Reasons Why It’s Good to Carry A Mortgage

Finally taking the decision to buy a home is a huge step in each person’s life. Whether it’s your first home to buy or your tenth one, there are many micro decisions to make that are just as nerve-racking as the initial one. 

The most popular strategy that people approach is to pay the biggest down payment possible to pay the smallest mortgage payments possible. Or even choose small payments over a long duration of time so the payments don’t affect you as much.

However, there are some myths regarding this method that are widely popular among people that need to be debunked. 

Here’s why it’s good to carry a mortgage payment, even big ones.

Mortgages are the cheapest loans you can borrow. Of course, it’s possible to get loans with zero percent interest over a small period of time. But, that’s not feasible when buying a home because payments are over a long duration of time. Hence, mortgage payments are your best bet at obtaining cheap money.

However, when you pay loans on your credit card you pay a high-interest rate because banks offer lower interest rates for lower risks and vice versa. When you carry a mortgage, you’re basically guaranteeing the bank that they’ll get their money back if you aren’t able to keep up with the payments.

That’s because if you don’t pay, the bank has the option to take your house. However, with credit cards, the bank doesn’t have much of a guarantee. That’s why they’ll certainly have high-interest percentages than mortgage payments.

Equity grows faster. The best investment options people go for are real estate investments. That’s because they’re the best equity-building method. However, there’s a misunderstanding regarding the relationship between mortgage payments’ size and equity growth; people assume that the bigger your payments, the less your equity growth rate.

That’s not the truth. Because when you buy a house with a large mortgage payment, you’re going to pay off your loans faster, hence your equity will grow faster. Your equity will grow by each monthly payment — in addition to the growth of the house’s value.

There’s no relationship between your home’s value and the size of your mortgage payment. One of the main factors that go into buying a new home is finding a home that has a high probability of growing in value in the future. However, the process isn’t necessarily linear. Your house’s value can fluctuate over a long duration of time. And this doesn’t depend on whether or not you pay outright or via mortgage payments.

Your house’s value will grow nevertheless. That’s why paying big payments to ensure that your equity grows and your house’s value grows – hand-in-hand. 

You’ll keep having monthly payments even if you retire. Something that people put into consideration is to pay off their mortgage payments as soon as possible so they don’t have monthly payments after they retire. Unfortunately, that’s not possible. 

Mortgage payments also referred to as PITI, come with taxes and insurance payments. These are less talked about payments regarding mortgages. They also don’t go away, even if you’ve paid off your loan completely.

If you’re planning on getting rid of mortgage payments, so you don’t have monthly payments when you retire, think again. Taxes and insurance payments won’t go away, as long as you’re living in that house.

Your best bet, in that case, is to build equity and invest so that you’ll be able to cover the monthly expenses of your house, among other things. Creating wealth and having a financial plan until your desired retirement time is key to living comfortably. And by comfortably, we mean that you can afford your living circumstances.

Conclusion

The aforementioned reasons are broad and don’t apply to each and every case. There are cases where it’s better to avoid mortgage payments, depending on the person’s circumstances and what they want to achieve. 

Buying a house is a risky decision, but it’s worth taking the risk and time spent on analyzing the entire situation or consulting with professionals to help you find the best possible payment option for you. 

Of course, with the abundance of information available on the internet, it’s not the smartest option to rely on eligible sources to base your payment decision on. There are highly accurate and credible sources that help you choose the size of the mortgage payments, such as a Reverse Mortgage Calculator

By Michael Caine

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