How Long Should It Take To Pay Your Mortgage

There are two schools of thought when it comes to paying your mortgage

. And no, not paying isnt one of them! Lets have a look at the rationale between paying down your mortgage as fast as possible and taking your time about it.

First lets pay that mortgage of fast! Well that is the school of thought of many people whos rationale is:

1. the house isnt theirs and secure until paid for

2. the longer they take to pay, the more interest they will pay

3. the faster they pay off the mortgage, the greater the equity they will build

There is a certain amount of truth to each of these statements, but whether they are conclusive arguments for accelerated mortgage payment depends on the times. When these conventional wisdoms first became axioms of North American life, homes appreciated slower and peolp eon the whole were more financially conservative. Additionally financial institutions were more conservative. In those days you had to have 25% down. Today 5% will do and in some cases we still see 0 down mortgages and buyers managing to close with no money of their own. Is this wise? Probably not and we have seen the results in the American housing market. But was the mortgage meltdown really created by the zero down mortgage or a drive to sell buyers more house than they could afford. Under no conditions should you buy a home that you cant afford. As I said at the outset not paying your mortgage is not an option.

The argument for a 25 year mortgage goes something like this. Young buyers save up 5-25% of the cost of their new home. Lets say that they start saving at 20 and they have the down payment and closing costs at 25. They are then in a 25 year mortgage that sees the home paid at the age of 50. This gives them time to start saving and investing again for their retirement at 65. If you take a 35 year mortgage however you will not be finished paying your home until you are 60 and this doesnt give sufficient time to save for retirement.

The basic premise behind a longer mortgage and sometimes interest only payments is that historically if you hold real estate a certain time 5 years or more, that land and homes will evaluate. So get into a home and pay just enough to keep it. When the home has sufficiently appreciated you will be able to sell at a profit and move onto the next home. Its true that people do usually move a number of times during a lifetime so this model appears to work.

It really depends whether during the life of your mortgage or perhaps I should just say your life, mortgage rates stay below the rate of return on your property investment. It also depends on whether you factor in rent or in another way the amount you would pay anyway to rent accommodations as we all need somewhere to live. The final consideration is what you do with the money that you are not paying on your mortgage by taking it over a longer period of time, not putting in cash infusions etc. If you are investing in other financial instruments this might be a good way to balance your portfolio on the other hand if you are spending it on car payments well it is your money, but this will not contribute to your future financial well-being.

There are many choices in life and usually not an entirely right or wrong way to do things - only your way. Consider carefully what you want from life and choose the path that will deliver the dream.

by: R. Parker

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