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Three Recommendations for Monthly Savings:
1. Invest the monthly savings in a financial vehicle and earn interest on the money.
When you make a principal payment towards your mortgage balance you are giving your money to a bank and they are paying you a ZERO % return on your money. When you sell your home you get your money (equity) back, but your money is tied up and you are receiving a 0% return on your money.
Your home is going to increase in value over time regardless of what you owe on your mortgage. If you choose NOT to pay money towards the principal balance and you invest the same money that would have gone towards the principal balance you are now using your money to make money instead of letting a bank use your money to make money. Doing this can yield great returns and you are in essence being your own banker. It is critical to have a detailed financial plan in place if you choose to do this! It is recommended that you establish a relationship with a financial planner whom can assist you in getting the best return on your money with the least amount of risk.
2. Pay off other debt that is at higher interest rates.
If you have other credit cards, car loans, or other debt that is at higher interest rates than your mortgage interest rate it is wise smart to pay your higher interest rate debt and start earning interest on your money instead of paying interest.
3. Continue to pay your same old mortgage payment amount while on the new interest only loan.
In the example above, your old mortgage payment was $1,183 per month and now you are only required to pay $600 per month, so what happens if you continue to pay the $1,183 per month after switching to an interest only loan?
You now are paying off your principal balance faster than ever before.
After 3 years in the above example, you would have paid off $20,990.88 off your mortgage balance. The comparison chart illustrates exactly how much more equity you will have in your property being on an interest only product. If you stay with the existing fixed rate mortgage loan and pay the same $1,183 per month, after 3 years you have only reduced your principal balance $8,006.18. |
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