Mortgage Advice for You

In these times in which we’ve seen half the country’s financial systems collapse

after home mortgage loans around the nation defaulted or were deemed to be likely to,

it may seem that there could be nothing better, more responsible, or more morally

upright than taking the earliest opportunity to go out and make a mortgage payment,

the first chance you get. It almost seems like patriotic duty to begin to settle your

mortgage. But hold on there, here is a spot of sound mortgage advice: the nation

still isn’t flush with funds, and if you have enough money for that payment, what if

it were better spent on some other payment like, say, that credit card debt you

carry. That happens to be one of the most expensive kinds of loans you could possibly

hold, at 11%. You could never get 11% for a deposit in the bank; if you put your

money in treasury securities, you get so little in return, you might need calculus to

add it up; your investment in your home is actually losing you money, and your

retirement funds are worth about 40% less than they once were. But here you are

paying the credit card people as much as 11% on the money they give you.

Of course this kind of mortgage advice doesn’t apply everywhere. In some special

situations, such as if you plan to retire soon; getting the principal of your

mortgage loans down would get you a better refinance rate. For the rest of us though,

paying back the debt that asks for very little interest, and that is also a tax-

deductible what is more, should be our last priority. Paying off your most expensive

loans should come first. Of course, it is rather understandable that you want the

comfort of knowing that you are doing everything you can to own your home outright as

soon as possible, and be debt free. In addition, it is easy to calculate the long-

term effects of paying more quickly, and come up with some pretty good-looking

figures. On the usual 30-year 6% mortgage, paying even a couple of hundred dollars

more a month can usually save you tens of thousands of dollars in interest.

It’s been reported that about one in eight US homeowners try to do exactly that:

trying to pay off the cheapest loan in the world first, mortgage loans. If you happen

to come under the 25% federal tax bracket, you could get tax deductions and your 6%

mortgage could actually be just 4.5% mortgage. You could even get a tax break from

your state government. And those tens of thousands of dollars that you figured you

would save? Those would really be worth much less 20 years in the future. So what

does the sound mortgage advice that the experts give you?

If you do have some money to spare, and you don’t have a credit card will be back,

try somewhere else to stick the money. For instance, try contributing to your

retirement plan at work. For every dollar you put in the employer often matches it

with a contribution of their own. How about that all-time favorite, investing in safe

stocks? You could get 8% in the year with the judicious investment mix in stocks and

bonds. The federal government put out a study recently that said that people around

the country waste more than nearly $2 billion every year trying to pay their mortgage

loans faster than they have to. It would be sound mortgage advice, if only we could

get you to rein it in.