We call it home ownership but remember, you likely don’t own it yet
The housing market is ridiculously confusing because of all the schemes and scams put forth for the seemingly great purpose of getting people into that first house. Sadly, we’ve seen the loss of these houses in record numbers as the economy tanked and home non owners were caught holding the bag. For the new potential home buyers, a back to basics approach is necessary as a framework so that regardless of the latest and greatest deals on financing, individuals can retain their understanding of what they’re getting into when they buy a home. The most basic rule is that if you take out a mortgage, you are borrowing money from a bank that owns your home as collateral until you pay off the mortgage, the amount you borrowed plus interest. A mortgage is a debt. For this reason, the mortgage, most home purchasers are actually home non owners rather than homeowners after purchasing their homes.
Refinancing for a new term pushes out how long you will be paying off your home
Now that you’ve been paying off your home for awhile; you’ve noticed that there are new options out there for refinancing. In the ordinary course of events, barring catastrophe, if you are paying your current mortgage and you’ve achieved some equity in your home, choosing to refinance only makes sense if the new rate of interest you will pay is significantly less than what you’re paying now. While there are many loans that advertise no closing costs for refinancing, this usually means that the interest rate on the money you borrow will be greater than the going market rate. That’s why such a process is only good if you’re saving at least a couple of points on interest, points being percentage points. Pitfalls in the refinancing world are essentially two types: Lenders that encourage you to borrow more and lenders that give you a new mortgage for the same time period as your original mortgage which means that if you’ve been paying off your first mortgage for ten years, your new thirty year mortgage will now take thirty years to pay off so that you’ve added mortgage payments for ten years. Therefore, seek to refinance for the amount you owe, no more, at a cheaper interest rate for a lesser number of years that actually reflects how long you’d be paying your mortgage without the refinance.
Borrowing less is best
The most important thing for consumers to remember about mortgage debt is that it is debt. You owe that money plus interest until you pay off your house. So don’t overbuy and don’t buy into rationalizations about writing off mortgage debt or how it’s easier to sell a house that has a mortgage or banking on the fact that getting more than you can afford now will pay off as housing prices increase. If you spend well below your means, and know your finances, you will have a stress free living life.
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