Taking the time to educate yourself on how paying off your mortgage early can get you on the road to “true” debt freedom, might save your mental health.
Let’s look at a scenario. You have always wanted to become a homeowner. Dreamt about it for years. Now you are ready. You have found the perfect house, but you don’t have 20% to put down.
{This is only an example} – Your agent gets you a 5-year interest-only / 25-year principal-interest mortgage. You borrow $216,600 in principal on a 30-year contract and agrees to pay $1,655 monthly – looks good so far, right? After 5 years you have rented your house from the lender, because of the interest only scenario, paying $99,300 plus $29,350 in closing cost – a total of $128,650.00. Does it feel as if you have already paid-off your mortgage? ($87,850 remaining). If the lender really wants this house resold, will they demand $216,000 or a quick sale of $87,000? Do you think they could get that amount? Now the principal will be added to the interest. The new monthly payment becomes, say, $2,500. Are you making more money now? Do you still have all the debts you had before your home-buying journey? Student loan? Car note? Credit cards? Subscription services? Whatever.
You have educated yourself and realize mortgages are not set in stone. The only way to keep renting from the lender is by refinancing and your (same) agent is pushing a 15-year mortgage to make you feel comfortable that you will get out of it earlier. HOORAY!!!
Instead, if you decide to embark on a 35-year mortgage (5 years already paid and a new 30-year refinance), incorporating as much of the above debts into the new mortgage, putting most of the risk on the lender, you could possible pay-off your new mortgage in less than 10 years. Paying back the principal you borrowed and very little interest. Well, if your intention is to sell, how much equity can you build-up?
