With mortgage interest rates bottoming out, there was no place else for them to go but up. This may have prompted you lock in the rates even before you bought one of our SJV homes. However, defying all expectations, rates have continued to drop, prompted mostly by downward economic pressures, such as the exit of Great Britain from the European Union.
This means you may actually be paying less for your home every month than you actually budgeted. So what do you do with the extra cash? The temptation is to take this extra money and simply spend it on more furniture, restaurant outings, or the latest toys. But opportunities for additional income are few and far between. So why not take these overages and apply them where they can make the biggest difference to your budget as in the following suggestions.
Pay down the loan.
Any required payments that you make during the first few years of your home mortgage primarily go toward the interest. While these payments become excellent tax deductions that lower your federal and state income tax burden, they apply very little to the loan itself. If you take your extra money and add it to every monthly payment, it automatically gets applied to the principal, which pays your loan off faster and lowers what you’re charged for interest over the life of the loan.
Bankrate offers a calculator that tells you how much money you save when you increase your monthly payments for a specified time. For example, assume you have a $200,000 loan at 4-1/2 percent for 30 years. Adding $100 to the monthly payment at the beginning of the loan saves you a total of $31,746 and reduces your mortgage repayment by five years.
Create an emergency fund.
Life is full of budget-draining emergencies. Little Johnny is going to need braces, your attempts at cooking have burned down the kitchen, or your overly aggressive pickup basketball game tore your rotator cuff. Such issues are covered by insurance. However, there is one problem that no insurance covers: losing your job. You’re going to need an emergency fund to cover the weeks or months that you’re looking for employment.
Developing an emergency fund demands knowing how much you spend. Figure out what your basic minimum monthly expenses run. Add in required payments, such as the mortgage, utilities, car loans, minimum credit card payments, and food. You can leave out discretionary items such as dinners out or movie dates. Then multiply the total amount by the number of weeks or months it takes you to find a job. Three months should be the minimum, although six months to a year may be more realistic. This is the amount you should be saving for your emergency fund.
Go to college.
A post-secondary education grants enough advantages that you want your kids to go to college after high school. Or perhaps, you’ve always wanted to go for a master’s or complete that degree you never finished. Unfortunately, college isn’t cheap. The yearly tuition cost in the state is $1,104 for a community college, $5,472 for a state university, and $12,240 for a university. If you’re from out of state, the non-resident fees triple.
A 529 plan is a government fund that yields higher amounts when you save for college. Although you pay taxes on any contributions to the fund, all earnings are free of income tax. The California fund which is known as the ScholarShare College Savings Plan, provides 19 investment choices, has no maintenance costs, and charges fees that are lower than the national average.
If you need more information on mortgages or want to see in person what your money can buy, please contact us.