Industry News - Alderus Mortgage

The Shockingly High Price of Christmas

The holiday season may be a time for celebration and joy, but it’s also a time when many of us get into a lot of debt.

According to an article from capitalcounselor.com, almost 22% of Americans go into debt because of Christmas. Last year, Americans planned to spend an average of $998 on Christmas gifts! But the actual cost of Christmas is often much higher than just the money spent on gifts. According to Experian’s Consumer Credit Review, Americans carry an average of almost $5300 in credit card debt, not to mention auto loans which average upwards of $19,000! Then, the holidays sneak up on all of us. And little Johnny needs a new electric scooter. We don’t want to deny our kids the magic of Christmas, so what’s a family to do? It’s crucial to get your debt in order before holiday shopping hits its peak.

The Best Way to Consolidate Debt

We know you’re decorating your home for Christmas and enjoying all the fun times that the holiday brings. But did you ever think about how your home could help you during the holiday season? Yep, your best option for consolidating and reducing debt (and stress) before the holiday season might be to refinance your home and take cash out.

Considering that many of us have record equity in our homes right now – which means we owe a lot less than they’re worth – it’s a good time to consider making that equity work for us. This usually comes in the form of a cash-out refinance. You take out a new, larger loan that’s worth more than your current mortgage balance. Then you get the extra cash back at closing… and use that cash to pay off your higher interest loans.

Considering that mortgage rates are still at record lows, this might be the perfect time to consider it. Think about it: if you’re paying annual percentage rates of 18 to 25% on your credit card debt, but you transition that to a mortgage loan that’s at about 4%, you’ll be paying a lot less monthly and over time.

The Benefits of a Cash-Out Refi Before the Holidays

Here are a few other reasons to consider a refinance before the holidays:

You’ll likely skip a month or two of mortgage payments (yep, more $$ in your pocket for gifts or holiday travel).
You’ll also get any escrow balance refunds from your current lender within about 30 days of closing.
You’ll kickoff the new year with less debt and a solid financial future on the horizon!

Refinancing your mortgage can be a great way not only to consolidate and reduce any existing debts but also get a better interest rate and monthly payment if you qualify. And heck, if you don’t get a chance to do this before the holidays and end up racking up more credit card debt than you planned (with holiday spending), we can get you a fresh start in the new year!

Want to chat about it? One of our mortgage advisors is ready to help. Reach out today.

Of course. The better question is, “Should you pay off your mortgage in 5–7 years?” If you understand finance and are anything but the most extremely conservative with your money, the answer is no. In fact, in order to maximize your wealth, you should borrow as much as you can for as long as you can.

Let me explain. Mortgage interest rates are low…extremely low. It’s usually the cheapest money available to most consumers because it is secured by an appreciating asset and most often backed by the government in some way. Current rates on a 30 year fixed rate mortgage are around 4%, depending on your credit. Mortgage interest is also tax deductible (in the US). So, if you are in the 25% tax bracket, the 4% mortgage only costs you 3%!!!

The question to ask yourself is, what can I earn if I invest my money instead of paying off my mortgage. If the answer is anything higher than 3%, paying off your mortgage is a bad idea. This is the concept of opportunity cost. You can only spend each dollar you have once. You can either pay down your mortgage balance, or you can do something else with it. You cannot do both.

Now, if you are going to buy a car or blow it on something, you’re better off paying down your balance. However, if you invest it and get a 10% return (the average long-term annual return of the Dow Jones), you would be a fool to choose to pay down your mortgage balance. That 10% return compounds annually. So in year two, you make 10% on what you invested, but you also make 10% on the 10% you earned in year one, and so on. Over time, this equates to huge sums of money.

Warren Buffet took out a 30-year mortgage to buy his second home in 1971, for which he paid 150k and borrowed 120k (recently listed for 11 million, btw). Though he could have easily paid cash for the house at the time, he had better uses for the money than to save a few bucks in interest. He used the 120k he borrowed to buy more Berkshire stock. Today, he estimates that 120k investment is worth $750,000,000!!! Now I’m not saying you’re Warren Buffet and can turn 120k into $750M in 50 years, but if Warren Buffet thinks mortgage money is cheap and you should take advantage of it, who are any of us to argue. Especially when basic math backs it up.

Let us help you get started on your next investment property.

The Holiday Spending Debacle: Why You Should Consider Consolidating Your Debt Before the Holidays

The Shockingly High Price of Christmas

The Best Way to Consolidate Debt

The Benefits of a Cash-Out Refi Before the Holidays

Is there way to pay my mortgage off in 5-7 years?