So many homeowners today are making extra payments to pay off their mortgages sooner. Do you fit into this mindset? Let me pay it off as soon as possible to be debt free! Perhaps this philosophy came from the recession/depression of the past 10 years. Foreclosures were coming about left and right as we lost our jobs and means of carrying our mortgage payments.
So what if you had a great deal of equity in that home? The value fell and you lost that equity. Nobody wanted to buy the house and you could not financially carry it. You had to give it up. Even if you make those extra mortgage payments now, going forward, there is no guarantee that the same economic scenario will not occur.
Putting more equity into your home by making additional payments is unwise. 1. When you get a mortgage you are using OTP money, i.e. money that is not yours. Sure, you pay for the use of it but keep in mind that, spread over 30 years, that money loses its value year after year. I you are in the same house in 30 years, keep the same mortgage, your payment will be ridiculously low even though it is the same payment you started with 30 years before. Why? Because of inflation, money goes down in value.
The secret is – to remain steadfast to the concept. Do not refinance as you home appreciates and take the equity out for other expenditures. Unless, of course, this contributes to a long-term goal of, for example, a child’s education. In this case, consider it a savings account. Or if you can refinance at a much lower interest rate. Or you might take the equity out to invest in some other vehicle, like rental property, tax deferred insurance program, etc. The main idea is to always put yourself in a better, stronger financial position as you move forward.