Getting the best rate possible on a new mortgage is the goal of every loan applicant. After all, a lower rate sets the stage for lower monthly payments. In turn, this can ease the burden on your monthly budget. Having more free cash to play with should be great for all homeowners. However, your net worth could be suffering as a result. Why is this the case for some people?
With a 30-year loan, your principal balance is paid off in 30 years regardless of how high or low your mortgage payments are. When your mortgage payment is higher and you are living on a tighter budget, you may be inspired to live more frugally and to pay down your mortgage balance faster. As a result, your net worth may increase at a faster rate. You may even increase your savings balance at a faster rate because you are more concerned about the proverbial rainy day.
On the other hand, when your mortgage payment is lower, you have more flexibility in your budget. Rather than using that extra cash to make extra mortgage payments and to save money, you may be inclined to make purchases that you otherwise may not have made if your budget was tight. More than that, some people continue to take advantage of lower interest rates by refinancing every few years. When they do, they reset their mortgage payoff date to 30 years down the road, and they may even pull equity out of their house.
A cheaper mortgage is not necessarily a bad thing, but it could inspire you to make financial decisions that you otherwise would not have made. Now that you are aware of what could happen, however, you can take proactive steps to stay ahead of the curve. In fact, you may even be inspired to refinance your mortgage to a shorter term length so that your mortgage is paid off sooner. Do you want to explore your options? Contact the MortgageDepot lending team today.
Connect with one of our loan consultants to learn more.