Pulling cash-out of you home can be a valid financial decision where the benefit outweighs the long term effect. These are choices we make.
Danger can arise when the house becomes an ATM machine subsidizing life style wants and needs. (Did I really need that?).
This model was designed to illustrate what you have been doing with your mortgage balance. Are you maintaining, reducing or growing your balance?
Red | Green
This combination is the most common. An interest only loan or a refi starting the amortization over causes this along with cash-out.
Have your investments or portfolio made up the difference if you’re in the RED under ‘B’? (Do you have the amount of cash in the bank greater than that RED number)?
Starting the amortization over after you have had the loan for a number of years can be a mistake. Refinancing to a lower term can be a good call too; From a 30 year to a 20 year, etc…
Is how much ahead you are based on amortization. Uncommon unless you’re paying down your mortgage faster.
RED under A is how much money your short based on amortization; where you should be.
GREEN under B is how much money you have paid down on your house.
Is how much money you have pulled out of the house.
Here we’ve created a ‘catch-up’ option for you to get back on track to paying off your loan, by achieving a zero balance in its original term. Making that new payment should get you there!
Note to self: Remember, refinancing in the future ‘re-starts’ the amortization schedule, meaning you’ll be paying way more in the long run.
And at some point the question will surface: “Will I be able to stay in my home in retirement?”
So now you can check and see if you’re on target, based on a past refi. Just input the refi date in place of the ‘Original Loan Amount’ and the result is now based on that refi!
Most loans are ‘amortized’ for 30 years. This means your loan will be paid off in 30 years.
With interest-only (IO) loans, you enjoy a lower payment with the trade-off of NOT reducing your mortgage or ‘principle’ balance. Some banks offer 20- and 15-year amortized terms too; shorter terms with lower rates, but with higher monthly payments, making it harder to qualify.
Then there are adjustable-rate mortgages or ARM’s. These loans offer lower rates of interest making it easier to qualify but will ‘adjust’ in the future, and most likely at a higher interest rate. Essentially, they’re fixed for a period of time, and then they’re not.
This loan was designed for younger borrowers who hope to make more money in the future as their monthly payments go up. Or people for who know they’ll be moving within a certain timeframe.