subject: Mortgage Basics - How To Manage Money [print this page] What does the term 'mortgage' really mean?
The word 'mortgage' actually derives from two different languages. The French 'mort' means to 'dead' and 'gage' comes from Old English and means 'pledge'. So in short, the word 'mortgage' essentially translates to a 'pledge until death'. Daunting huh? The last I checked, there are not a lot of things I want to be entirely to permanently aside from my wife, and that's mostly because I know she's reading through this. Love you honey!
All jokes aside... A mortgage really is one thing that you committed to for a very long time. It generally takes some real gusto to figure out how to manage properly to make it work. Various banking institutions are presently featuring forty year terms. Can you think about how tough it would be to still make month-to-month payments of $1,000 when you are approaching 70? I know that thought would frighten me to death.
Unlike most other types of loans, your mortgage is often negotiated a number of times before its paid. Some people choose to make larger contributions each and every month to pay it off quicker. Other folks just pay the minimum amount. It's an additional 'black and white' decision you will have to make when determining how to manage money.
I am going to clarify both sides:
Let's 'magine you have a 30 year mortgage $250,000 at 5% but opt to make three extra contributions each year that are comparable to a regular payment ($1342). You will have paid off your mortgage in just 20 years. With the 'debt stacking' approach, you then put your regular mortgage payment of $1342 into a savings account for the other ten years at 5%. You will have saved $212,682 in that amount of time. If you were to include those three extra monthly payments you would have $265,853. If the cash was invested at 10% the totals would be $282,322 and $352,902 respectively. Not bad. It pays to debt stack, but...
Lets say that you have that same 30 year mortgage of $250,000 at 5% and make the minimum monthly contributions of $1342, no more no less. Rather then using those three extra contributions towards your mortgage you add them to a savings account at 5% for 30 years. How much do you think you will have?
$280,857.
Now consider you can invest that money at 10% for that 30 year period of time. The total would be $728,478.
I really advise that you use debt stacking for your high interest loans like credit cards but let your mortgage be. Pay the minimum and invest what you would like to contribute. The amount of money you would save will blow your mind. By following many of how to manage money tips like these on my blog you can increase the chances of really making money while you pay off your mortgage. Crazy huh?
