3 Helpful Metaphors to Better Understand Mortgage Payments

Mortgage payments will be the biggest chunk of your monthly expenses once you own a home. While it can be stressful to write that huge check each month, you should think of a mortgage in terms of what it means for your long term financial stability in order to help you understand why it is necessary. In the end, your mortgage payment is truly a check you write to your future self.

#1 The American Dream

The mortgage market exploded with the expansion of the American Dream. The notion was once that all well-to-do people should own property; today, the American Dream can be interpreted as the right of every person to own property. The cost of homes in the United States today makes it virtually impossible for a person to own a home without assistance from another entity.

The government has supported the goal of all Americans to own a home by offering assistance to the mortgage industry through regulation and guarantees. Today, the federal government sets loan standards, such as interest rates and limits, to help the average person know when a mortgage is a good deal. The government has also created Fannie Mae and Freddy Mac, huge mortgage lenders, to set the loan standard. Finally, the FHA offers guarantees on private mortgages in order to make it possible for the financial industry to continue to fund the American Dream.

#2 Payment Plans for Investments

A home is on one hand a residence where you and your family will live day-to-day. On the other hand, though, a home is among the most stable and valuable long-term investments you can make. Over time, the value of a home will increase, despite small market fluctuations along the way. While it is possible to lose money on a home investment, if you stay long enough, you will typically come out on top.

Since most homes cost hundreds of thousands of dollars today, you do not likely have the money to purchase one outright. You do, though, have the income to make small contributions to own one over time. Since you ultimately want to cash the investment in for a higher return many years down the line, the process of setting up a payment plan allows you to invest without breaking the bank.

#3 Paying Yourself

The most important thing to remember when you cut your mortgage check is the fact you are actually paying yourself, not the bank. With the exception of interest, your mortgage payments will essentially go straight into your pocket when you sell the home. Even though you write your check out to a bank or mortgage company, you are actually growing your own equity with each contribution.

Rent is paying another person before paying yourself. In most cases, the rent you pay is actually covering the mortgage another person owes on the property. The number one rule for financial stability is "pay yourself first." You can do this by saving, investing and contributing equity into your mortgage for long-term profits.

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