Welcome back to “Ask an Advisor,” the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.
Real estate is an important part of how Americans build their wealth. In the final quarter of 2022, 65.9% of American household owned their own homes, according to the U.S. Census — up from 63.7% at the end of 2016. And they believe it’s a good investment. In a survey conducted by CNBC and the research firm Momentive, 23% of respondents said buying real estate was the best way to grow their personal wealth — more than any other financial decision.
But buying a home is expensive, especially these days. As the Federal Reserve raises interest rates to battle inflation, mortgages have skyrocketed. In October last year, the average 30-year, fixed-rate mortgage reached 7.08% — its highest point in two decades, according to Freddie Mac. (As of late March, the average has come down to a still-expensive 6.32%.)
To make mortgages more manageable, some banks offer the option to make additional, principal-only payments — what’s sometimes called “pre-paying your mortgage.”
For a homebuyer who can afford it, paying off more of the loan upfront could mean spending less on interest over the long run. As Chase Bank puts it, “Making additional payments may save you money by decreasing the total amount of interest you pay over the life of your home loan.”
