Disclosure: we only recommend this strategy for people who are consumer debt-free and have a fully funded emergency fund (3-6 months of expenses) in cash
For most Americans, the amount spent on housing each year makes up for their greatest expense (by far). In 2017, the combination of housing, food, and transportation reportedly averaged to account for over 60% of people’s annual spending in the United States.
According to Zillow, the average price of a home in the U.S. has risen to over $226,000 dollars. No wonder most homeowners rely on a mortgage when buying a house!
It makes sense to think that paying extra on your mortgage would be a wise financial move. After all, a larger monthly mortgage payment helps to reduce your household’s looming debt.
Most people consider extra mortgage payments to be a wise investment. But, they don’t realize that they could pay off their mortgage even sooner by investing their money differently.
Read on to find out how you can pay off your mortgage in the least amount of time possible!
How You Can Stop Paying Extra on Your Mortgage and Pay Your Mortgage off Even Sooner
Why do people pay a larger monthly mortgage payment than the required payment amount? Obviously, this strategy will help them to pay for their home quicker than if they only paid the minimum amount, right?
While that theory is true, there is actually a better way to pay off your home even sooner.
There are no gimmicks or tricks involved. And, you won’t have to spend more money than you already are to reap a return. Not only that, but this method could potentially save you tens of thousands of dollars in the long run.
Here’s how you can pay off your mortgage in the least amount of time possible and potentially save thousands. (Yes, really.)
The Goal: Paying off Your Mortgage ASAP
We’re assuming that you have a conventional mortgage and that your goal is to pay off your mortgage as quickly as possible. That won’t change.
The good news is that you can meet your goal even sooner than you thought.
Change Your Course
While your goal will stay the same, how you arrive at meeting your goal will change.
Open an Investment Account
Instead of putting your extra money directly towards your mortgage, open an investment account. Then, the additional funds that you would usually pay towards a larger monthly mortgage payment will instead go into your investment account*.
Save on Interest
Paying extra on a conventional mortgage won’t save you interest next month, until you’ve paid off the mortgage in full. It just reduces the amount of time it takes to pay it off in the future.
The interest you save is the interest you would have paid during that time.
Prepare for the Future/Save for Next Down Payment
Something else to consider, if you paid extra on your mortgage and sold your home before you paid it off, you essentially gave your mortgage company an interest-free loan.
You paid them extra principal payments, and they returned the exact amount back to you when you sold the house, with no interest made or saved.
So, instead of having those extra payments growing in a liquid investment account that could have been used as a down payment for your next house, you’d have to take out an equity line (with interest) to borrow back the extra money you paid on your conventional mortgage!
Work with an Advisor
There are several benefits of working with an advisor. An advisor can help you find a solution that’s just right for you.
Once you make a decision about which type of account to open, an advisor can help you get the maximum return from your investment* at your desired level of risk.
This is especially helpful to those who are unfamiliar with how investments work and don’t have time to research the stock market.
With an advisor, you can trust that your money will be invested wisely so that you reap the best return possible.
Create a Plan
Your advisor will help you create a long-term investment plan so that you can meet your financial goals in the least amount of time possible.
An advisor can introduce you to your investment options and help you chart a plan to maximize your investment.
Your circumstances are unique, so an advisor helps you determine an individualized, custom plan that’s just right for you.
Earn Interest and Build Value
As you continue investing in your account, your account can build value (unlike the extra money that you were paying towards your mortgage.)
With the interest earned, you’ll be able to achieve your goal sooner than you first believed possible.
When your account value reaches the balance required to pay off your mortgage, you can then pay off your mortgage in full. And, you will have arrived there much sooner than if you were making payments without earning interest.
Take the First Step!
If you want to pay off your home loan as quickly as possible, it’s time to stop paying extra for your mortgage. Instead, invest in a system that better helps you reach your goal.
Contact us today to find the best investment solution for you!
*please remember, past return is not indicative of future results. Investment account returns will fluctuate depending on the investments in the account. Stocks and bonds do come with risk of loosing capital. It’s important to speak with a financial professional you trust who can explain the risks involved and help you invest your fund appropiately based on your goals.