Are you manipulating your mortgages? Or are your mortgages manipulating you?
I ask this question because I read an awesome article this week about mortgages. If you are currently using mortgages, or want to use mortgages one day, to live in a happy home, or build wealth, I definitely recommend that you read this article series written by, Building Income. Seriously, read them here:
I personally am responsible for two mortgages, so I have to be very aware to make sure they’re not manipulating me, and stealing my freedom, rather than providing me with more freedom. Because if my mortgages are stealing my freedom, I need to ask myself, should I even have them?
I have one mortgage on my home where I owe a bank 125K, and I have another mortgage on my investment property where I owe a different bank 137K. I’ve recently been wondering if I should pay off my rental property mortgage early? These articles, and learning about how amortization schedules really worked, helped shine a light on what felt right for me to do.
I consider both of these healthy mortgages, and I feel they add value to my life, rather than subtract happiness and value, so I plan on holding onto them for now. I put 20% down on my house, and 25% on my investment property. This has made both of my payments relatively low and budget friendly. I pay $900 a month for my house; and $980 for my investment property. If I was to rent either of these properties, I’d be paying $1600-1700 per month.
Before reading the above article series, I never knew that I could manipulate the structure of the loan to my benefit by paying off larger principal payments ahead of schedule. I always thought the amortization schedule of my loans was set in stone the day I signed the paperwork for the mortgages, and I couldn’t change the structure of the payments even if I made voluntary principal payments ahead of schedule.
That has been why I have been hesitant to pay off my 30-year mortgages ahead of schedule. I’ve always thought: “Why should I give the bank more of my money if it won’t change my monthly payments?”
Instead of paying off my loans early, I have taken a different approach to build wealth.
I have been taking the excess cash I have been saving, and rather than paying off my mortgage, I have been investing it into the stock market, more specifically, into index funds like the S and P 500, or my personal favorite, VTSAX. Since the stock market makes me 7% on average per year, I have been just stock piling my cash reserves (minus my 10-12K emergency fund) in the market, and then once this account grew larger than my mortgage, I could cash out of my stocks, and pay off my mortgage in one lump sum payment.
But now after reading the awesome articles on how mortgages work above, I realize that even thought the monthly payment won’t change on my loans, I can manipulate the monthly principal payment to my benefit, by paying larger voluntarily payments on the loan.
Up until reading these articles, my financial strategy regarding mortgages, has been to invest in the stock market with my extra money, rather than paying off my loans, because the stock market allows me to keep all of my excess cash in a more liquid state. Liquid meaning, I can sell the shares of stock at any time and turn it into real cash.
I have preferred this stock-market based strategy, over paying off my loan early in installments, because if I give my cash to the bank, the bank won’t give it back to me unless I refinance my loan. As you can see in the above articles, that entire re-financing process can be a scam to manipulate me out of more of my money.
So far, I have also preferred owning stocks, over paying off my mortgage, because my stocks pay me a dividend (income payments) throughout the year. Since I am self-employed, I feel more comfortable having the freedom to take those payments as cash, rather than re-investing them, if I am having a bad sales year. It is always nice to know that I can sell some stock for a financial back-up plan. If I give my money to the bank, they’re not going to borrow me that money back unless I pay a steep penalty.
I have felt like stocks give me more freedom to choose what I want to do with my money, rather than paying off my mortgage ahead of schedule, because then I would be giving the bank full control over my money.
Ultimately, after reading this awesome series, and leaning more about how mortgages work, I have decided that I think either way you choose to go: by investing in stocks, or paying off your mortgages, will lead to a winning path and destination. No matter which way you personally choose to go, you can win, and I think that’s how you ultimately win in the personal finance game.
Those who try, learn to win with their money. Those who do nothing, allow other people to win with their money.
I am sharing these articles with you, because they really opened new doors of perception in my mind. They have made me think deeply, and question my financial strategy moving forward.
Should I keep investing my excess money in stocks? Or should I aim at paying off my home and rental property mortgages early?
My personal answer: I think I will keep investing in stocks with my extra cash, because that is what feels right for me. I personally like to have at least another big down payment available to me at any time so I can jump on a sweet piece of real estate if the opportunity comes up. I know that opportunity can happen at any time, so I sleep better at night knowing that I always have around 50K+ available to me in the stock market at any time to pull the trigger if a really cool investment opportunity comes up.
But these articles have also inspired me to see the value in making early payments on my mortgages. I admit I like the idea of dropping 20K on one of my loans, early in its life, like the article suggests, if I happen to find 20K that I don’t need laying around in my bank account that I really don’t have any use for.
In any case, this article series helped me see the value in new financial paths, which is why I am sharing it with you. This is what learning about personal-finance is all about. If you are willing to learn, and try, you can take control of what you want your life to become. Destroying the fear of the unknown, is one of the biggest steps toward you finding a happier, wealthier, and more purpose-driven life.
This is ultimately what wealth-building is all about: Wealth-building is not about becoming the person with the most riches. Wealth-building is all about finding ways to use your money to create an all-around happier, purpose-filled life, and become the person you were created to be.
So what do you think after reading the articles? Are you going to work at paying off your mortgages early? Or are you going to invest your extra money in the stock market, and pay off your mortgage on schedule like I am doing? Or are you going to ignore all of this advice and do nothing? Haha! That last one was a trick question. I realize now you can win anyway! Just don’t do the last one!