Mortgage Debt

If you speak to 100 people, chances are you may get 90 different answers.  As consumers and homeowners, we look at our bills differently.  What is the most expensive?  What is the one that nags at you the most?  Let’s break it down:

–  Credit Cards.  Without question, we all feel the burden of credit card debt.  It seems like no matter how hard we try, we simply cannot get off the roller coaster of pay off, max out scenarios.

–  Auto Loans. Auto loans or leases is one bill that many regret.  Possibly the better way to put it, buyer’s remorse.  Today, consumers are more apt to accept an 84-month loan and a car payment upwards of $800 dollars a month.  No doubt this is an expensive bill. 

–  Student Loans. Student loans can be suffocating at times.  Because of the amortization schedule, it is a big monthly payment.  You are staring down the barrel at years paying off $100K worth of debt.

Credit cards are often mistaken for your most costly expense. A day does not go by that you hear about eliminating credit card debt.  You may see interest rates at 12%, 14%, or even 21%.  On the surface that would “feel” like your most expensive monthly bill.

There are many examples we could run through.  However, there is a notable exception: your mortgage.  Often we think of our mortgage in terms of payment and rate.  Rarely do we look at our mortgage as our most expensive monthly bill.  In the end, it truly is.

Mortgages often get lost in just being seen as a payment.  Many people are comfortable on some level with their 30-year or 40-year mortgage.  However, the overall cost is what makes it the most expensive monthly bill.

We are conditioned not to overspend.  We research cars on carfax and other resources.  We use websites to find a low balance transfer option for the lowest cost to our credit cards.  However, we forget a simple exercise to understand our mortgage.  Try this:

 

Mortgage:  $336,000

Term:  30 Years

Rate: 4.5%

Payment: $1651.39 – just principal and interest only.

Take $1651.39 x 360 =  $594,572.40 

 

OR

Mortgage: $336,000

Term: 30 years

Rate: 2.5%

Payment: $1287.78

Take $1278.78 x 360 = $463,600.80

 

First, your monthly payments decrease by almost $400 per month, great savings!  However, overall you are saving almost $132,000.00!  This is why your mortgage is your biggest monthly expense.

As homeowners, it is easy to get caught up in the “here and now” mentality.  Credit cards and student loans.  However, you are better positioned to deal with those payments once you deal with your biggest expense, your mortgage.  Start at the top and work your way backward. The solution both short-term and long-term starts and ends with your mortgage.  

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