How to Manage a Healthy Level of Debt with Your Florida Home Loan

Let’s get one thing straight: nobody craves debt. We’re not saying you should actively pursue overwhelming balances.

In some scenarios, however, it’s plausible to benefit from healthy levels of monthly bills. You may save money in the long run. In the meantime, you could have more liquidity available to build your fortune, keep your emergency reserves intact and prevent yourself from running up high-interest credit card debt for lack of available funds.

Focus on Florida home loans and buying a house. Most people can’t pay cash for their property, but many want to pay it off as soon as possible. This is understandable, but often mistaken. As eager as you may be to throw do away with your mortgage, figure out the cost of having one sooner rather than later.

For example: Say you can get a $200,000 mortgage at a fixed Florida home loan rate of 7 percent. If you pay it off over 30 years, you’d have a monthly payment of $1,331. If you pay it off over 15 years, you’d pay $1,798 a month, or $467 more. Certified financial planner Jill Gianola of Columbus, Ohio, argues you might actually save more money over time by choosing the 30-year option.

Here’s how:

On top of your $1,331 monthly mortgage payment, you invest $467 a month for 30 years. At the end of that time, you’ll have paid off your house and will have $696,000 in retirement savings to boot (assuming an 8 percent annual return).

Now let’s say you chose the 15-year Florida home loan. Since you don’t have that spare $467 to invest every month - it’s going to your lender - you begin investing the day your mortgage is paid off, taking an amount equal to your old Florida mortgage loan payment ($1,798) every month for 15 years. You end up with retirement savings of $622,000, assuming an 8 percent annual return. That’s $74,000 less than if you had chosen the 30-year option.

While it’s true that you will pay more interest on the 30-year, fixed rate Florida home loan (about $155,500 more), you have to invest far more of your own money under the 15-year scenario (about $155,500 more) just to achieve that $622,000 retirement savings.

“The calculations [for the 30-year scenario] assume you pay all that interest and you’ll still be $74,000 ahead,” Gianola said.

She also calculates the 30-year Florida mortgage would give you an additional $17,000 in tax savings in the first 15 years of payments, compared with the shorter-term mortgage. That’s because more of your payments in the early years of the 30-year mortgage would be going toward interest, which is deductible.

Of course, you need to be careful. Home loan debt is at a high right now, so buyers need to manage their payments responsibly.