Summary: Learn how to pay off your mortgage and discover the financial peace of living in a paid for home.
Download the free PowerPoint and teaching materials at www.LisbonWC.org/free.htm
FINANCIAL FREEDOM WORSHOP
Developed from the books Your Money Map: A Proven 7 Step Guide to True Financial Freedom and The Total Money Makeover.
- You’ve been pulling together figures from your expenses and your income for over a month now.
- Hopefully you have a balanced budget in place.
- Be sure to use a system to implement your budget.
- Find a way to determine if you are staying on track each month.
- First we talked about getting out of debt.
- Next we looked at how to stay out of debt by saving up for future expenses.
- Today we will look at the largest purchase more people will ever make.
THE ROAD TO FINACIAL FREEDOM
- Begin using a spending plan
- Save $1,000 for emergencies
- Pay off credit cards
- Increase savings to one month’s living expenses
- Pay off all consumer debt
- Increase savings to three month’s living expenses
- Begin saving for major purchases (home, auto, etc.).
- Begin saving for retirement.
- Begin saving for children’s education.
- Begin saving to start a business. (If this is a goal for you.)
- As you start this Destination, you are now one of the top 5 - 10% of Americans because you have some wealth, have a plan, and are under control (Dave Ramsey).
Buy an affordable home.
Pay off your mortgage.
29He who troubles his own house shall inherit the wind, and the foolish shall be servant to the wise of heart.
BUYING A HOME
- We learned in the previous Destination the importance of saving for a good down payment for a home.
- It’s best to save up at least 20% for a down payment before buying a home.
- Monthly payments will be smaller.
- Eliminates need for expensive PMI (Private Mortgage Insurance)
- PMI costs $65 - $70 per month per $100,000 borrowed (Cost avg. $840 - $1,680 per year)
- PMI is basically foreclosure insurance
Renting -vs- buying
- Some will advise you that it is always better to buy than to rent.
- This is not true.
- It is better to rent a house you can afford than to buy one you can’t.
- This is why the destination for buying a home is after you have paid off your debt.
- If you are in debt up to your neck, buying a home is the last thing you want to do.
- Also, when you rent, you do not have to pay for unexpected and often costly repairs to the home.
- If your money is tight, it is better to rent until you get to this Destination in your journey to financial freedom.
- Your total housing expenses should not exceed 40% of your gross income.
- Your total housing expenses will include:
~ mortgage payments
~ real estate taxes
- You can estimate the cost of maintenance to be 1-2% of the value of the home each year.
- Dave Ramsey says to never buy a home that would have a payment of more than 25% of your take home pay.
Dave Ramsey Advice
- Make sure you don’t borrow more than it is worth.
- Some banks today will lend you up to 125% of the value of the home.
- Some use the extra 25% to payoff credit card bills and call this restructuring their debt.
- This is a good way to get stuck with a house you can’t afford.
- It could lead to foreclosure.
- You also end up paying on credit cards for 15-30 years.
- If you cannot afford a house right now there are three things you can do: pray, save, and wait.
Assignment from last week
- Do you own your home? Find out how much you owe on it and how long it will take to pay it off at your current payment rate.
Prepaying the mortgage.
- One thing that is important to understand is the way interest is paid on a mortgage.
- Interest is front loaded on a mortgage.
- In the beginning of your loan repayment, your payment will go primarily to paying interest.
- In fact, in a 30 year mortgage, it is 23 years before the interest and principal portions of your payment are equal.
- With a 150,000 home loan at 7.5% you will pay $12,585.84 each year.
- In the first year only $1,382.73 of those payments will go toward the principal (the loan amount).
- If you pay around $100 extra per month, you will save around $900 in interest over the life of the loan.