Becoming debt free is as much a part of the American Dream as owning a home, but there certainly can be conflicting circumstances that make the decision to pay off your mortgage early unclear.
The advantages of paying off debt early is increased cash flow, less interest paid and a higher credit score. The disadvantages are lower cash flow available as discretionary funds for meals, entertainment and other things. If the ultimate goal is financial security, is it worth the intermediate sacrifice?
Whether you pay off your mortgage early is a personal decision that may be right for one person and not for another. Consider the following before you get started:
Reasons you should
- Peace of mind in knowing that you don’t have a mortgage
- You’ll save interest regardless of how low your mortgage rate is
- Lowering your housing costs before you retire
Reasons you shouldn’t
- You can invest at a higher rate than your mortgage
- You have other debt at a higher rate than your mortgage that needs to be paid off
- You might need the money in the future and want to remain liquid
- You might not qualify for a mortgage currently
- Your employer has a matching retirement plan that would benefit you more
- You have more urgent financial needs, like funds set aside for an emergency, life/health and/or disability insurance
- You expect high inflation and the value of your mortgage debt will decrease
Use this Mortgage Accelerator to determine how quick you can pay off your mortgage.
There are two negotiation periods in most home sales. The primary negotiation takes place when the contract is agreed upon that includes the price, closing and possession. Buyers and sellers alike feel relieved once this first round has resulted in an agreement but there may be more negotiations to come if there are contingencies for financing, inspections or other things.
The purpose of an inspection is for the buyer to receive an objective evaluation about the condition of the home and its components, to identify existing defects and potential problems. The expense for inspections can be several hundred dollars and it’s reasonable for buyers to not want to spend the money before they find out if they can come to terms with the seller. From a different perspective, sellers want to know quickly if the buyer is going to reject the home due to the inspections.
Sometimes, buyers will expect sellers to make a number of the repairs listed on the report and this is where the second round of negotiations begins. If the seller refuses, the negotiations can go back and forth until one party or the other accepts the offer on the table or the contract falls apart. Both some money and further time has been invested getting to that point and obviously a termination of the contract isn’t the desired outcome for either party.
When purchasing a new home from a builder, it is expected for everything to be in working order; after all, it is new. However, it is reasonable to expect that existing homes, that are not new, have a different standard. While it’s understandable that buyers would want to be aware about major items that are not in “working order”, normal wear and tear of components based on its age should be expected.
In a highly competitive seller’s market, buyers might do whatever they can to get their contract accepted, realizing that there is another place to negotiate when they’re not competing with other buyers’ offers to purchase. One best practice for a Buyer trying to make the best offer possible is to choose their preferred home inspector and tentatively schedule the inspection just before submitting their offer to the Seller, so that the inspections contingency period can be made as short as possible. Similarly, by trying to identify and anticipate items around their home most likely to be found in need of repair/replacement by a home inspector, a Seller may then either get out in front of the probability and do the repair(s) in advance, or make sure to disclose in their property condition that’s signed by the Buyer prior to making an offer what isn’t in good working condition and that it’s accepted by the Buyer at the time a contract agreement is reached.
For this to be a WIN-WIN negotiation, both seller and buyer must feel good about the transaction. Neither party should feel that they have been taken advantage of.
It’s surprising to realize that most people spend more time planning their next vacation or cell phone purchase than they do on their own retirement. Let’s look at a hypothetical situation where you have $35,000 to invest for your retirement in 15 years. Have you compared where you might have the best opportunity?
The safest place to put it might be a certificate of deposit because it’s insured but unfortunately, rates would be less than 2%. The value would grow to $47,233.26 at the end of the 15 year holding period.
Investing in a mutual fund has more risk but also a greater opportunity to earn a higher rate of return. An estimated 7% return would project an accumulated value of $99,713.14.
Using the $35,000 for a 20% down payment and closing costs on a $150,000 rental home could realize much higher proceeds. Using a familiar investment analysis spreadsheet, the $35,000 could grow to a future wealth position of $153,302. This analysis considers leverage, 3% appreciation, re-investing cash flows, 7% sales expenses and paying applicable taxes which the previous examples do not.
The rate of return on these three examples are 2% for the CD, 7% for the mutual fund and a comparable 14.19% return on the rental. As the rate of return increases on investments, additional risk is reasonable.
Most people are much more familiar with homes than they are with mutual funds, bonds and other similar investments. The same REALTOR® who helped you with your home may be able to help you invest in a rental home.
“If you waste my time, don’t expect me to hang out with you very long.” This could have been said by a buyer or seller or a real estate agent. Time is valuable and no one wants to waste their time.
Most people can’t put their lives on-hold while they’re trying to buy or sell a home. Whether they have a family, are a couple or are single, life continues and the time constraints of moving can become burdensome.
Your agent is committed to helping you save time while making the experience memorable. They know the process and the potential problem areas and can help you avoid them or move through them in the most efficient way possible. Communicate openly with your agent about constraints you have on your time, where flexibility exists in your schedule and where it doesn’t. Remember that your agent can’t control the inventory of products available to you as a buyer, or the potential buying prospects who are in the market when you’re a seller. Essentially, your agent has only the intangibles of time, experience, knowledge and expertise to offer to apply for your benefit. You can help your agent to focus on doing just that.
To preserve your time and your agent’s, consider the following:
- If your plans to buy or sell change, let your agent know.
- Since most agents will and do work evenings and weekends as required, they have to find leisure time where they can. Especially when you need to schedule an evening or weekend appointment, give your agent as much notice as possible.
- Unless you’ll be making a cash purchase, get pre-approved for financing through a trusted mortgage professional.
- Cooperate with your loan professional by providing all requested documentation.
- If your purchase will be made on cash terms, prepare to document the source of the available funds.
- If you visit builder or REALTOR® open houses without your agent, immediately notify them that you have an agent.
- Direct all communication to the other party of your real estate purchase/sale contract through your agent until after closing.
Your agent is working to help you meet your goals. Things work best when it’s like a partnership where each party mutually respects the other and their resources including their time.
Listing photos may be one of the most important marketing efforts that lead to a potential buyer.
Nearly, all buyers use the Internet during the home search process. They usually start looking at homes online before they contact an agent. It’s far more efficient to screen properties by looking at the pictures that have been posted than to make appointments with each homeowner, drive all over town and waste a lot of time looking at homes that would never meet a buyer’s criteria.
- There needs to be enough pictures of a property to adequately represent the home; the South Central KS MLS website allows 36.
- The formatting of the SCKMLS website, like most other listing websites, counts on mostly horizontal orientations.
- Photos should be well-lit so that it is easy to see all of the features of the room. Natural light is preferred over the limitations of flash, but some rooms do present better using flash.
- They may be taken with a wide-angle lens to allow seeing much of the room in one photo – but, it should not be so wide as to cause distortion.
- Large rooms can be taken from different angles to give the buyers a different perspective.
- If not staged prior to taking photos, rooms of occupied homes should be carefully decluttered and arranged for balance and proportion without sacrificing function. The objective is to give the buyer an idea of what the room might look like with their own things in it without too many obstacles of the present owner’s personalization.
- Website photos should be arranged to help buyers visualize the floor plan as if walking through it.
- A tripod can help hold the camera still and level.
- Photos should definitely not be “photoshopped” to modify factual elements like removing power lines.
Everyone occasionally takes a great picture but it doesn’t make them a great photographer. Since the photography can be one of the most important marketing efforts, in some cases using a professional photographer may help promote a property to its most competitive advantage.