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Posts Tagged ‘payment savings’

The usual saying is that investors should create or focus on their assets and have little debt as possible. Many individuals are now learning that to build net worth through books, seminars and financial gurus that taught, “Managing what you owe” is as important as “Managing what you own.” Therefore, your home-financing strategy should be a key component of your financial plan to ultimately help you build your net worth and get out of the rat race.

Did you know that your mortgage is one of the largest financial transactions you will ever make? That’s why it is important to select the mortgage program that not only meets your home-financing needs, but that also has a potentially positive impact on your financial plan.

As I see it and I think many of you will disapprove this, 15- and 30-year fixed-rate mortgages are not the best choice in today’s financial environment. The appropriate integration of home financing strategies into your financial plan can actually turn your mortgage into an asset. The right mortgage can help you reduce interest expense, maximize potential tax deductions and avoid disrupting a well-planned investment strategy to help your net worth.

What’s the Advantage of Early Paying Off your Mortgage?

Early paying off a mortgage is often more of an emotional goal rather than a sound financial strategy. Paying down principal early may be financially correct for those who are heavily invested in short-term investments, such as certificates of deposit and money-market funds, if the mortgage interest rate is greater than the return on such investments.

Compare your mortgage interest rate with the rate of return of an investment portfolio. Continue making standard monthly mortgage payments when your investment return rate is higher than your mortgage interest rate.

Pay off your mortgage early when your investment return rate is lower than your mortgage interest rate. However, since mortgage financing is generally one of the least costly sources of funds available, mortgage prepayment may not be financially correct for long-term, active investors. Always compare investment earnings with the interest paid on borrowed funds, and keep in mind that earnings on most investments are taxable, while mortgage interest is generally tax-deductible.

There are now mortgages that allow you to pay only the interest portion for a period of time. A disciplined investor can take advantage of these programs to:

• Maximize potential tax deductions.
• Invest or use the payment savings for other more financially intelligent purposes.
• Lower monthly payments.