122 - Basics of Debt, Part 2: Dealing with Mortgages

EPISODE SUMMARY

In this episode of the Sound Financial Bites podcast, host Paul Adams and co-host Cory Shepherd tell the tale of two sisters. One of them paying off her mortgage over 15 years, and the other over 30 years. Through this allegory, Cory and Paul discuss how to pay off your house in a manner that gives you the most freedom.

Their conversation covers the basics of mortgage payment plans, the reason that banks benefit from the 15-year plan, and simple interest debt versus compound interest growth.

WHAT WAS COVERED

• 1:15 - Welcome to the show
• 2:40 - Review of the debt series
• 3:35 - Introducing the mortgage conversation
• 3:50 - What the bank gains from a 15-year mortgage
• 6:35 - What is your goal?
• 7:27 - The tale of two mortgages
• 9:45 - The rest of the story
• 10:04 - Simple interest debt vs. compound interest growth
• 12:05 - The home appreciates regardless of your invested equity
• 13:47 - The most flexible mortgage options
• 14:40 - How to choose the best path
• 16:00 - Your home is not an asset
• 17:54 - Smaller payments & more control
• 20:40 - Featured podcast review of the week

TWEETABLES

“Every time you make an extra mortgage payment you're not lowering your own payment next month, number one. Number two, they're giving you no credit if you hit bad times for having made the extra payment.”

“The faster your principal is paid back, the faster [the bank] can lend it out at whatever the new and current interest rates are. So it works really well for them to have it paid down more quickly because it makes their investment safer.”

“So, here's our recurring theme. Know what the bank strategy is, but pick a strategy that lets you chart your own course, and maybe even change your path midway.”

“So whatever kind of mortgage you get, if you're month over month paying more to the bank than you have to as a minimum, then you're locking yourself into a one way street, because no matter how many early payments you make, if you have one month that you can't make the normal mortgage payment, the bank's not going to be sympathetic.”

“If you want to be a 15-year mortgage person, consider that you might want a 30-year mortgage, but don't tell the bank until the end of your 15 that you'd like it to be a 15-year mortgage.”

For full show notes, including a FREE PDF of the transcription, visit:

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