Paying your mortgage payments every month, loses you investment opportunity. The money you have to pay to your mortgage provider is a sunk cost that you cant get back every month. That money is gone and you can’t invest it in other things. This is the “Investment Opportunity Cost” because you have to pay your mortgage.
Most people don’t consider the possiblity of “floating” your mortgage payments with a short term loan of 1 year or more. This returns your lost investment opportunity for that time, because you can short term invest your money that was previously going to mortgage payments. You still pay the mortgage payments to your mortgage provider today, but don’t have to actually pay out of pocket for them until later. This means you are free to invest, assumming that you do this is relatively conservative investments with a good chance of returning your principal.
This video gives a quick overview of investment opportunity cost with your mortage:
Returning your investment opportunity is one of the benefits of the Float My Mortgage method. Sign up for a free membership to see a 15min video that explains how this works in much more detail.
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Leave A Reply (2 comments so far)
Erin
11 years ago
Floating your mortgage is never a good idea. It is so difficult to get back on track and you never know what other expenses may come up. Most professionals suggest keeping a solid emergency fund and paying all debt down including making your mortgage payment on time. I would seriously examine the pros and cons of this before doing it.
admin
10 years ago
Thanks for the comment and noticed you are writing a debt relief blog (which is great help for people struggling). If your finances are very tight and you have no emergency fund then floating your mortgage out for a year or so can be just prolonging the pain. However used properly it can be a very good tool, especially when combined with existing savings and lower risk investments. Saying “Never to float your mortgage” depends very much on your personal finances. If you are saving some money and are prepared to be disciplined, the Float My Mortgage method is proven mathematically to save you money overpaying on your mortgage. In summary, agree with your premise that you shouldn’t use it if you have no savings or backup plan, but it can be a great tool if used properly (which the website membership method discusses in great detail). Also just to clarify the bank is always getting their monthly mortgage payment on time sometimes weeks in advance (so your bank will be perfectly fine with the method!). Thanks for contributing.