The age-old question: Do we pay it off the mortgage and become debt free or do we take advantage of the cheap money? After asking this question on our Facebook page I noticed again there is a lot of debate with how people think about a mortgage. It really does bring us to question our financial system.
We will take a look at a few different ways people view a mortgage and discuss them so you can make your own decision.
Keep the Mortgage
There are normally two reasons you want to keep your mortgage.
- It is cheap money. You are using someone else’s money to leverage your own. Meaning you are borrowing the bank’s money, using saved money or home equity money to invest to make a bigger return then what you are paying the bank.
- Many people also look at a mortgage as a tax benefit because you are getting to deduct your mortgage interest.
These are some great reasons to have a mortgage. Reason one is great provided you have enough money each month to pay back the loan. You can’t take extra money to invest if you don’t have the money to pay it back. In reality, this scenario may only work for those already somewhat financially set.
Tax deductions are great and you all hear that you should try to itemize but so many don’t truly understand how that works. Did you know that you have to spend over $12,200 (2013 guidelines for married couples) in taxes, donations, etc before you can even start to itemize? Now, if you can, you save 25% (or your tax bracket) on that amount. You are not getting back dollar for dollar what you spend over $12,200. For example: If you itemize and you spent 13,000, then you get 25% back on $800, which is $200. Was it worth spending $800 more to save $200?
You may not qualify anyway, just because you have a mortgage does not make you qualified to itemize.
Reasons to be Mortgage Free
These are the main reasons I hear from people why they want their mortgage paid for.
- Freedom of monthly payments. No longer a worry of not being able to make that payment or you just don’t like having a payment.
- Owning it and knowing it is yours. It’s like having a title to your car, it’s a great feeling.
- No interest lost to the bank. Doesn’t matter if that is a 15 yr. or 30 yr. mortgage no one wants to lose money in the form of interest.
No further explanation is needed for these reasons. We all have that sense of relief when we own something and know we have a little extra money each month in our pocket.
The Unknown Reason to be Mortgage Free
This is one thing the majority of people do not think or know about. Banks are in the business of making money and wanting to be the go-to place for loans. What you don’t see is how they do that and how it affects you.
Each time you pay the bank for your house payment that money gets turned by ten and borrowed out again. For example, $1,000 payment to the bank means they have the ability to go to the Federal Reserve and get $10,000 to loan. They have to keep $1,000 at the bank but they can now lend out the other $9,000 to someone at a higher interest rate and make money.
Where did that additional $9,000 come from? Thin air, it does not exist. It is merely a number on a ledger. This number though puts more money in circulation and the banks and the Federal Reserve are making money by charging us interest on nothing but numbers.
Think about why banks fight for your money and want you to deposit and loan from them.
Most people do not care to even know this fact but I do feel obligated to let you in on the process. Not because I want to sway you but because you should know how banks work and what is causing the dollar to lose value. (No this is not the sole reason but the only reason I am going to talk about today.)
What IBC Teaches
IBC (Infinite Banking Concept) teaches you that by having your house paid for you are no longer giving payments to the bank and the process of banks turning money slows down. If they don’t have dollars from loan repayments they can’t go get ten times the money to loan. This would then slowly keep the value of the dollar more stable.
Also, think about that tax advantage for mortgage interest. You know as well as I, the government does not just hand out their own money. They are returning the money they took from you, to begin with. Taxes laws are created so tax benefits can be given. It is a matter of moving money and having the system look like it’s in your favor.
The Bottom Line
There are two options and it comes down to what works for your household.
You can leverage your money through the traditional banking system by using their cheap money or you can pay off that mortgage because you are not able to itemize, want to have the sense of freedom and ownership, and help in the slowing of the money turning.
There is no right or wrong answer. The answer is in what works best for the finances of your household and where you stand in your belief system. If you asked what I believe I would suggest paying off the house to slow down the banks because that is my belief. I have clients on both sides, some want to use the tax advantage and leverage money. Others believe as I do and want it paid off.
The glory is you get to decide. Even better, you now get to decide by hopefully knowing more then you did before you read this.
Please be sure to leave a comment or question below. If you want to directly contact me, you can sure do that by calling or emailing me from the contact us page.