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building financial freedomMortgage loan is one of the few loans that can be considered as a good debt to take on. A mortgage is usually referred to as a loan taken on to buy a residential property.
There are many types of mortgages but they share some common benefits. Here are some mortgage benefits.
The interest rate on a mortgage is cheaper than other types of loans such as personal loan, overdraft and credit card. This is because the mortgage is secured by the property. This reduces the risk to the lender.
The repayment amount of your loan is fixed (if you choose a fixed interest rate mortgage) or fluctuates within a small range (if you choose a floating rate mortgage) over the entire period of the loan. The repayment amount doesn’t rise with inflation.
Imagine today you earn $5,000 and your mortgage repayment is $2,000 a month. 15 years later, your monthly salary becomes $10,000 due to inflation but the monthly repayment is still $2,000 a month.
If you are a tenant, your rental payment will increase every 2 or 3 years in line with inflation. But the mortgage repayment doesn't rise with inflation. This is one of the best reasons to become a house owner.
If you are a tenant, the rental expense on your home is not tax deductible. However, when you take on a mortgage to buy a home, the interest on the mortgage is tax deductible. This could save you in thousand dollars of tax over the long term.
Mortgage gives you the power of leverage. You get to own a property with a value many times the amount you pay for the property.
Example, all the money you have is $15,000 and you use this as down payment to buy a property worth $120,000. The lender loans you $105,000 to buy the property. You get to buy a property 8 times ($120,000 / $15,000) the amount of what you paid for. Would you be able to buy this property if there wasn't any mortgage? No, you'd only be able to buy a property worth $15,000 because that is all you have.
Mortgage allows you to get a head start in building equity. Without mortgage financing, it would take forever to save enough money to buy a house.
You are obliged to service the monthly repayments. These repayments go toward paying down the mortgage. This results in an overall increase in net worth. Without a mortgage, you would be tempted to spend the money on entertainment and the likes therefore not building any net worth for your own self.
Studies have shown that we are not saving enough money for retirement. Reverse mortgage allows you to tap into your home equity to finance your retirement spending.