June 30th, 2019 1:56 AM by Eric Willner
Radio Show Notes 6/27/19 Thursday- Should I Pay Off My Mortgage Early or Invest Elsewhere
By Eric Willner, Host of The Real Estate Show, America’s longest running daily radio show about real estate
“To be or not to be?” Or rather, “To pay off my mortgage or not to pay off my mortgage?” That is the Financial -Shakespearean question we often face.
Paying off a mortgage is a common goal and a huge accomplishment. It is considered a cornerstone of financial independence. Many homeowners who don’t want the weight of a mortgage payment hanging over them for decades are eager to map out a strategy for paying of their mortgage debt for good. That may be a good idea, however, other homeowners might be better served putting their extra money to use elsewhere, such as higher-return investments or retirement savings.
While many debate what to pay first, everyone agrees that you should tackle mortgage debt last. Before you even think about paying off your mortgage early, financial advisers across the board say you should get rid of high-interest debt like credit cards, consume loans, student loans and other significant or sizable debt. Two other key areas that many people short-change or neglect are their retirement and emergency savings.
A recent Bankrate study shows that nearly half of working adults (48 percent) are saving something, but no more than 10 percent of their annual incomes. Only one in six employees (16 percent) say they’re saving more than 15 percent of their yearly earnings. But tackling any type of debt requires discipline and a plan. We can help you craft one.
You need to put a system in place. We can help you clarify your goals, help you to identify what they are, quantify them by time and value, and prioritize them. This is a potentially life changing experience. At minimum it lets you see clearly where you are and what you need to do to reach your goals. It also may show that you’ll have to make sacrifices along the way that may require you to spend less or increase your income. Again, we can help with both.
One major consideration is how long you plan to live in the house or whether you will move, but keep it as an investment. Pouring money into a house that you don’t plan on keeping for more than five or 10 years may unnecessarily tie up a good chunk of your liquidity during that period that you own the house. That probably won’t be in your best interest, especially if your mortgage carries a low interest rate.
For example, look at where else can you put your money so that it works for you at a higher rate of return. Your interest rate can be an easy to measure factor in the decision. So if you have a mortgage rate near 4 percent but you can get a 7 percent to 8 percent return on an investment, paying off your mortgage early won’t make sense on paper. Writing down these comparisons along with your goals makes it all more clear. Call us for a free consultation and we will help you thru the process.
Meanwhile, here are some ways to pay off your mortgage faster:
1. The Automatic Debt Solution Strategy – This is the best strategy to pay off your mortgage faster, and we will devote an entire show just to this strategy and its benefits, which are many.
2. Refinance to a Shorter Term Loan – Usually not at the top of my list for a few reasons. If you have a 30-year loan, you can refinance to a 10- or 15-year mortgage. Usually your monthly payments will be higher, but you’ll pay off the loan in a fraction of the time. This option also depends on how far you’re into repaying your current mortgage. Also, unless you can get a lower interest rate for a shorter-term loan, though, refinancing won’t make sense. Due to the required higher payment, I don’t often recommend this.
3. Recalculate your payments to achieve a shorter term without refinancing - To pay off your mortgage in less time, we can help you figure out what the monthly payment would be at your current loan’s interest rate for various timeframes. Or you can use Bankrate’s mortgage payoff calculator to run the numbers for yourself. Then start paying the new payment to accelerate your mortgage term. But before you make extra payments, ensure your lender doesn’t charge a prepayment penalty for paying the loan off early. You also want to earmark extra payments to go toward principal only. Ask your lender what their specific process is for applying extra payments toward principal. Then check your mortgage statements to make sure principal payments are applied properly, too.
4. Pay extra each month or an extra payment each year - If you’re looking to chip away at your mortgage at a more gradual pace, pay a little extra each month or make one extra monthly payment each year. Again, you’ll want to follow your lender’s process for making principal-only payments.
5. Make lump sum payments when you can - Applying a lump-sum payment toward your principal balance when you come into extra cash — a bonus at work, tax refund or a sizable inheritance payout — can shave off time from your mortgage.
The downside to this strategy is that it can make it harder to pinpoint your payoff date. But we can help you there. But if paying off your mortgage early is a top goal and you’ve met other obligations, putting it right toward your principal instead of leaving it in a checking or savings account where you might be tempted to spend it will keep your early payoff goal on track.
The bottom line is if you are serious about real estate and paying off debt, then find out more on today and every day’s episodes and learn more about Real Estate Investing and learn HOW TO by listening to The Real Estate Show with Eric Willner , Live every weekday morning at 8 o’clock (EST) on Florida’s Money Talk Radio station WSBR AM740, FM 96.9, and FM 103.9. You can also hear us on the free apps: iHeart Radio and TuneIn. Recorded Rebroadcasts are available 24/7 on Facebook. Please share this and our Facebook updates.
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Then check out these EXTRA cool resources:
90DayFreshStart.com To become a homeowner regardless of credit or ...
TimeToFixMyCredit.com for Financial Education and Credit Improvement
AutomaticLandlord.com for Landlording and Real Estate Investment
MackBuysHouses.com for a fast cash offer on Real Estate
MackSellsHouses.com for great deals on Real Estate Investments
MackBargainHouseHunters.com to Partner on Real Estate Deals
Eric Willner is the Host and Founder of The Real Estate Show, an informative show about how to buy, own, and improve real estate the right way, on autopilot. - The Automatic Landlord way. (AutomaticLandlord.com) You can reach Eric Willner at Eric@Ericwillner.com or 888-595-7779.
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