I’m going to let you in on a little secret… did you know that each month you’re paying down someone’s mortgage? Now whether it’s your mortgage or your landlord’s, well that’s up to you.
Also, did you know that if you have your own mortgage, you can think of it as a FORCED SAVINGS PLAN?
Ok, but before we get into this forced savings plan, let’s talk mortgages.
The mortgage (or deed of trust) is the legal document that pledges the property as collateral for the loan. The promissory note is the IOU you sign, stating, “I promise to you back, Mrs. Lender.” In the event that you get behind on payments, and the bank forecloses on you, the mortgage is the vehicle that allows the bank to do so.
Have you ever heard your Lender or Realtor say, “’PITY ME’ I have a mortgage payment?”
Well “PITY ME” is actually the acronym: PITI MI (I’ll break these down)
- PI – Principal & Interest. Calculations based on your home loan amount, the interest rate, and the number of years it takes to repay the loan
- T – Taxes. Depends on your county, you can find your city’s local tax rates on the appraiser’s website.
- I – Insurance. Homeowner’s Insurance. Call around to get the best possible quote available to you. Note: This is different than mortgage insurance
- MI – Mortgage Insurance. Typically, anytime you put down less 20% on a loan, the lender will require this insurance to in order to lower the risk of loaning the money to you. This is not a bad thing though. It allows the consumer to get into a home faster and easier, without the worries of saving up to 20% for a down payment. I think that’s a good thing!
The time to buy is now. According to Freddie Mac (Federal Home Loan Mortgage Corporation), “30-year fixed-rate mortgage (FRM) averaged 4.15 percent. A year ago at this time, the 30-year FRM averaged 3.65 percent.”
As you can see, rates are going up, but still are VERY AFFORDABLE. Take a look at the following graph: Back in 1989, mortgage rates were at about 11%! WOW! And guess what, people were still buying homes.
And remember when I said you can equate having a mortgage to a FORCED SAVINGS PLAN? Think about this scenario:
Scenario Explained: Let’s say you bought a house in 2010 for $100k (put down 20%, financed $80k). We’ll take the conservative national average for yearly appreciation of 3%. In 2010, interest rates were about 5%, so that means you would have a monthly mortgage payment of approx.…$660. Over a 7-year period, you would have paid $9,644 toward your principal. Take $80,000-$9,644 = $70,356 (your outstanding mortgage balance). Applying the average national appreciation for this house (of 3%), that means this house should now (2017) be valued around $121,000. Take $121,000-$70,356 = $50,644 (equity in your home). Now talk about a Forced Savings Plan!!
After seeing that example, where do you want to your money…into your landlord’s pocket or your own? You decide!