Did you know that paying additional principal toward your mortgage, or even getting a bi-weekly mortgage program, could be detrimental to your financial health?
That’s right. In most cases, instead of paying extra principal, there may be a better way for you to pay that mortgage off and experience financial freedom faster. The truth is you may never want to pay the mortgage off.
Why? Your home’s equity is not a safe investment. Equity has no rate of return and has no liquidity. You cannot access your equity without qualifying for a mortgage of some kind, which requires you to pay fees, and borrow your equity on the banks terms, plus you must prove you can qualify. If you just lost your job or experienced some other type of financial crisis, chances are you will not be able to access that money.
Additionally, by taking the money you would normally put toward extra principal and investing them in other safe investment vehicles, you can increase your liquidity, and realistically be able to pay off your mortgage faster. You may even want to take out a new loan or refinance your current loan to increase your safety, liquidity, and rate of return.
The majority of Americans carry huge credit card balances with high interest rates and most do not have enough money in savings to tide them over in a financial emergency. For this reason, refinancing or taking out a new loan may be even more beneficial for them by increasing their cash flow, which can then be invested to create a college savings plan, vacation plan, or even increase their retirement plan.
There are several strategies for the homeowner to consider that can allow them to experience financial freedom sooner than trying to pay off their mortgage as quick as possible.
Obviously, these strategies will not be advisable to everyone, so you definitely want to seek the guidance of a Certified Mortgage Planning Specialist to find out which strategy is the best for your unique situation.