The Three Best Mortgage Strategies for 2021 to Help Reduce Your Debt
It might be easy to assume that with a pandemic assaulting our nation, real estate sales would be low, but such is not the case. According to Bloomberg, Americans increased their borrowing to a record of $14.6 trillion last March, driven by home and auto loans. The average price for a single-family home in the U.S. rose the most on record in the first quarter due partially to a lack of inventory, according to the National Association of Realtors. See: U.S. Home Prices Surge the Most on Record in Buying Frenzy.
A recent New York Fed report, the first indicator of household balance sheets as the economy started to rebound from the pandemic, shows that mortgage loan balances have continued to increase as new borrowers take advantage of low-interest rates to refinance their home loans. But is taking on a large mortgage wise in 2021?
Many financial experts are saying this is not a good time to go into debt on a mortgage. Not only are we dealing with the ramifications of COVID, but there is a high degree of financial insecurity due to political unrest as well as business closures, job losses, unemployment, and our escalating financial debt. Some business experts are concerned about an economic collapse and some are predicting a dollar collapse by the end of 2023.
The rich rules over the poor, and the borrower is the slave of the lender.Proverbs 22:7 ESV
So what can a homebuyer do if they are in the market for a new home or want to get out of debt due to an existing mortgage? Here are three strategies to help manage mortgage debt in 2023.
Plan to Stay in Your Home Long-Term Before You Buy
Kiplinger recommends that you intend to stay in your home for at least five years before you even consider making the investment in a new home. Make sure it will be a home worth investing in and not just a temporary dwelling.
Interestingly, preppers are saying something similar. A growing number of people are considering buying a homestead instead of just a house. The idea is that if you can grow some or all of your food on your property, it becomes more sustainable. This may not increase the property value when it is time to sell, but it might increase the value the property has for you while you are living there.
“One of the best investments you can make, especially for surviving a financial collapse, is ensuring that you own your home. That way, it can’t be taken away from you,” reads an email from the Lost Superfoods group.
The writer goes on to make an important observation: making an extra payment of $100 a month to pay the principal on the loan can cut a mortgage by 15 or more years. The point is to become more self sufficient and less mired in debt.
Pay Your Mortgage off Early
This concept should be applied to your new or existing home mortgage–if you increase your monthly payments slightly, the mortgage can be paid off more quickly. Financial expert Dave Ramsey agrees, saying that paying off loans early is a good way to get out of debt sooner. Ramsey encourages homeowners to check with their mortgage companies first. He points out that some companies only accept extra payments at specific times or may charge prepayment penalties.
When looking at reducing the debt on your home, how do you determine how much you need to add to your monthly payment to pay your loan off faster? Here are two helpful calculators:
- Loan Payoff Goal – Use this tool to determine how much money you’ll need to add to your monthly payments to pay your loan off by a set date.
- Payment Range – Use this tool to determine how much faster your loan will be paid off if you increase your monthly payments.
Make a Large Down Payment
If you are contemplating buying a new home, another option is to follow Dave Ramsey’s advice and save up for a big down payment before you buy a house or land. He encourages people to avoid nothing-down, interest-only and sub-prime loans and to spend time saving up for the down payment rather than rushing into debt.
While Coronavirus may not be the catalyst that slows the mortgage business, our country’s financial uncertainly and political unrest might be. This does not appear to be a good time to get into major debt. Making a substantial down payment on a property, planning to live there at least five years, (maybe even growing some of your own food) and paying your mortgage off early look like the three best mortgage strategies in the uncertain times of 2021.
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