Let's step away from the subprime discussion and go into something else that for a change should yield positive returns. Enough is enough. Undoubtedly a mortgage is the single largest debt obligation we'll ever sign up for. It can be intimidating, but it doesn't have to be. If handled correctly, it can work to our financial benefit. Why don't we take a look at some ideas here.
Financial experts tend to agree that mortgage money is the cheapest money around. The low rate is just one thing, the other is that the interest is tax deductible. And this brings us to the equity that has accumulated over the years. It can be tapped in a refinance for a house remodel, college expenses, investments and many other uses. That gives us a good start.
A home loan can be used as a leverage, too. Say we go ahead and buy a $400,000 house with a 10% down payment, or $40,000, and the real estate market in this particular location performs decently with a 3% appreciation rate. The annual value hike on the $400,000 house is $12,000, or the yield on the original outlay is about 30%. That is solid.
What about paying down the mortgage quickly? In many cases it works against us. A recent study concludes that 38% of homeowners would earn more by putting the extra mortgage payment into their 401(k) program instead. As we know, 401(k) offers tax-deferred investment growth and often generous matching employer contributions and the interest expense that is saved by bringing down the mortgage balance won't match that. Give this idea some thought.
How else can a mortgage benefit us?