Refinancing Your Mortgage
I hear from people that with the current mortgage crises in place it is very tough to refinance their homes. These individuals are distraught as many want to obtain a better interest rate or pay off their mortgage at a faster pace. Following the principles of Doug Andrew’s bestselling book Missed Fortune, I think one should keep the early payoff in perspective. Ric Edleman, who extols the same principles as Doug Andrew, has written many books and articles on the subject. One of them is…10 Great Reasons to Cary a Big, Long Mortgage.
Here are Ric’s top ten reasons for keeping a mortgage along with my thoughts. There is a link at the end of the article so you can read the whole article. I welcome your questions at any time.
Reason #1: Your mortgage doesn’t affect your home’s value.
True, your home value goes up or down whether or not you have a mortgage. Your home does not know it has a mortgage. Go ahead…stand in front of your home and ask your home if it has a mortgage or not.
Reason #2: You’re going to build equity anyway.
True, equity is built in two ways
• Through increases in the value of your home
• Through principal paid monthly. (which is very small in the opening years) Any cash put into your home earns a zero (0) rate of return. Stay with the home values increases to build your equity.
Reason #3: A mortgage is cheap money.
Also true, as long as interest rates are low. When inflation is high this leads to higher interest rate. Thus, your future mortgage payments in an inflated environment mean you are paying back in cheaper dollars. Thus, rates are cheap in most situations on a relative basis.
Reason #4: Mortgage interest is tax-deductible.
True again, as long as you can itemize deductions. If your income is too high, then these deductions are not available. To circumvent this, you can run the mortgage interest expense through your side business LLC, so it is deductable.
Reason #5: Mortgage interest is tax-favorable.
This is tied into #4 but holds true in that our government looks favorably on a mortgage deduction in order for that most people to participate in home ownership.
Reason #6: Mortgage payments get easier over time.
If you have held a mortgage for a long time then this is understandable. In the opening years of paying a mortgage most people are strapped with the payments. As years go by a person’s income goes up while the mortgage payment is a constant. Thus, as a percentage of the higher income the mortgage is a smaller percentage.
Reason #7: Mortgages let you sell without selling.
As your equity increases in your home do not sell the home to get out the equity. Instead refinance, take out the equity, invest those monies rather than leaving them in the home earning a zero (0) return.
Reason #8: Large mortgages let you invest more money more quickly.
The strategy is to place a small down payment and invest the remainder since any cash in the house earns zero return.
Reason #9: Long-term mortgages let you create more wealth.
Consider the after tax cost of your mortgage and invest the difference in a higher tax free return investment.
Reason #10: Mortgages give you greater liquidity and greater flexibility.
A 30 year mortgage gives you more flexibility than a 15 year mortgage. You can always pay off a 30 year mortgage earlier, but, you cannot stretch a 15 year mortgage into a 30 year plan.
See the whole article: http://www.ricedelman.com/cs/education/article?articleId=232