_________________________________________________
Invest In your Own Mortgage
Investing in your own mortgage? Some people might think that sounds a little silly. Investing in government bonds; maybe. Tax free bonds; sounds good. How about annuities or one of those stock funds that you can reinvest the income each month? But why would someone invest in their own mortgage? Consider this:
_________________________________________________
Investing a Little Can Mean a Lot
Let’s start with the premise that you are a homeowner, have a mortgage, and have at least a small amount of money left each month to invest. So where do you invest it? First, you’ll want a safe investment that pays more than those bond funds. An it would be n ice if your investment compounded monthly. And how about accessibility? Yeah, that’s important, too. No problem.
_________________________________________________
Investment Safety
Those of us from the baby boomer generation were taught that we should have savings that those savings should always be put safely in that bank. Even if the bank became insolvent our money is insured by the FDIC up to $100,000. So all we had to do, if we were lucky enough to have more money than that, was to open an account at another bank. The only problem is the interest that the banks pay on savings or even certificates of deposit is, at most, a mere 5.5% and it’s taxable.
_________________________________________________
An Alternative to Stocks, Bonds and Mutual Funds
What if we just took the money and got into a bond fund? Lately, these have done very well and government bonds are guaranteed by "the full faith and credit" of the good old U.S. of A. But the problem comes when you need your money – like right now. These types of bonds, if held to maturity, will be worth their face value, but do fluctuate due to interest rate movements. The income, even though it is reinvested each month, is also subject to taxation and, worst of all, the principle returned may have capital gains ramifications.
But instead of all that, each month pay your mortgage payment plus a little extra. How much extra? Maybe just a portion of the amount you currently invest each month or maybe a little more; it’s really up to you.
_________________________________________________
A Little Extra Goes a Long Ways – The Savings Math
Here’s an example of what would heppen if you invested in the mortgage you owe on your home. Let’s use a new fixed rate mortgage with a starting balance of $100,000 amortized over 30 years at 7% interest as an example. By paying only an extra $25 per month we would pay this mortgage off 39 months early and the savings are substantial. Go ahead and check out the math.
39 (months) x 665.31 (monthly payment amount) = $25,947.
$25,947 minus the 321 months that we made extra payments each of $25 or a total of $8,025 would leave us $17,992 in savings growth!
$17,992 divided by 321 months comes out to an average of $55.83 a month in tax-free growth.
Annualize that amount for a yearly average of $669.96.
Then divide that by your yearly investment of $300 (or a mere $25 per month) and we get a whopping average return of 223%!
Need I say more? In this example, the numbers speak for themselves and need no further clarification. Are you convinced? So go ahead and invest in all the fancy funds and stocks that Wall Street has to offer, but at least consider investing in your own mortgage sometime in the future. You’ll be glad you did.
