Sunday, October 29, 2006
(More)tgage
American's are beginning to better understand the ways through which they can improve their financial position with their mortgage. By mapping out their short and long term plans, it becomes clear that a mortgage is an excellent tool to help fund their lives.
When buying a home people often grapple with how much money they should put down. A larger down payment will mean a lower monthly mortgage obligation. A lower down payment can afford them greater financial flexibility, if done right.
i.e. If you purchased a home for $100,000 you could put down $20,000 and take out a loan for $80,000
$479 payment each month (30 years at 6%)
If you put 0 down and took out a $100,000 loan, your payment would be
$632 payment (30 years at 6.5%)
The difference in payment would be $155 per month (much of which is tax deductible because it is mortgage interest) If you now invested that $20,000 in a mutual fund with an annual return of 10% you would actually earn $166 in income per month. Add that to the tax deduction on the additional monthly interest and you make out better with the larger loan.
In addition, you would have the $20,000 available in case you needed it for something. We all know that we can expect the unexpected, and it is nice to have the readily available funds, for the "what-ifs" in life. Unexpected triplets, loss of a job, legal issues, hole in your roof etc...If that money were tied up in your home, you would have to take out a second mortgage to tap into it. When you do that, you would incur closing costs on that money and a second lien loan would carry with it a higher interest rate.
Most people opt to make that down payment, and rely on their credit cards to fund life's curve balls. With interest rates on those cards often above 20% that is probably not the best way to go.
Just a tip...
When buying a home people often grapple with how much money they should put down. A larger down payment will mean a lower monthly mortgage obligation. A lower down payment can afford them greater financial flexibility, if done right.
i.e. If you purchased a home for $100,000 you could put down $20,000 and take out a loan for $80,000
$479 payment each month (30 years at 6%)
If you put 0 down and took out a $100,000 loan, your payment would be
$632 payment (30 years at 6.5%)
The difference in payment would be $155 per month (much of which is tax deductible because it is mortgage interest) If you now invested that $20,000 in a mutual fund with an annual return of 10% you would actually earn $166 in income per month. Add that to the tax deduction on the additional monthly interest and you make out better with the larger loan.
In addition, you would have the $20,000 available in case you needed it for something. We all know that we can expect the unexpected, and it is nice to have the readily available funds, for the "what-ifs" in life. Unexpected triplets, loss of a job, legal issues, hole in your roof etc...If that money were tied up in your home, you would have to take out a second mortgage to tap into it. When you do that, you would incur closing costs on that money and a second lien loan would carry with it a higher interest rate.
Most people opt to make that down payment, and rely on their credit cards to fund life's curve balls. With interest rates on those cards often above 20% that is probably not the best way to go.
Just a tip...
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