Personal Finance PowerPoint Presentation. Paying off your mortgage early. Get ready to get financially fit by practicing personal finance. Most of this information can be found at Investopedia, the benefits of mortgage repayment, which you can find online. Take a look at the references, resources, continue your research from there. This is by James McWinney, updated February 18th, 2022, the benefits of mortgage repayment. So clearly most people when purchasing a home don't have the capacity to buy just with cash. Therefore need some kind of loan, some kind of financing. So we're talking about the benefits of mortgage repayment here. You have taken a leap and decided to buy a home. After signing a mountain of paperwork, you are now the proud owner of your own residence. 30 days later, when the first mortgage payment comes due, you are hit by the reality of what you have done. You have taken on 30 years worth of massive payments in an economy that makes no promises about long-term job stability. Don't panic. This article will look at the benefits of paying off your mortgage as soon as you can and give you pointers on how to do it. So paying off your mortgage early, the pros and the cons. So can you and should you pay off the mortgage early? What are the pros and cons? That's what we're diving into right here, just like we said. The first and most obvious reason to pay off your mortgage as soon as possible is that it will save you tens of thousands of dollars. Well, that's a good reason right then and there. Read the papers you signed when you bought the place and take a close look at your amortization schedule. So you can want to take a look at the amortization schedule. You might want to make one in Excel. We do that multiple times in our practice problems. It's not only a good time, but it's good practice. So the mortgage companies disclose right up front what you will pay more than twice the purchase price of the home before you actually own it because interest is going to compile a lot over the long timeframe that you have borrowed the money, which is 30 years. So it can look quite shocking when you add it all up in terms of how much financing costs it will be. But again, it's over such a long timeframe so you can see why that is the way it is. So the second reason is the peace of mind you gain from owning your home. So there's a little bit, just want to make a clarification on what it means to own the home because a lot of times people get a little bit confused. You might say, if I bought the home, I took a loan out for 80% of it. You might say, well, the bank owns 80% of the home. Note that it's kind of funny to say that because you're basically over you're exaggerating the actual scenario when you say that that's what the original purpose of saying that would be because the bank doesn't actually own 80% of the home. You own 100% of the home and you have a loan out which has a value worth 80% of the loan. The bank only has the capacity to do any action on the home in the event that you don't fulfill your responsibilities such as paying. That's when they have the recourse for the foreclosure. And again, that's clear when you think about someone having an 80% interest in the home, that would mean that they can come over to your home you would think and go to the family meeting and tell you what color to paint the bathroom or something like that. And they can't do that because they don't own the home. They only have recourse in the event that you don't pay back the loan. So just keep that in mind as you say that but a lot of people will say that the bank owns 80% just keep that in mind. So with the lower monthly cash outlaw requirements, the prospect of unemployment or underemployment is no longer so daunting. You can now afford to take a job that pays a whole lot less than your previous position without any concerns about losing your home. So if you could pay down some of the home then possibly you can have lower costs of course which means you would need less cash flow which gives you a bit more cushion on a month by month basis. However, many people argue that paying off your mortgage is a bad financial move. So you're often gonna hear this argument that they'll say, well if you're gonna have any debt you should have debt in the home and beyond that you'll hear more aggressive kind of financial investors saying you want as much debt as you can get in the home because you might be able to invest that money elsewhere and beat the amount of interest you pay in the home. So that depends on obviously other many factors involved there. So they claim that you will get a higher return in the long run if you invest your money instead of making extra mortgage payments. So again, the more conservative or the more less risk averse person would like to say, no, I don't wanna borrow money in order to invest money for the most part. Or at least I wanna have a decent idea of how leveraged I'm going to be. So they're more likely to say, I feel more comfortable paying down the loan as opposed to having a high loan balance that I'm then gonna take the proceeds and invest elsewhere. Because again, if the market goes down completely if you have a recession for example, then it's possible the housing market goes down, your job market goes down and the investments that you put in which are typically stocks and bonds possibly go down. And the way you're gonna get a return that is higher is usually by having at least somewhat risky investments putting investments in like stocks and bonds.  So while there is some chance that you will achieve such a feat, there's also a chance that you won't. So given the choice between a guaranteed saving of 6% interest on their mortgage compounded for 30 years or the possibility of achieving some other way to return which may be a higher or lower conservative investors will take the safe bet. So, and you might say, well maybe it's somewhere maybe the answer somewhere in the middle. Most of the time when you hear these kind of arguments you've got people on both sides, people that are gung-ho investors that are putting everything into the investments and saying, I'm gonna make money over the long haul over 30 years, you would think that you might hit something like a recession, which could cut so you don't wanna be on edge all the time. You don't wanna be over leveraged. And then you've got the other side of the coin where people are saying, I don't want any debt, right? The fact that I have a debt out and the mortgage is killing me. I wanna pay the whole thing off and not deal with it at all. But that might be a little bit of an overstatement too. Some leverage might not be a bad thing. The question is how much leverage is the most appropriate kind of thing. And that also kind of fluctuates with your lifespan. You're gonna take more leverage out during certain parts of the lifespan as well. So you might see most arguments are given from a bipolar perspective. There's this way and then there's that way. And those people fight against each other, but usually it's more of a spectrum. How much leverage would be appropriate for you given your risk reward tolerance? So of course the entire argument is moot when you truly look at the facts of the situation. Most people buy a home, so they have a place in which to live. So notice that when you're thinking about the home, the finance person will come at it from the argument. Well, you need to invest, you need to buy the home to get the biggest return on the home. But obviously there's other reasons that you bought the home which are more difficult to quantify that being. You bought the home for it to function as a personal home for a set period of time. Even if it doubles or triples in value, they aren't gonna sell it. And if they do, it will take every cent they earn to buy a comparable home in the same neighborhood.  It's great that the market changes, but notice that if the market goes up or down, as long as you can make the mortgage payments, you're not, it doesn't really affect you during the time that you're in the home too much. I mean, you could refinance, but as long as you can make the payments or if the market goes down, it's painful to see that happen. But if you can make the payments and you like where you are, it doesn't have really an impact on your day to day kind of situation. Now you could, again, you could refinance or you could sell the home, but even if the home went up and you sold it, if you don't want to go to a different place, you want to stay in the same place, you'd buy another home in the same place. So it's great to watch the market kind of going up and down, you might be able to refinance, but the equity that you're getting isn't the most liquid equity that you're gonna be spending unless you're gonna dip into it with the refi, for example. So besides, since you can't live in a mutual fund, meaning when people buy a home, they typically buy it to live in it. If you were to buy a comparable mutual fund, you would be buying it purely as an investment.  Most home shoppers don't make their purchase in an effort to beat the return of the S&P 500. So you're not buying the home primarily as a return to beat the S&P 500, you're buying it as a home that you're gonna use as such. So the next argument against paying off your mortgage is even more dubious, but you hear it all the time, even from sophisticated investors, and that is mortgage interest will provide you with a tax break. Now this is true, but you gotta be quite, you gotta look into it in more detail for your particular situation, meaning because there's a tax break, oftentimes we get this idea that the government wants us to buy the home, they're incentivizing us to buy the home, and therefore, that's what basically we should do, but really what happens when there's tax breaks or any other government, most of the time when there's government involvement in the market, the market is gonna change in accordance with that government involvement. It could adjust prices, it could increase prices and so on, so it's gonna be baked into the market. It's just gonna complicate, generally, the general decision-making process that we're gonna have oftentimes. So while technically this is true, and you spend $1 in interest to get a 25 or 35 cents tax break because you're taking the dollar that you're spending just in the interest, not the principal portion, and then you might be in whatever tax brackets you are in to determine how much tax benefits you would get from that, which would be some percentage of it, it only works if you A, itemized deductions, note that itemized deductions used to be, more people used to itemize before a couple of years ago, but then they increased the standard deduction, which you would think would be something beneficial to most taxpayers because more wealthy people are typically the people that are gonna benefit from the itemized deductions. So that means that you can't really say, well, if I have this amount of interest, if I'm paying interest of 17,000 or something that I'm gonna get a tax benefit of 17,000, even though you'll see the 17,000 under the itemized deductions, because you would have got the standard deductions had you not qualified for the itemized deduction. So if you were standardizing before and you were already had a gap between how much itemized and standard deductions, you gotta take that into consideration. And the only way to really do that is to do an actual tax projection, which gets a little bit complex. So you wanna make sure to dig deeper into that and don't just, obviously the people that are gonna say these kind of arguments are also people that are probably in the home sale market. So you can't really rely specifically on their decision alone because they're somewhat biased. You wanna do your own homework on it. And then B, in the higher income tax brackets. So typically if you're in a lower income tax bracket, then you're not paying that much taxes anyways. So you're not getting this because you're in a lower tax bracket. So you're not gonna get as much of a benefit from the interest that's gonna be involved there if you're not making as much money. So you gotta keep that into consideration. For the average person, it's not a good return on investment. So in other words, if you were to kind of compare the investment on the home versus other investments, you can take into consideration the tax benefits that you would have, but most people often greatly overestimate the tax benefits, especially if you're talking about lower income individuals who were basically taking the standard deduction and weren't itemizing before the purchase of the home, which is the thing that usually kicks people over to itemizing. Paying off your mortgage provides a return on your investment that is much more reliable than anything the stock market can offer.  Again, you still want to take it on a person by person level and think about how much leverage is appropriate in your particular circumstance. So you don't want to take the extreme positions typically, especially the extreme position, which would be, I'm gonna leverage as much as I possibly can whenever I can, because some financial positions will do that because the more leverage you have, the more possibility you have to generate revenue faster in the future, but you're also taking on a lot of risk. And again, over a 30 year time period, probably gonna be a recession somewhere in there where everything kind of goes down and you're not really hedging against the risk in that case on the other side, it's a more conservative side. You'll probably be safer if you're on the way other side saying, I don't want any debt.  If I can, then you're probably better off than being on the other end, but it might be good to be somewhere in the middle, determine how much leverage would be appropriate for you given your risk tolerance level and your circumstances and your life scenario. So it also saves you tens and sometimes thousands of dollars to pay down the debt. So to top it all off, it provides the security of having an affordable place to live in the event that your income declines. So clearly, if you're in a situation where you're basically feeling highly leveraged already because most people are because the home loan, they're doing everything they can to just pay off the home loan, then if you can lower that amount so that you have a feeling a little bit more security and in the event that there's a decline in the market that your income level goes down, that you lose a job or have to change jobs or have a decrease in some way that you have a more of a cushion there. So with all of these benefits in mind, it's time to look at the strategies that would help you pay off that mortgage.  So typically, remember when you're buying the home, you're not going to the lender to see your personal budgeting strategy. You're going to the lender to see how much financing that you can get available to you you would like as much financing available in the event that you want it as you can. Then you do your own budgeting to determine how much you're actually going to use. And again, remember that government programs can often harm people when they're trying to help people by making financing easier to get because they remove the risk from the bank. But that means that more people who are dependent on the bank to do their financial planning are going to take more financing that they might not be able to afford to repay which means that that government program actually harms people oftentimes of when that happens. But you can also be as long as you're doing your homework, it could be a good thing as well. You just want to keep that in mind just like your credit card. If I can get a credit card that's willing to give me a million dollars of credit if I need it, great. But I'm not going to put a million dollars on the credit card, you know, it's... So this strategy will ensure that you have adequate cash flow to make extra mortgage payments and will provide some cushion should you have to take a lower paying job at some point in the future. Also, make sure that your mortgage does not impose a penalty for prepayment. This clause can put a damper on your efforts to get out of debt. So in other words, a lot of times you can still pay off more of the debt. So meaning if you owe $500 a month and you say I'm going to up it to $600 this month, I'm going to pay more than I needed to pay, you want to make sure that you're able to do that. The reason they would not allow you to do that is because if they locked you into 30 years and they don't allow you to pay off more of the debt, then they're going to make more interest over the life of the loan. What you'd like to be able to say is I'm going to get a payment that's affordable to me and if I can pay off more, then I'm going to pay off more and I expect that to decrease the principle of the loan, lowering the amount of interest that I'm going to be paying over the life of the loan. Most of the time the loans allow you to do that oftentimes but you got to make sure that that's the case. Next, you need to pay attention to the financial terms. While adjustable rate mortgages arms offer lower initial payments, they are used all too often to enable buyers to get into homes they cannot actually afford. So that's the adjustable rate mortgage. They're not bad. We talked about them in the past, but again, you want two people, the financial institution and the person getting a loan to be fully informed and then make the best decision being fully informed on their own decisions, right? And so oftentimes if the bank, for example, again from government influence, sometimes being able to sell mortgages on a secondary market, have a lower risk on these kinds of loans, they might then try to sell more of them than they otherwise would. And if the investor isn't fully aware, doesn't have all the information, likely you're gonna have loans that are gonna lead to people that wouldn't have taken the loans, can't afford the loans in the long run or quite risky, which again means that that kind of law, although it's trying to help people in theory doesn't, oftentimes in the mass, but if you know what you're doing with the arms, then you might be able to optimize the benefits of the arm and use it appropriately in the events that you can. When interest rates rise, some owners are caught unprepared. Similarly, home buyers often plan their finances based on the idea that their mortgage payments won't change. So clearly if you're going into an arm and you're not aware that the mortgage payments can change and you're not budgeting for that, then it's gonna be a shock. That means the borrower isn't fully informed during that process. They discover this isn't always true when their local government raises real estate taxes. If your plan is to get out of debt as quickly as possible, a fixed rate mortgage provides a predictability of a steady interest rate and can always be refinanced if it's false. So the standard, you know, plain vanilla 30 year fixed, there's a reason it's kind of like the standard. So there might be reasons to deviate from it in certain circumstances, but that increases the level of complexity a lot. And you want to make sure that you're doing your homework, going into that and not depending on the financial institution to do in the homework for you because they're not out for you, they're out for them. That includes the government. So how to pay off a mortgage quickly. Once you have a mortgage, the key to paying it off is simply send money. Some mortgage, that's it. You just give them the $300,000. That's how you do it. Some mortgages plan offer a bimonthly payment schedule which results in one extra payment per year. It's a great strategy unless there is a fee associated with it. If there is, simply set aside some cash and make an extra payment on your own. So you might just say, I'm gonna pay more from time to time. If your career advances over the years, put those raises and bonuses to work by sending them to the mortgage company. So you can send them there. That means they're gonna be lowering the balance and then saving hopefully the interest that you would otherwise be paying by paying down the loan. So you were doing just fine without that money and you won't miss it if you don't get used to having it in your budget. So if you just start spending it, it's gonna be harder to do that in the future because then you're gonna start getting in the habit of spending more money. So keep an eye on interest rates and if they fall, consider refinancing. If you can reduce your interest rate, shorten the term of your loan or both refinancing can be an excellent strategy. So if you lock the loan in, you might say, well, what happens if interest rates go down? Then you can refinance possibly, although you have to take care of the closing costs and whatnot, we discussed that in the past. Just don't make the mistake of keeping your term the same and taking money out. So he's basically, if you take money out, then there's various reasons why you might need to do that but you want to try not to if you're trying to pay down the loan. Using that mortgage calculator is a good resource to compare these costs. The bottom line, there's no time like the present to begin your quest to pay off that mortgage.  That serves your interest expense. So that can be a powerful motivator for financially savvy individuals. So if you just look at how much interest you're paying, you might say, wow, I need to pay this thing down. So if you focus your efforts on the task at hand, you may be surprised at how quickly you can retire a mortgage. With your mission accomplished, you will find that the comforts of home are even more pleasurable when it is you, not the bank who owns the home. Again, that's kind of a misnomer if you have a loan out. The bank doesn't actually own the home but you understand the idea in that. The bank owns 80% of my home, it's horrible. Well, can they come over and paint your house? No, but if I don't, so it's a little bit different than that but it's nice to not owe money on stuff.


We will get started. Good morning and welcome the members to the 21st meeting in 2018 of the Delegated Powers and Law Reform Committee. We received apologies from Graham Simpson and Bill Bowman as his replacement. Good morning, Bill. Agenda item number one is consideration of instruments subject to the negative procedure. The first item is the Scotland Act 1998, Agency Arrangements Specification Order 2018, SI 2018 626. Regulation 4, Subsection 2 of the Scotland Act 2016, Transitional Regulations 2017, enables up to four dates to be specified earlier than a default date of 31 March 2020 in respect to provisions of an act of the Parliament related to certain types of benefit would be commenced. Those provisions relate to disability benefits, severe disability benefit, industrial injuries benefits and carers benefits. The Scottish Government has confirmed that the policy intention is that this order would be commenced on the same day as when the first of those provisions would be commenced for any purpose. This is expected to be when the relevant provisions of the Social Security Scotland Act 2018 are commenced in relation to carers allowance. The meaning of the commencement provision in article 2 could be clearer, as that policy intention is not clearly expressed by the words immediately and after the end of the period determined in accordance with regulation 4. Does the committee wish to draw the order to the attention of the Parliament on reporting ground H, as the meaning of article 2 commencement could be clearer? Does the committee wish to recommend that further consideration is given to whether an amendment of article 2 is needed to deliver the policy intention more clearly and given the significance of the arrangements in this order? No points have been raised on SSI 2018-18-2. Is the committee content with this instrument? Okay, thank you. That now ends the public part of this session and I'll move the meeting into private.