August 2017 - NJ Financial Consultants | Lighthouse Financial Advisors, Inc.

How many have found themselves in this situation?

You have a mortgage, you’re looking at your savings account, you see a sizeable sum. From working with a fiduciary financial advisor you already have an emergency fund comprised of high-yield savings accounts, bonds and maybe fixed income funds so you are prepared for any sudden life events. Do you pay down your mortgage? Do you invest? Can you lower your monthly payments? So many choices! These are important questions and I would like to provide some helpful answers, breaking them down into two (2) categories – Math & Emotion.

Math: Math almost always tells us NOT to pay down our mortgage. Here’s why.

Is your mortgage balance $1,000,000 or below? All mortgage interest on a balance of $1,000,000 or below can be taken as an itemized deduction on your tax return. Great – why do I care? Because this deduction lowers the true cost of your mortgage!
- Example: Say you’re in the 28% federal tax bracket with a mortgage at 3.50%, your true cost is only 2.52% per year.¹ This is because you are getting a $0.28 cent deduction on your tax return for every dollar of mortgage interest you pay.
Can you exceed your mortgage cost in investment returns? With mortgage rates still low, many people are able to earn more than the cost of their mortgage by investing those dollars over the long-term in the market.
- Example: Take the information above and assume your true mortgage cost is 2.52%. The S&P 500 has provided a 7.2% annualized return over the last 30 years.² If you paid in full for your home back in 1987 instead of getting a 30-year mortgage, then you just missed out on an extra 4.5% return compounded each year since then.

Emotion: Math is not the only thing that matters.

How does having a mortgage make you feel? If your mortgage is the mental road block that has always kept you from feeling financially secure, maybe you do pay down part of your balance regardless of what the math says. Financial security shouldn’t just be something that you’re told but something that you feel. Confident that you and your financial advisor are on the same page, being able to get a comfortable night’s sleep counting sheep instead of running budgets.
Recasting – and I don’t mean fishing. If you have cash and you have decided that you will feel best putting it towards your mortgage, see if your lender offers recasting.
- Recasting allows you to pay down your mortgage with a lump sum and have the lender re-amortize keeping the same interest rate and term. This then lowers your monthly payment for the remainder of your mortgage. Cost of a recast can be around $250 and the minimum amount required varies ranging from a sum of $5,000 up to 10% of the remaining loan balance.

These are some of the key factors in the daunting mortgage pay down conversation, but of course there is always more insight to be given from a Fee-Only, Fiduciary Advisor. Who won’t be getting paid more whether you decide to invest or to pay down, because they are there to help you along your journey and achieve the ever coveted Financial Independence.

¹(28% of 3.5% = 0.98%) 3.5% – 0.98% =2.52%

²http://www.buyupside.com/shillerdatainfo/stockreturncalcresultsincludeformsp.php?price_type=Nominal&start_month=06&start_year=1987&end_month=06&end_year=2017&submit=Calculate+Returns

As September approaches and students begin to prepare for the fall semester, we feel this is an excellent opportunity to share ways that they can be smarter with their everyday expenses. With limited resources, college students can benefit immensely by learning to stretch their dollars. Aside from the classes they take, the independence of college gives them a place to hone their personal money management – a helpful experience that is arguably as important as the very classes they are enrolled in. Listed below are a few ways that students can be smart with all their hard earned summer wages, their loans, or your occasional allowance:

Avoid buying brand new textbooks. Useful sites to find secondhand textbooks include:
- chegg.com (Rent or buy books and eTextbooks)
- slugbooks.com
Visit a local bank. Ask about checking and saving accounts offered for college students. Some will offer a very low minimum balance requirement and having your account locally will save on ATM fees.
Cut out cable. If they’re staying off campus this could be a huge savings. Sharing accounts on streaming sites like Hulu and Netflix is a great way to stay up to date on movies and television series without the egregious monthly cost of cable.
Buy a coffee maker. This may seem silly, but can be a smart financial decision. It’s amazing how fast those little expenses add up.
Pay all bills on time. Have them get in the habit of paying their bills on time, every time, to avoid unnecessary late fees.
Use your student discount. Before they purchase an item they need, research if they offer a student discount. Personally, I found this extremely helpful when purchasing my 1^st laptop as well as my car insurance (extra motivation for a high GPA!)
Leave the car at home. Paying for parking, gas, and unexpected repairs can break the bank.
Most important – Create a Budget. Use your money for rent, bills and groceries first. Then look ahead to upcoming expenses. This will give them a reality check on how much they actually have for discretionary items.

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