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Is the 30 year mortgage really a bad option?
Financial guru, Dave Ramsey, certainly thinks so. According to the well-known expert, he believes you're better off with a 15 year mortgage:
[T]he 30 year mortgage robs your future. […] It simply enabled borrowers to buy more house than they could afford by spreading the payments out over a longer term. On top of that, those homeowners paid tens—even hundreds of thousands of dollars more in interest.1
Instead of a 30 year mortgage, Dave recommends getting a 15 year mortgage with "at least a 10% down payment and monthly payments that are no more than 25% of your take-home pay."1Following this advice is a great first step to ensure you build wealth quickly and avoid paying a mortgage into your retirement. Here's why:
As you may have read, one of the main reasons for the mortgage industry collapse was that many Americans bought houses they could not afford. When times got tough, these Americans were the first to lose their homes. So why take the risk of an unaffordable payment where you could end up losing you home and all the money you've poured into the mortgage?
That's why it make sense to only set aside 25% of your income towards a mortgage payment. With a 15 year mortgage, you'll even get more benefits by building equity faster as Dave mentions in his article. Paying off your mortgage completely will free up income later for other investments and allow you to live more comfortably in your older age. Let's face it, how many of us today can claim we will be mortgage free before retirement. By following Dave's advice, you can be.
If you've recently committed to a 30 year loan, there is still a way to save and be mortgage free before retirement. Some homeowners have been able to switch to a 15 year mortgage with rates near historic low and we encourage anyone who can shorten their loan to do so. If you can't afford the 15 year payment comfortably though, don't risk it. The last thing you want is to lose your home completely if you can't make your payment.
Instead, use this brilliant strategy:
Did you know you could qualify for low mortgage rates though a government program called the Home Affordable Refinance Plan (HARP)? Unknown to some, the HARP program was designed by the U.S. Government to reduce mortgage payments and put money back into your pockets.
If you owe less than $650,000 on your mortgage, the chances of qualifying for this program could be high. Homeowners who have refinanced have saved on average $250 per month2
If you apply that $250 over a year, that's $3,000 you can use for other expenses or better yet, to pay off your mortgage faster! The HARP program is great news for Americans whose wages have remained flat and who could really need some extra cash in their pockets, but homeowners need to act fast.
TIP: Close to a million homeowners could still benefit today, but sadly, many perceive HARP to be too good to be true. Remember, HARP is a free government program and there's absolutely NO COST to see if you qualify. See if you qualify
Time is running out for homeowners and the HARP program is set to expire in 2015. The good news though is that once you’re in, you’re in. The savings you get are permanent. Not all lenders offer HARP rates so it’s best to use services such as The Easy Loan Site, which has one of the biggest lender networks in the nation. What's better is that they work with HARP lenders to provide consumers with a comprehensive set of mortgage options.
There’s no obligation to homeowners, and The Easy Loan Site offers easy and fast comparisons. It takes about five minutes, and the service is 100% free. You have nothing to lose, except for your money problems!