Paying your mortgage every month isn’t the same as cutting a rent check. A portion of your mortgage payment each month gets applied to your home’s value—or your equity. Your equity is the dollar amount of your home’s value that you own, and the longer you’ve had your mortgage, the more of it you’ll have. At its core, your mortgage is money—your money—and it should be treated as such.
As with most investments, the value of your home will fluctuate with the real estate market. This is why it’s so important to protect your equity by liquidating it while your home value is high. You can cash-out your equity strategically, storing it in an interest-bearing savings account for retirement, saving it for your child’s college education, using it as an emergency reserve fund to protect your family in the event of a loss of income, or even as a fund to make improvements or repairs to your home to increase its value. Think of your equity as a savings account, because that’s exactly what it is.
The Short Term
When mortgage shopping, it’s important to consider both the short and long term aspects of your loan. Short term aspects include things like monthly payment affordability, your revolving debt situation and your immediate home repair needs. Your short term considerations are the line items you need to address within the next year or so. If you’ve got mountains of credit card debt at 15% interest, choosing to cash out some of your equity to pay off those cards is a great way to immediately alleviate the choking grip of the credit card companies. If you’ve got a major repair to make on your home, cashing out some of your equity is a great way to find the funds to get that project done. And of course, finding an affordable monthly payment is a no brainer.
The Long Term
There are long term needs that should also be considered when you’re mortgage shopping. This includes things like retirement, college savings accounts for your kids, or an emergency cash fund to protect your lifestyle and family in the event that you were to lose your job or suffer a major financial setback. These are all things that your mortgage can help you set up, so you should decide what your goals are before signing closing papers simply because you got the best interest rate.
Rate does need to be considered when mortgage shopping. However, it shouldn’t be your only or ultimate consideration. While it’s true that a lower rate can provide you with lower monthly payments, if you aren’t taking advantage of the rest of the things that your mortgage can do for you, you’ll be missing out on a lot.
Remember that if you cash out some of your equity and apply it to a savings or retirement account, that cash will earn you interest. Over the years, that interest will significantly add up and strengthen your financial future even further.
Too much focus on rate and not enough focus on the other benefits of a mortgage loan can cost you big time. To get the best return on investment possible, you need to consider the big picture—not just the interest rate.
If you’re not sure where to begin, contact one of NLC Loans’ personal mortgage advisors for a free mortgage evaluation. They’ll help you get all of your goals sorted out, both for the short and long terms.
You’ve worked hard for your mortgage, so now it’s time to make sure it’s working hard for you as well.