Prepaying Your Mortgage ? The Advantages And Disadvantages
Posted By tsauthor on October 28, 2010
When giving a mortgage, one is in the unique and unfortunate position of having to pay a lot of interest over a long period of time. Depending on the economic value of your home, you can easily require to pay hundreds of thousands of dollars over the life of a 30 year loan.
Advocates on one side of the isle suggest that giving even a few extra hundred dollars a month against your principal will save you tons of money over the life of the loan. Others find this is lunacy as the money can be used for other purposes. As is often the case, both parties are partially right and partially wrong. Get in touch with Fort McMurray Mortgage Broker for more information on the matter.
If you purchase a home with a 30 year loan and live in the home for 30 years, you will give a draconian amount in interest. In such a situation, paying a few hundred dollars more in principle each month will spare you tens or hundreds of thousands of dollars in interest over the 30 years. The question, however , is whether this makes sense for you in the real world.
The first topic to consider is how long you intend to live in the home. In our modern transitory society, most people don’t plop down for long periods. If you are going to trade your home in five or seven years, the extra payments on the balance of your mortgage are not going to make much of a difference. On the other hand, doing such payments makes sense if you are definitely in it for the long haul.
The second subject is the mortgage interest deduction. Many people fall in love with the deduction. Obviously, yours will fall if you start paying off your loan ahead of time. Typically, you will not see a big drop off for at least five years, but it is something to keep in mind.
The third topic is alternative money usage. Specifically, would you be better off using the money in another way. Historically, the stock market has returned a little less than a 10 percent rate of gain. While each year brings different results, some believe you are better off to invest this money in the market since you will be earning more at 10 percent versus paying off a 7 percent loan. This argument tends to forget one small thing, to wit, capital gains tax you will have to pay on any stock market gains. There is no right answer, so make sure to analyze your situation.
All and all, the decision to prepay a mortgage is a personal one. Take a stark look at your life and determine if it makes sense in your situation . For further querries, Fort McMurray Mortgage will assist you decide the best deal for you.
Readers that are searching Internet for info about the topic of managed forex trading, please go to the website which is quoted in this passage.
Comments