in future, according to new rules issued by the Federal Reserve and other regulators. Mortgage - Business - Mortgage broker - Federal Reserve System - Financial Services
Mortgage rates hit low of 4.54 percent
Mortgage rates are the most affordable in decades for those who can qualify for a loan. For many, the opportunity to buy a home or refinance at this time is lost because of the tough economy and tight credit standards. But those who have secure jobs, superior... Mortgage - Loan - Refinancing - Unite...
Yahoo! News Search Results for refinance
Russia's Sberbank to refinance RusAl's credit to VEB
Russia's top bank, state-controlled Sberbank, will fully refinance a $4.5 billion loan, which Russia's state development bank Vnesheconombank (VEB) issued to RusAl, the world's largest aluminum producer in the midst of the financial crisis, VEB head Vladimir Dmitriyev said on Wednesday.
Centro to refinance US arm's debt
SHARES in Centro Properties Group rose on news it will refinance and extend the debt of its US business in the midst of restructuring.
Development authority moves to refinance Riverview loan
The Butts County Industrial Development Authority has decided to refinance its loan on the Riverview Business Park property in southern Butts and northern Lamar counties, despite losing its eligibility for a low interest rate.
Pasco School Board to refinance bonds
The Pasco School Board agreed Tuesday to refinance bonds from 2001 and 2003, a move that's expe
7 reasons why you should refinance
A refinance can make sense for many reasons, from getting a lower rate to consolidating debt.