As I look over the issues of how a mortgage can get you into a higher tax bracket, or how a mortgage can help me go into an IRA, I often come across people that have the Mid-20s. I wonder how I should think about this since the Gen X crowd doesn’t typically use their savings to buy homes. It only makes sense that the best way for an aging baby boomer to preserve their home is by not relying on their home equity to finance down payment and start buying their own home. Let’s take a closer look at the Mid-20s and IRA mortgages.
Homeowners with mortgages in their 20s might not consider themselves as retirement planning experts, but I would suggest otherwise. This group of homebuyers has a lot of experience investing and leveraging home equity. Many of these homeowners were able to save a significant amount of money on interest rates when rates were low. If you are currently planning on purchasing a home in your early to mid-20s, I recommend preparing a financial plan to protect your wealth in case interest rates suddenly go through the roof.
Some may be concerned about learning how to “read” mortgage rates. After all, this is a common concern among homeowners with sub-prime loans. While it is possible to understand what mortgage rates are based on your credit score, there is more to understanding them than meets the eye. The FHA recognizes the risk inherent in owning a home, and they provide the information to help you know how much of a hit you will take if interest rates unexpectedly fall.
Most mortgage companies have mortgage calculators on the website that will show your anticipated monthly mortgage payment based on your age, employment, and other factors. These are excellent tools, but keep in mind that they are only as accurate as of the information you input into them. In addition, mortgage calculators can only give an approximation of your payment amounts. They do not take into account your potential income, other expenses, or your overall financial situation. Using them without the proper information will result in an underestimate of your true monthly payments.
If you are determined to buy a home in the upcoming years, the time to start preparing your financial plan is now. How much will you spend on living expenses? Will you make extra money on the side or will you rely heavily on a salary? These are important questions that many young people fail to ask. A good rule of thumb to use: the more you earn, the less you spend and the less you save, the higher your mortgage rates will be when you purchase a home.
The most financially secure homeowners are those who are married with children. It seems strange to think of young couples buying a house together, but financial experts say it’s actually very common. It’s also normal for homeowners to rely heavily on student loans, especially if the students are working while they’re still in school. These students often have flexible repayment terms because their parents don’t have to worry about paying the mortgage until they’re out of school. Many students will qualify for federal assistance to help reduce the cost of their education.
On the other hand, if you are planning to live on your own and rent a home when you get older, there’s no need to borrow as much on a mortgage. If you can qualify for a Federal Housing Administration or HUD-insured loan that covers your interest, you may be able to get away with a lower monthly payment. This will also help you pay down any existing debt, which will help you reduce the amount you need to borrow for your first home. However, if you plan to live independently and rent your own home, you can save a lot of money by living modestly and making your payments on time.
How a Mid-20s Mortgage Go From Mortgages: As you can see, many people are comfortable using their house as collateral. However, if you aren’t careful, you could run into trouble if you lose your house to foreclosure or you decide to refinance your current mortgage after going through a difficult financial situation. Instead of taking on more debt to pay off your current mortgage, look into getting a home equity loan. This type of loan allows you to borrow against the value of your home, which will give you extra money to work with. Remember to use sparingly and make your payments on time to avoid paying off too much interest.