Mortgage leads loans Rates

Not very many homeowners ever stop to question if there is a real benefit to the deduction of mortgage interest. They assume because the your mortgage lenders play on the fact that mortgage interest is tax deductible and credit card interest is not, that they are being told the truth, and will see a real benefit from the deduction of mortgage interest. Well, let me be the first to say, yes there is probably a benefit to be had, is it the advantage that many lending institutions lead us to believe? Probably not.

Now, with the advent and continued growth of the interest only loan, the benefit has just swung in the taxpayer’s favor. But, is the trade-off worth the cost? Interest only loans mean to the average home owner that there mortgage debt will last longer, well past the number of years of a standard adjustable rate mortgage or fixed rate mortgage. Yes, the interest deduction is greater, but what is the cost of the missed opportunity to do something else with your money, 10 or 15 years from now? Will the tax benefit outweigh the financial cost of adding 10 or 15 years to the life of your mortgage?

Very few consumers are actually as tax savvy as they need to be, in the area of mortgage interest deduction and how to calculate actual savings. This means that very few consumers are actually aware of the real benefits and the real costs associated with their mortgage and their tax status. How can you determine the real benefit? It will require some effort on your part, in one of two ways: You can educate yourself about the tax and mortgage regulations, or you can seek the advice of a trusted financial advisor. The keyword here is trusted. You must take the time to establish a relationship with a financial advisor with whom you feel comfortable, and with whom you can communicate and trust.

The information that you provide to a financial advisor or tax analyst, will enable them to give you advice that fits your individual and unique situation. Every individual situation is different, and much of the tax benefit is dependent upon your individual income levels.

There is often a real seesaw in this relationship. In the early years, when your earnings are low, your tax benefit from mortgage interest paid is much greater. Then, as you age and your wage earning potential increases, your benefit from the mortgage interest deduction decreases. Unless of course, you can find a way to drastically reduce your adjusted gross income. Many individuals do this through the option of self-employment. This makes better use of your income dollars, and allows for a greater tax deduction on home mortgage interest.

The most important thing you can do for your financial health is to seek the advice of a trained professional, early in your adult life. Many decisions that you make during your twenties and early thirties will affect your financial health and your tax liability levels for 20 or 30 years to come. Your mortgage is one of those decisions.

Interest only loans, fixed rate mortgages, adjustable mortgages, or any of the other many options available to borrowers will have a different affect upon your individual situation. Many of these loans are structured to provide an imbalance of interest versus principal allotment of the payment total, during the first few years of the loan. The interest only loan is just that: all of your monthly payment is an interest payment on the principal. And yes, under the right conditions this is a truly great benefit when you file your income tax return; but the keyword is the “right” conditions. Otherwise, you’re not reaping the benefit you could possibly receive had you chosen a different loan option, or if your income levels were different.

I make no pretense that the American Tax System is a tangled web, and a maze of tax codes, laws, and regulations. But there is benefit to the mortgage interest and your tax liability, if you take the time to discover exactly what your options are, and how to best benefit from all the choices you have.

Let’s assume that you’re one of the new age consumers, who fit into the fastest growing segment of the mortgage market today, the interest only mortgage. It is time to you to secure a mortgage, and there are several loan options that can be tied to the features you desire; you’re particularly interested in the interest only feature that seems so appealing to many consumers today. But have you stopped to question why the interest only feature has become so popular with consumers today? Are you aware that it is a re-born feature laid to rest in the great depression of the 20s?

Have you stopped to examine the purpose of the interest only loan and what purpose it will serve in your particular situation? The original intent of the interest only mortgage was to make home ownership more appealing to young couple; not every prospective buyer, however, is a young person looking to buy home. Careful evaluation of your situation and the interest only mortgage must be performed in order to secure the best mortgage possible.

Let’s take a look at the original intent of the interest only mortgage, and the greatest benefactor in the interest only mortgage segment: the short term homeowner. The idea behind the interest only mortgage product was to give the short-term homeowner a race in the buy home, with or down payment requirements associated with the standard mortgage. This idea worked so well, that now almost every kind of homeowner is exercising their interest only mortgage option. As it was only ever really intended to benefit the short term homeowner, the interest only mortgage product is currently used as a means to buy “more home for less money”.

The appeal to the short term homeowner segment of the market was a way to grow the housing industry, since this particular type of buyer, normally only rented. In most short-term home ownership, situations, the buyers are young professionals in the beginning years of their career, who have tremendous potential, and almost always a guarantee of purchase from their company should their home remain unsold after one year on the open market. As you can see, the consumer who was initially targeted for this type of loan would truly see a benefit from the interest only mortgage product. Today, however, the consumer actually applying for the interest only mortgage product is a consumer who seems to be spending beyond their income means.

What we have discovered, with today’s consumer there is an overwhelming tendency to purchase more home than can possibly be afforded; the reasoning behind such a purchase? Since the term of the interest only segment of the loan will normally run three to five years, many homeowners are borrowing based on “anticipated earnings”. Quite often, the anticipated earnings never materialize, and at the end of a five year interest only term, the homeowner is left with a much higher mortgage payment minus the increased earnings.

As with many other modern-day products packaged and sold to the consumer, it sometimes is not always the wisest choice, the best buy, or the greatest benefit to simply follow suit; sometimes, educating yourself as a consumer is a much better, and a much more affordable choice.

The long-term, homeowner purchasing to procure a safe haven from which he or she can retire and be assured of a decent home, is not a benefactor, nor suggested candidate for the interest only mortgage product; however, in the attempt to grow this product into a larger share of the mortgage market, many interest only loans have been advertised as ways to pay off credit card debt, avoid a down payment, and create greater tax savings at the end of the year. None of these reasons, within itself would be a “good” reason to purchase an interest only mortgage product.

Many of the local lending institutions, especially the banking industry, have shied away from the open arms welcome that the interest only product received in the mortgage company circle, simply because the loans are a riskier prospect, and many times consumers aren’t as educated about the choices they are making. When you misuse a product, you begin to run into problems, and create a potentially dangerous market situation.

There is an untapped reserve of cash in our homes; it’s the equity we’ve built into our homes over the life of the mortgage, or simply in owning our own home. If you’re looking for a great financial tool, learning to use the equity in your home to its fullest extent is something we Americans aren’t very good at accomplishing. Fear of a loss is the number one reason we don’t utilize our equity asset. But, if you will take the time to nvestigate many of the investment options available to us, the risk is minimal, and the return is great.

Especially now during this period of extremely low interest rates, your home’s cash equity could be earning you a return of 18-20% in certain investment funds. Even if you borrow money in order to cash out the equity, you’re making money. The interest you pay is substantially less than the interest you’re earning.
Why are we so reluctant to take out a second line of credit, or increase our mortgage balance through refinancing? Many of today’s homeowners reaching retirement age do not fully understand all their investment options, nor do they understand how investments like growth funds work. They are very reluctant to try anything that is beyond the sure bet of a certificate of deposit. In so doing, they are missing a tremendous opportunity to earn a greater return on their money, and let their money work for them.

Take a look at your 401k, where are your investments? Are they earning 5-8-10%? Unless you’re ready to retire, your 401k should earn at least 6-8% on your investment. Your home is earning you nothing on your investment, at least, not in the sense that the money must stay in the home in order for the home to increase in value. Quite honestly, your home will appreciate in value if you do nothing but maintenance work and live in it. Your equity you have in your home, can earn you up to a 15% return, while you still are fairly safe with your principal investment.

Speaking of 401k investments, are you investing the maximum each year in your 401k? If you’re self-employed, are you making use of the SEP retirement options that reduce your tax liability? If you’re not, you should really consider the equity in your home as an investment option for adding to your 401k, or establishing an SEP that will allow you to invest your money in profitable and fairly safe global and growth funds. There are still many excellent opportunities in the stock market. There are segments of the market that are experiencing phenomenal and stable growth. The overseas markets, the domestic real estate markets, and the energy markets are growing, and are expected to see sustained growth. Put your money to work for you, especially if you are several years away from retirement.

Another retirement option that involves a mortgage loan is the reverse mortgage. This however, is not a way to build retirement savings; it is a way to simply access the equity you’ve built in your home, so that your monthly income levels are adequate to sustain your most vital needs. Food, clothing, heat, and medicines are a must as you reach or near retirement age. Many times, the elderly are not as prepared financially as they anticipated that they would be. How can they supplement their monthly incomes? The reverse mortgage is the answer to many older citizens’ financial needs. The reverse mortgage allows a person to withdraw a monthly sum against the equity they’ve built into their home. The interest payments are deferred until death, and the homeowner doesn’t have to worry about making a monthly payment, or borrowing money. They are able to use the money they’ve already put into their home, just when they need it most.

If you are past the age of 40, and you haven’t taken the time to consult with a financial analyst, I would recommend that you seek out one that you can trust and that you are comfortable in discussing your financial affairs with, and begin to look at your retirement options, your retirement needs, and your ability to meet those needs, based on your current income and savings. What you may find is that you aren’t near as prepared for retirement as you thought. The monthly income needed will probably greatly exceed your anticipations. But, if you own your home, you may have just prepared more than you think!