You Might Not Want To Pre-Pay Your Mortgage
Pre-Paying Your Mortgage Could Cost You Thousands Of Dollars
You Could Be Losing Lots Of Future Earnings If You Pre-Pay Your Mortgage
Are you shocked by my point of view??
Friends, family, and co-workers often reccomend adding extra principal to your mortgage payment so you can pay down your mortgage faster. You could do that, but you could be losing thousands of dollars.
"But Mr Erick, I don't want to be saddled with debt for 30 years". Well first of all, the average life of a mortgage is seven years. Folks tend to move, on average, every seven years. So the extra principal you might be paying won't deduct much from your mortgage.
"Mr Erick, is there a better way?".
Yes there is.
First of all, I am not a financial planner. For competent advice about investments I urge you to seek the advice of the licensed financial planner of your choice. I am a REALTOR giving you and EXAMPLE of what you could be doing with your money that will help you be debt free sooner.
Let's pretend that you have a mortgage payment of $3,000, of which $2,350 per month is your principal and in terest. You could pay 25% of extra principal and interest and interest (PI) and your mortgage would be paid off in around 15 years. Or you could pay double your PI and your mortgage would be paid off in six and a half years.
Let's pretend that you want to pay 25% extra toward your PI, $588 per month. What if you chose to put your $588 per month into an average mutual fund, with a 10% average return on investment (ROI).
If you paid the extra $588 to your mortgage over seven years, you would have accumulated $49,392.
If you paid the extra $588 into an average mutual fund that pays 10% ROI over the long term, you would have just over $72,700 in your investment account.
If you paid $588 per month for 15 years into an average mutual fund, returning 10% over the long term, you would have $248,300 in your mutual fund.
If you paid $588 toward your mortgage for fifteen years you would have only $105,840 of extra equity.
Paying extra principal toward your mortgage vs an average mutual fund, you will lose $142,460.
Let me remind you that I am not a financial planner, and the information above is not intended to be specific financial advice. I am just giving you food for thought that comes from my own experience.
If you want to find out more about how you can buy a home in the Woodbridge VA area, you can text or call me at 703-677-1120.
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Exit Realty Associates
8998C Lorton Station Blvd
Lorton, VA 22079
Equal Housing Opportunity
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