How Amortization Plays a Role in Paying Off a Home
Filed under: Finances
The dream of homeownership is to eventually live in a home mortgage-free, allowing you a comfortable retirement with low cost of living. Each time you send your mortgage payment, part of the payment goes toward the loan principal and part of it goes to interest costs.
If you want to pay it off faster, then amortization can be used in your favor. Basically, it is a built-in savings plan, and can add up to financial benefits over time.
How Amortization Works
Let’s say that you have a mortgage for $400,000, which means that about $460 of your monthly payment will be going to the principle of your loan – and the rest goes to interest. The longer you are paying on the loan, the bigger portion of your payments goes to the principal.
$460 might sound small, but it all adds up over time. It means that you are paying the principal of the loan down by thousands of dollars every year, helping to build your equity. Over a 10-year period of time, you can build as much as $100,000 in equity with regular mortgage payments.
What Would You Do with $100,000?
Most families agree that it’s hard to save $100,000 in the bank. With a mortgage, you have a place to live and a savings program that results in $100,000 coming back to you in 10-years in the form of home equity. That’s a great financial plan!
In comparison, every dollar spent on rent is gone. If you are paying monthly rent, you will never see that money again. Amortization can be used in your favor because you basically get a rebate on housing in the future because of the home equity.
Preparing for the Future
It’s all too common for homeowners to overlook the vision of how they can use amortization for their benefit over time. When you leverage a home mortgage right, it gives you the opportunity to keep more of your money down the road. Since most homeowners don’t have the cash to pay for a home without a mortgage, understanding amortization is a tool that will help you pay it off eventually.
Are you ready to enjoy these financial benefits for your family? I’m here to help with real estate in Temecula. Call, text, or email me at (951) 473-0390 or [email protected].