brown on green, A Regular column about finances

Our House

It’s a good time to buy a house. Interest rates are low, and houses are beginning to become a good investment again. However, the gains in value on houses now will be slow and steady in contrast to the outrageous growth rate before the collapse of the 2008-2009 housing market.

According to LendingTree, the average mortgage loan is $222,261 with an interest rate of 4% for 30 years. A few years ago 6-7% interest rates were common, making house payments much higher. The payment on a 30-year mortgage of $222,261 at 6.5% is $1,404.84, over 32% higher payment than today. So, if you are considering buying a house, now is the time to buy.

Others are more interested in paying off the house they have already. Many have taken advantage of low rates, refinanced their houses, and shortened the term of their loan. With interest rates this low some wonder if paying off their mortgage is a good investment? The answer is yes!
When you pay off your mortgage, you are, in a sense, investing at the rate of your mortgage.

Some now have very low mortgage rates, perhaps 3.5% or even lower. An investment rate of 3.5% may not seem like a good investment, but since it is removing debt from an asset, the rate is as close as you will get to a sure thing.

In today’s investment environment, most people will jump at a sure investment of 3.5%, especially with inflation below 2%. Paying off a mortgage takes discipline, but just a little extra makes a big difference in paying off your mortgage early. Let’s use the example of the $222,261 average mortgage and assume the homeowner has made normal payments for the first five years. Adding $157 to each payment will allow the homeowner to pay off the mortgage five years early. Instead of paying 30 years of interest, they will pay for only 25 years. Paying off a home is much more than a financial decision; it also offers peace of mind as you near retirement.

Some may want to shorten the term on their house. The average mortgage of $222,261 on a 15-year loan at 4% dramatically increases the payment to $1,644.04. However, in reality, shorter-term notes usually have lower interest rates, so it is likely your payment would be lower than the example above. “Our house” is a good investment, whether you are buying your first home or paying off the home you have.

About the Writer: David Brown, CPA, became director of the Free Will Baptist Foundation in 2007. Send your questions to David at david@nafwb.org. To learn how the Foundation can help you become a more effective giver, call 877-336-7575.