Mortgage Basics – Tips on Budgeting
Mortgage Basics – Web Page Finance
What does the word ‘mortgage’ literally mean?
The word ‘mortgage’ actually derives from two different languages. The French ‘mort’ translates to ‘dead’ and ‘gage’ comes from Old English and means ‘pledge’. So in short, the word ‘mortgage’ actually translates to a ‘pledge until death’. Scary huh? The last I checked, there are not too many things I want to be committed to forever aside from my wife, and that’s mostly because I know she is reading this. Love you honey!
All jokes aside… A mortgage really is something that you committed to for a very long time. It often takes some real gusto to figure out how to manage properly to make it work. Some banks are currently offering 40 year terms. Can you imagine how difficult it would be to still make monthly payments of $1,000 when you are nearing 70? I know that thought would scare me to death.
Unlike most other types of loans, your mortgage is often negotiated several times before its paid off. Some people decide to make larger contributions each month to pay it off more quickly. Others just pay the minimum. It’s another ‘black and white’ decision you will have to make when determining how to manage money.
I will explain both sides:
Let’s assume you have a 30 year mortgage $250,000 at 5% but decide to make three extra contributions each year that are the equivalent to a regular payment ($1342). You will have paid off your mortgage in just 20 years. With the ‘debt stacking’ technique, you then put your regular mortgage payment of $1342 into a savings account for the remaining ten years at 5%. You will have saved $212,682 in that amount of time. If you were to include those three extra monthly payments you would have $265,853. If the money was invested at 10% the totals would be $282,322 and $352,902 respectively. Not bad. It pays to debt stack, but…
Lets say that you have that same 30 year mortgage of $250,000 at 5% and make the minimum monthly contributions of $1342, no more no less. Rather that using those three extra contributions towards your mortgage you add them to a savings account at 5% for 30 years. How much do you think you will have?
$280,857.
Now imagine you are able to invest that money at 10% for that 30 year period of time. The total would be $728,478.
I highly recommend that you use debt stacking for your high interest loans such as credit cards but let your mortgage be. Pay the minimum and invest what you would like to contribute. The amount of money you would save will blow your mind. By following many of how to manage money tips like these on this web page of finance you will increase the chances of actually making money while you pay off your mortgage. Crazy huh?
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Tagged with: Budgeting Tips • personal budget planning • Personal Budgeting • Web Page Finance
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Some great tips here. Don’t forget the massive tax write off that mortgage interest gives you. Thanks for posting.
Conceptually you are sound. Unfortunately, reality hits. Let’s be honest, who do you know that is enjoying a 10% return over the last decade or so. Then what could go wrong. You die? Well not so bad except for the creditors that want their money and/or your property/house. But then again that’s not your problem your dead right? Nothing like leaving behind some problems for other people. I think the problem here is investing. Investing the money you need to pay off your mortgage. Why not go to the casino and hope it is still there in 30 years. Yeah probably a bad analogy, but that’s the problem with investments. You don’t know when 2008 will happen again. If it is when you want to pay off your mortgage then you have a real problem, right?
.-= Evolution Of Wealth´s last blog ..Book Giveaway: Enjoy Your Money! =-.
I know many people who are able to invest their money at 10% or more. You don’t need leverage to make it happen. You simply need to do your research and follow smart tips on budgeting to be able to do so. My advise is to do some reading on the matter. Check out my book reviews section in the blog to learn more about ways to turn your investments into excellent profits.
Cheers!