subject: Low Mortgage Rates vs. No Mortgage [print this page] Low Mortgage Rates vsLow Mortgage Rates vs. No Mortgage
The mortgage game is an interesting thing most home owners just accept the terms for whatever they are, people are always disturbed with the interest rate and how to get their payments cut. No one ever seems to be worried about getting the mortgage paid off and putting that monthly payment into their own pockets. A low mortgage rate is a wonderful thing, and low affordable payments are key especially in today's day and age. The incertainty of keeping a job adds an uncertainty of being able to keep your home. I understand the argument or wanting the lowest rate possible, but in retrospect I don't understand why people never consider eliminating the mortgage all together.
The mortgage brokers, lenders and loan companies have made fools of us all. If you have an interest rate of let's say for example sake 4%. Let's also say that we just bought a new home for $250,000. Now of course we want a low mortgage rate and we want our monthly note to be as low as possible. So for our 30 year mortgage we have a very low interest rate, but does this mean that the mortgage business did us a favor? How well did we make out? The only thing that was accomplished so far is providing you with more realistic platform to keep paying your monthly payments on time. This is insurance for the mortgage company, as they want you to give them 30 years worth of interest, because that's where the fortune is for them.
I didn't mean to get off track, I apologize so let's keep it moving. If you had $100.00 at the same 4% interest rate that we are using with our mortgage example. When you paid it back that would be $4.00 dollars. So you borrowed $100.00 and paid back $104.00 that would be great if it was true. So in our example a $250,000 mortgage at a low mortgage rate of 4% we should pay back $10,000 in interest which is 4% of our $250,000. We both know that this isoutlandish and would never go down this way. Mortgage companies, credit card companies, no lender deals in simple interest. Compound interest is how they make theri fortunes, Albert Einstein said "The most powerful thing ever invented was compound interest". Simply put what the bottom line is, you end up paying around $143,480 in interest over the course of the loan. That's actually 37% close to 38% percent more than you paid for the house $394,000 in total.
The purpose of my example was to show you that it doesn't matter what the interest rate is, your low mortgage rate or a larger rate with both net the mortgage company large profits. When you think about it, no one has it better than the lenders. I understand the average person could not buy an whole house in full like buying a soda. However, nobody should have to devote their entire life to being in debt and paying practically double the price for their house. If your interest rate is higher you could realistically be paying almost triple what the agreed upon purchase amount was. So if there was a way to pay down this huge amount of debt in let's say 2-3 years, why wouldn't you explore it.
There has always been a debate about paying off your mortgage early. In my opinion I don't understand that argument, clearly you can see that your money will either go to the bank or mortgage company for the next 30 years as option A. And option B would be to alleviate the loan off as soon as humanly viableallowing alarge portion of that interest money to remain in your pockets. If invested properly that money could yeild you a huge retirement fund, and if the same compound interest formula is applied to your savings and investments you could easily retire with a paid off home and possibly $1 million dollars or more in the bank.
