As a former loan officer who originated loans for over fifteen years, one of the most common pieces of advice to my clients was to try to pay down their mortgage loan as fast as possible. Depending on the interest rate, applying just one extra payment per year can cut up to 5-7 years off a 30-year mortgage.
As you pay down your loan, you build equity in your house. It is much harder to access this equity than say, money sitting in a savings account. To access it, you would either need to sell the home, complete a cash-out refinance, get a home equity line of credit or a home equity loan. Paying down your loan balance will increase your net worth. I highly recommend keeping up with your net worth on a monthly or quarterly basis by using this simple formula:
Total Assets – Total Liabilities = Net Worth
This is a great way to view a snapshot in time of your financial health. It is important that it moves in a positive direction over the long term.
Your home is an asset and your mortgage, a liability. Subtracting your mortgage balance from the value of your house will give you an idea of the equity you have in your house. The higher that number is, the more positive impact it has on your net worth. Once it is time to sell, you’ll appreciate the extra cash back you may receive at closing which could be used to pay off high interest debt or towards a down payment on your next home.
In my opinion, one of the best wealth building tools is a 15-year mortgage. I like to think of it as a forced savings account. The principal reduction each month will increase your net worth and there is drastic interest savings over the life of the loan. You may hear theories of going with the lowest mortgage payment so you can have extra funds to invest in the stock market or other avenues. I am not challenging that theory, but one must consider the self-discipline required to invest the difference instead of spending it. We have a great tool on our website that can give you a clear picture of the interest savings between a 30 year and 15-year fixed rate loan.
Fifteen year mortgage rates are very attractive right now and many of our clients are taking advantage. Reach out to one of our loan experts and they can give you an idea of how much you could be saving in interest if you made the switch from a 30 to 15 year loan. The 15 year loan can help your net worth move in a positive direction at a faster pace!
President of Triumph Mortgage
NMLS ID 176276