When a person wants to purchase a home, they will more than likely have to look for mortgage. Unfortunately, many people end up paying more for a home than they should. However, this may not have to do with the cost of the home but more in terms of the numbers behind a monthly payment. Many investment experts are sounding the warning that mortgages are taking a big bite into people’s retirement efforts. In fact, sometimes there are no retirement efforts going on at all. The question must be asked, is a mortgage robbing your retirement? Here are a few things to consider.
A mortgage can be a confusing legal document, but one of the few things people do understand about the mortgage is the monthly payment. Determining whether the payment is affordable or not is typically all people think about. However, the length of the mortgage is also important as it relates to retirement. Here’s a few things that a program like captain cash can show an individual about the link between mortgages and retirement.
The longer a person keeps a mortgage, the more money a person will pay for the privilege of borrowing money from a bank or other lending institution. For example, if a person borrows $300,000 to purchase a home on a 30 year fixed mortgage at 4% interest, the total amount paid would be $515,520. However, taking the same mortgage and cutting it down to 20 years, while raising the monthly payment amount around $300, means an individual will be paying almost $80,000 less. Reducing the length of the mortgage even further to a 15 year mortgage may mean an increase in payments of roughly $800 a month. However, a person can save up to $116,000 in overall costs at the end of the mortgage.
To put it in perspective, saving $80,000 on a 20 year mortgage can mean huge dividends when it comes to retirement savings. While there are many different returns a person can receive when investing money, for argument sake, taking $80,000 and investing it with 5% return on investment for 10 years comes up to over $113,000 in investment capital. Those numbers can be even higher, up to $188,000 in principal and interest with savings from a 15 year mortgage.
The fact is that monthly payments aren’t the only thing to consider when it comes to getting a mortgage. It’s important to determine how these monthly payments can affect your potential retirement savings. Even if you don’t have retirement savings at this point, saving money on a mortgage to go towards savings can make a huge difference in a very short period of time. Is a mortgage robbing your retirement? It may be, and it may be time to do something about that. Simply basing your finances around a lower monthly payment may not be the best financial move to make for your future.