3 Lessons of Having a Mortgage

Spring time is home buying time! The weather is ideal for riding around and looking at beautiful homes. Tax refunds are coming in to help with down payments. There are multiple reasons as why spring is the season that home purchases increase. The thought of having a home to call your own is enough to be excited for. It has been almost 3 months since we purchased a home in Atlanta and the experience has been expensive while at the same time rewarding. We borrowed around $127,000 at an interest rate of 4.75%

Throughout the past three months I have been pleasantly surprised with a few popular and not so popular advantages of having a mortgage. Luckily for you I decided to blog about all the cool tidbits on having a mortgage.


#1 Mortgage Due Date

Let me start with saying that when you purchase a home the first mortgage payment is usually not due until the next month. That was a great surprise when we learned that. Though this is not giving you permission to not plan for it, just in case your mortgage company has different terms.

So, that was the first surprise but the next surprise was HUGE. The first day of March, when our mortgage payments began, I called to make my payment with my account information at the ready. Speaking with the gentleman I asked “When is the actual due date?” That is the moment I found out that though the bill will arrive on the 1st of the month it is not due until the 16th.

I’ve been use to paying rent on the 3rd I assumed that mortgage payments acted the same. It turns out that majority of mortgage payments give you until around the middle of the month to send in the payment. And before you start judging me about my life, I did make the payment that day. Nonetheless, having the payment due on the 16th does allow for more breathing room if ever needed and a chance to be flexible.

 

#2 Compound Interest is Bitch

For new visitors, you can expect to hear me bitching about compound interest constantly. Unless I’m on the other side of the table of course. Compound interest is how mortgage companies make most their income. The beginning of the mortgage is where the majority of money is paying towards the interest of the loan. As the loan continues the interest will be paid less and more will be paid towards the loan. So, if you plan on paying more than the minimum you need to make sure the mortgage company is aware verbally.

Here are a few ways to help pay down the mortgage quicker while simultaneously saving on future interest.

Pay Bi-Weekly

This strategy is a hidden gem that they don’t teach you in school. Simply put, you make a half mortgage payment every two weeks. I promise you that is all there is to it. Just to drive the point let’s review the difference on a 30-year mortgage of $130,000 that has an interest rate of 4.75%

 

Mortgage comparison  
Monthly payment: $678.14   Biweekly payment: $339.07
Total interest: $114,130.95   Total interest: $93,214.98
Avg interest each month: $317.03   Avg interest each biweekly period: $119.20

 

By making biweekly payments the principal balance is cut down and less interest is accumulating.
Pay More Monthly – This is an obvious way to pay a mortgage off quicker and seems unattainable. But that is because people do not run the numbers! By paying $100 more on your monthly payment can shave off thousands of dollars in interest and cut the mortgage by 5 years or more. Using the same example look at the table below. Spoiler it involves saving over $30,000 in interest.

Standard Additional Payment
Monthly Payment : $678.14 $778.14
Total Monthly Payments : $244,128.28 $213,248.48
Interest Savings : $30,879.80
Length : 30 Yrs 0 Mts 22 Yrs 11 Mts
Time Saved : 7 Yrs 0 Mts

 

Moral of the story folks is that compound interest is a bitch throughout time. You can do small extra payments or biweekly payments to save money long term. Heaven forbid you do both……

Play with the numbers yourself.

Heaven forbid you do both……

#3 Tax Deductions

Home loans are what professionals consider good debt. You are still paying a crap load of money but the tax benefits soften the blow.

Paying down on the mortgage is beneficial for most home owners who use it as their primary residence. Simply put the interest that is paid on a mortgage is tax deductible (up to $1 million). If you made any payments towards mortgage points, that money is tax deductible as well! Paying on PMI insurance can be tax deductible too if your AGI is below $100,000. A mortgage is what professionals will call good debt. You are still paying a crap load of money but the tax benefits soften the blow. That can save a lot of cash during tax season. Just be wise with what you do with extra cash.


I recently talked with a friend who reached out for some advice with purchasing a home that would be good to share. He wondered if buying a home is a good time to which I replied “Purchasing a home is a big responsibility and you have to move at your own pace.” From this post, there are multiple upsides to owning a home but it’s important to purchase when you are ready. Do not base your decision on friends, family or a calculator on line that says you can afford a $200,000 loan. Do your due diligence to determine if your financially and emotionally up for the task.

Sign up for my FREE 10 day course to create your blueprint to financial freedom

Financial-blueprint

Learn how to make a blueprint to your definition of financial freedom.

Powered by ConvertKit

2 comments

  1. MND –

    Nice share here. Definitely need to consider all of the above, but more important, ensure you are buying the right “size” of a home. Too many people think they need 2-3x their actual space that is needed and with that – comes more costs in utilities, higher mortgage payment (as typically higher cost), higher property taxes and more room for higher $ damages.

    Additionally – never hurts to pay down the mortgage, the tax benefits are nice, but not absolutely amazing for owning a mortgage; however – one must consider the rate environment – i.e. if you have an upper 2 or low 3% fixed rate – probably doesn’t make too much sense to go crazy paying it down (unless you absolutely hate debt) OR if you have a very high mid to upper 4 or 5% range, than it may make much more sense to drill that down.

    Solid points above, though!

    -Lanny

  2. You def listed alot of discoveries that I had when purchasing my first home. I love the breakdown that you provided regarding making half payments. I may try that out soon!

    Another discovery is that the mortgage payment can change. After about a year, my mortgage payment went up about $20 because the escrow account ended up being short. Luckily that only lasted for 1 payment, because my taxes were lowered so my payment ended up going down $100+. It is definetly important to budget for changes in your mortgage payment as well as the increase in utilities associates with a larger living space.

Leave a Reply

Your email address will not be published. Required fields are marked *