I had a client the other day who received an advertisement in the mail that looked like it came from my office, but it turned out that it was marketing material from an out of state company! I am very glad our client called us about it.
The question is –
“Should I set up a bi-weekly payment if I get an advertisement”- seems like there is an obvious answer, doesn’t it?
Notice – There will be various advertisements sent to you when you have a mortgage loan, as some of your information is public
Do not ever pay anyone to set up bi-weekly payments.
There are companies that are looking to make extra money (or for an excuse to collect your personal information) — and this can be very misleading.
You can do the same thing for yourself by either paying one extra payment a year or extra $ each month – this equates to the same amount of interest savings as setting up a bi-weekly payment.
Now the other question I challenge my clients to think about though is “What is the best use of the money?” – “Is it, for sure, the best use to pay down on the mortgage? “
There are some public figures that talk about this a lot, but are they really looking at the big picture and best use of money, and what will the effect of those decisions be in 10 years from now?
For instance, if someone has $6000 extra to pay down on the mortgage – versus – do something else with it.
If they pay down on the principle of the mortgage, yes, they will lower the overall interest paid, and the mortgage will be paid off sooner. But is this the only or best way to increase wealth, retirement or even pay off the mortgage (if that is one’s main goal)?
Equities in a diversified retirement plan are almost always over 1.5 times the average return than the current going interest that one pays on a mortgage (mortgage interest is usually the cheapest money a person will use).
The equity on your home grows at a generally predictable rate (4% consecutive average each year including ups and downs in the market) regardless of the balance of your mortgage. So, your equity and appreciation don’t care what your mortgage balance is.
Also – you can contribute up to up to $17,500 (or $24,000 if age 50 or over) and your contribution is tax-deductible so that $6000 extra money sitting around would save approximately $1,800 in out-of-pocket money withheld by your employer (that would otherwise be paid to the government)!
I find that many people do not think about this.
So, another arguable option is to use that $2000 or $6000 extra that you have to either:
- Pay off any revolving debt (e.g., credit cards) as that is usually the highest interest cost, and will typically keep credit scores higher (which helps reduce insurance premiums and mortgage rates)
- Put the money into retirement / 401k or another similar form so that it can compound over time (as well as possible employer matching). This is a great way to have seeds planted now and have it grow over time. (The amount of retirement needed by most folks is largely underestimated on what they will need, due to longer life spans and higher cost of living)
- Save for a down payment for another house if you feel like you may grow out of your current home so that you are planning ahead — (note you can typically put a fairly low down payment on your next primary residence, but it’s great to plan ahead for this )
- Save for a down payment for a rental home (great tax write off and retirement builder).
- Start a college fund (new tax advantages)I hope this helps give you some things to think about relating to money and planning.
I hope this helps give you some things to think about relating to money and planning.
Call me anytime if you’d like to go over these details or concepts — I love to talk about this stuff! Or please pass on my information to folks you know – I always appreciate it if you can pass my name along. I hope this helps give you some things to think about relating to money and planning.