Home Loans
Give Your Mortgage the Flick! Why You Should Pay Off Your Mortgage Quickly
(presented by www.refinance-refinance.net - mortgage lenders)
By Peter Phillips
This is a simple concept, which is to pay off your mortgage as fast as you can and
then invest the amount you were paying off your mortgage into assets which have
capital appreciation plus income.
Even though the concept is simple, and will work every time, very few people get a free mortgage calculator and actually do it.
We all have a vague idea about the power of compound interest, but mainly in the
arena of generating income - we forget that the same principle applies to the
mortgage lenders - they are lending to you knowing that you will eventually pay them over double the amount you have borrowed.
Perhaps these examples from my free home mortgage calculator will bring the reality home to you.
Couple 1
Dick and Tracy, both aged 25 buy their own house with a $100,000 mortgage. (Please
note these examples use $100K for convenience - in fact the amount borrowed is
usually much greater than this, which will make the compounding effect much worse)
Let’s suppose they get an unchanging interest rate of 7%
Their monthly repayments, just for the mortgage, regardless of any other taxes and
bank fees, will be around $700. After 25 years, when Dick and Tracy will still be
only 50 years old, they will have paid the bank $212,000, over double what they
originally borrowed!
They then celebrate their freedom from the mortgage repayment by going on a world
cruise and buying a new car (borrowing the money of course!)
They retire at age 65, with a mortgage free home, a clapped out car and a meagre
state or federal pension.
Couple 2
Joseph and Mary follow the same path as Dick and Tracy, except that after the 25
years they invest the $700 they were previously spending on the mortgage repayment on an investment returning 6% after tax.
When they retire at 65 they will have accumulated about $200,000. This will be
enough to give them a reasonable, though not lavish lifestyle.
Couple 3
Tom and Katie!
are bot
h working at good jobs, so they can afford to pay $1000 a month off their mortgage. At this stage note that the other two couples could also have
afforded it, but didn’t have the willpower to make the sacrifice)
have paid the bank around $150,000, that’s $60,000 less than the other couples.
However, at this stage the money saved is not so important - what is important is
that they now have an extra twelve years to put the mortgage commitment of $1000 to
further use. If they have the same investment as Joseph and Mary, they will get the
same 6% after tax return, and after 27 years they will have accumulated a retirement fund of over $800,000!
This should be more than enough to provide them with the
lifestyle they can now look forward to. Compare what they now have with Dick and
Tracy’s situation - Tom and Katie have a mortgage free home, they can easily afford
a new car if they wish, and still have plenty of money left over.
Of course there are variables to these scenarios, and you can input the variables in my mortgage calculator spreadsheet, but the concept remains unchanged - follow Tom and Katie’s plan, and you will be far better off.
As mentioned before, the amount borrowed will be different, perhaps the return on
the investment will be 8% instead of 6% - in this case Joseph and Mary have a
retirement fund of nearly $250,000, while Tom and Katie have a whopping $1.1
million! You can easily get even more return by investing in proven hedges against
inflation - for instance investing in gold coins has been a real winner for
centuries, and shows no signs of let up.
Inflation will erode the buying power of the eventual retirement fund, but the fund
will still be a lot of money, and of course the very inflation that’s eroding your
money is probably coming from higher salaries and wages, which means that with
discipline the amount invested each m!
onth can
be increased in line with the rate of
inflation. Again, if you invest in say gold coins, inflation will work in your
favour, as the amount of money printed (which causes inflation) will increase, while the supply of gold will remain the same - you do the maths!
I’ve put a mortgage calculator spreadsheet example on the website in my signature box.
With this free home mortgage calculator you can adapt the above three scenarios to your own circumstances, and calculate the effects of varying the interest rates and monthly repayments.
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For additional Mortgage Refinancing information
and resources visit Mortgage Refinancing.
(http://www.refinance-refinance.net)
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