When You Sell Your Home You Should Add in the Mortgage Interest Cost
You know that price you have in your head when you first bought the home? And you get excited to see what it’s worth now because you’re selling for a profit? Well, if you think about it, you’re not selling for as much profit as you think when you factor in the mortgage interest that you already paid for your home. That mortgage interest does not go into your home equity, it does not pass “go” on the game of Monopoly. It only passes go to the big wallets of the bank, of course.
In This Low Interest Rate Environment It Doesn’t “Pay” to Invest in “High Interest” Savings (If You Have a Fixed Mortgage)
With the recent cut in the bank cut rates the high interest savings account are yielding even less money for investing your hard earned cash with them. If you have a variable mortgage this is pretty good news for you. However, if you have a fixed mortgage, the money you have in cash, just sitting there, could be working to cut down on the thousands of dollars of interest income you have to pay on your mortgage. It might be a good idea to put it to work.
I have a bit of cash (about 20% of my net worth) in high interest savings accounts earning a very measly 1.25% or so (haven’t recently checked) and my fixed mortgage interest rate is at least double that.
I haven’t even mentioned how the high interest savings accounts or GIC’s doesn’t even keep up with inflation too!
Even with a Low Mortgage, That’s a Lot of Interest in a Year
One of the big kickers that helped propel me into mortgage pay down action is that I saw how much mortgage interest income I paid over the year for 2014. That is a lot of money that just went “poof”. My dividend income was just a little bit over the mortgage interest income so basically I negated the cost of my mortgage last year by just a bit. I know my mortgage interest will be less next year, but still, it sucked to see that much money I paid into interest.
Related: How Much Home Can I Afford
With the Amortization Schedule, You Should Pay Down Your Principal Starting ASAP
Another thing is that with the mortgage amortization schedule, you are paying VERY LITTLE against your principal when you get your mortgage payments deducted from your chequing account. Basically you are chipping away at the very tip of the iceberg in the beginning. Why not chip away at it from the middle of the iceberg and get that debt away faster.
It’s Kind of Fun Receiving Those Mortgage Disclose Statements
When I started paying some extra mortgage payments against my principal balance, I started getting these Mortgage disclosure statements from my bank detailing my total principal and interest payments to the end of term, and the total interest to the end of the term. Seeing that number shrink is actually quite satisfying. When you pay your mortgage regularly (you know, when they automatically take money our for your mortgage in your chequing account) you don’t really see where that money goes (well, you do see that you owe less money to them, but you don’t see how much interest you will have saved if you pay it down faster).
Here are 4 ways to Pay your Mortgage off faster if you haven’t checked it out yet. An article on the CBC website also agrees that paying down your mortgage might be a better idea than investing right now.
Readers, what do you think? Would you do the same as me and pay off your mortgage faster?