how-to-increase-your-wealth

A lot of homeowners strive to pay off their mortgage early. While that’s a great goal to have and certainly something worth working toward, many people aren’t aware that having a mortgage can actually work toward their financial advantage.

You see, when managed properly, your mortgage can actually help boost your bottom line! Let’s talk about how to approach wealth management with your mortgage in mind. 

Depending on your income and tax bracket, there are two primary ways to make your mortgage work for you.

#1: The progressive, new school of thought: Find the longest-term mortgage at the best rate and pay it off slowly over time.

While it may seem counterintuitive to pay more interest over a longer period of time, one of the biggest benefits that comes with buying a home is the ability to write off the interest paid on your mortgage loan. And for those in a higher tax bracket, this strategy can actually be used to reduce their taxable income.

For instance, if you earn $100,000 a year and pay $15,000 in interest charges on your mortgage each year, your taxable income will be lowered to $85,000 as opposed to $100,000. That’s like earning $15,000 tax-free! When you set that cost savings aside and invest it in something else, you can begin to accumulate compound interest on those funds, hence increasing your net worth.

Keep in mind that you can only deduct mortgage interest on a loan valued at $1,000,000 or under. Check with your accountant on what pertains to you.

#2: The conservative, old school of thought: Get the shortest-term mortgage at the best rate and pay the loan off as soon as possible.

This old adage works in favor of those who may be in a lower income bracket and don’t have as much tax liability. For this group, it makes the most sense to pay off their mortgage as soon as possible, so long as they consider these factors.

By focusing on paying off their mortgage early, they will eventually put themselves in a better position to get rid of  PMI (private mortgage insurance—an extra cost) and save thousands of dollars in interest over the life of their loan by paying it off faster.

The earlier their mortgage is paid off, the earlier they can invest the savings from their previous mortgage payment into a high-yield savings account or other investment fund and begin to earn compound interest.

As you can see, there are many financial benefits that come with owning a home. Before you decide to buy a house, or come up with a plan to pay off your mortgage, check with your certified public accountant first. They will be able to analyze your financial situation and explain what financial gains can be realized as the result of owning a home. Then, follow up with your loan officer to come up with a plan of action you can use to pay off your mortgage and boost your savings at the same time!

tross

Tim Ross is CEO of Ross Mortgage Corporation and a lifelong mortgage lender. He has served as president of the Mortgage Bankers Association of Michigan and two terms as a governor on the Residential Board of Governors with the Mortgage Bankers Association of America. Today, Tim is an active participant, charter member and past director of America's Mortgage Cooperative and recently served as the Chairman of the Mortgage Industry Advisory Board for the State of Michigan. Outside of work, Tim enjoys running, golfing and participating in triathlons.

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