The Importance of Proper Mortgage Management
A lot of people think that a mortgage is just a loan they take out to buy a home, which they pay off over the years. Owning your own home outright is often the goal, and maybe the only goal, and while this is a nice situation to be in, there’s a lot more to managing mortgages properly than that.
Balancing Debt Management Goals
The Two Main Goals in Debt Management Paying the least amount of interest overall is obviously a primary goal of debt management, and managing our personal finances in general. It is never about paying the least amount of interest on a given debt, such as minimizing the interest we pay back on our mortgage over the years, it is the overall interest we pay that must be considered.
Making Informed Down Payment Decisions
When we buy a home and take out a mortgage, we often have to decide how much we want to put as a down payment on it, assuming we have access to more than the minimum down payment that is. If we don’t, it’s a simple matter, and we’re actually forced into doing the right thing here, given such limited financial resources.
Considering Other Debts and Savings
For most people anyway, a good rule of thumb is to not put down any more than the minimum on a mortgage, although if one has enough extra savings to make a bigger one and not have this impact their finances, a larger one can be a good idea.
The only way this ever makes sense is that if one does not have any other debts and does not expect to need to borrow at all during the life of the mortgage. There aren’t a lot of people so fortunate though, and the vast majority of people either have debt or likely will at some point.
Ongoing Mortgage Management
Mortgage Management is Ongoing Another key decision that we need to make, both at the beginning of the mortgage and as we renew it into new terms if it is a multi term mortgage, as well as if we choose to refinance it, is what to set our payments at.
Just like people tend to be too aggressive with the amount of their down payments, they also like to be too aggressive with their payments, once again thinking that they are well served by paying off this huge amount of money owed as quickly as possible.
The Importance of Planning and Advice
People don’t tend to plan well and if they expect that mortgage advisors will help them very much with this planning they are in for a rude surprise. Even when things go sour and people get themselves in all sorts of financial trouble, and need to do expensive refinances to bail them out, the goal tends to be to just get them back on their feet and not pay anywhere near enough attention to preventing all this from happening again.
Balancing Payments and Future Spending
People need to not only look at their current spending levels, they also need to look ahead and make sure that a certain mortgage payment is a good idea in the face of having to meet other debt obligations.
If you have a choice between a lower and a higher mortgage payment, as people usually do, it simply does not make sense to choose the higher one and have this directing more of your income toward paying off lower interest debt at the expense of using it to pay off higher interest debt.
Utilizing Equity as a Tool
As they build up equity, much of which simply comes from increasing property valuations and not from paying off the mortgage, then this equity needs to be used as a tool to manage both present and future debt, and especially to look to replace higher interest borrowing power with lower interest secured lines of credit or collateral mortgages, which serve a similar purpose.
The purpose here is to be able to borrow more cheaply when one needs to, and ideally we wouldn’t need to borrow, but the truth is that people do. When they do, it only makes sense to want to do so at the lowest rate possible, and this often takes planning.
Focusing on Debt Repayment
The overall goal here needs to be to think ahead and to also think about the big picture, not just how fast you can pay off your mortgage. Paying off your mortgage is great, paying off your debt is even more important and the only thing to focus on really.
