Save big when you choose a 15-year loan
If you want to pay down your mortgage at a faster rate, here are some tips
to help you speed the payment process.
By Tony Moton November 7, 2013 9:20
PM
Perhaps you thought there was only one type of
fixed-rate mortgage: the 30-year. Well, believe
it or not, there is a wide variety of
fixed-rate mortgages out there - and some yield
huge savings.
And, choosing a shorter term could really pay off.
"A shorter term mortgage
comes with a lower interest
rate, which means you pay less in overall interest. This reduces
the overall cost of home ownership," David Bakke, editor at Money Crashers, a
website devoted to career and finance advice, says.
So let's explore refinancing to a shorter-term mortgage and what it could
mean for you.
The Most Popular Short-Term Mortgage: 15-Year Loan
Even though fixed-rate mortgages come in a variety of sizes, the one that's
been trending for the past few years is the 15-year, fixed-rate mortgage.
In fact, according to the "2013
Second Quarter Refinance" report by Freddie Mac, one of the nation's largest
lenders, 31 percent of those who refinanced in the second quarter of 2013
shortened their mortgage term. And, the 15-year, fixed-rate loan was a popular
one.
And while shorter-term mortgages often mean higher
monthly payments, Bakke says that because of the historically-low interest
rates, people can actually lower their monthly mortgage payment while lowering
their overall term from 30 to 15 years (depending on what their existing rate
is).
[
Thinking about refinancing your mortgage? Click to compare
interest rates from multiple lenders now.]
"One possible disadvantage to a shorter term mortgage is a higher
monthly payment, but this really depends upon your current loan's rate of
interest. If it's rather high, it's possible to get into a shorter term
mortgage and lower your payment at the same time," he says.
Just How Much Can You Save?
So glad you asked, because that really is the question on most people's mind
when they consider refinancing. So let's get down to dollars and cents.
Here's an example using a $300,000
mortgage. We'll compare a 30-year mortgage with a 5 percent interest rate, and
a 15-year mortgage at the average interest rate as of October 24, 2013,
according to Freddie Mac's
"Weekly Primary Mortgage Market Survey®."
|
30-Year Mortgage
|
15-Year Mortgage
|
Interest Rate:
|
5 percent
|
3.24 percent
|
Monthly Payment:
|
$1,610
|
$2,107
|
Interest Over Life of Loan:
|
$279,767.35
|
$79,178.74
|
As you can see, if you can handle paying
a little more every month, you could save a whole lot of money. In this
example, the savings totaled over $200,000. And if you're refinancing from
a 30-year mortgage with an even higher rate, your savings could be higher.
Own Your Home Sooner
When people explore the massive savings in interest a shorter-term mortgage
could provide over the life of their loan, compared with a 30-year mortgage, they
often forget that an equally attractive result is achieving home ownership in
half the time.
And that, says Bakke, is a huge step toward more golden, golden years.
"A shorter-term loan is a great idea
for someone planning for retirement.
Getting a mortgage paid off before you retire is an excellent strategy to make
financial management during retirement more feasible," he says.
[
Time to refinance to a shorter-term mortgage? Click to shop
around and compare interest rates.]
Jim Duffy, a mortgage banker with Cole Taylor Mortgage
in Atlanta, Georgia, says this is the main reason he's done many more 15-year,
and even 10-year, mortgages in the past few years.
"Baby boomers are seeing retirement
just around the corner, and today's low interest rates make it possible for them to get
a shorter-term mortgage and enjoy their retirement, even on a fixed income,"
he says.
More Security
Do you like your home? Are you planning to stay in it through retirement? A
shorter-term mortgage could help ease your mind about how you're going to pay
your mortgage once your income shifts.
And who can disregard the emotional value of your home, especially if your
home is filled with cherished memories of sons catching their first baseball in
the front yard, daughters having sleepovers, and holiday family gatherings.
Duffy says wanting to stay put during
retirement is another reason a lot of his clients have switched to a short-term
mortgage: They're working now, and would rather pay a little more every month
while they're earning income in exchange for the ability to stay in their home
during retirement.
"Then, they don't have to move to a smaller place or apartment because
they can't afford their mortgage on a fixed income," he says. "It's a
real sense of security."
If you have questions regarding Loans, Financial Information, buying or Selling your Home or Real Estate. Please give me a call My group of network Professionals are looking forward to helping you with your needs.
Thank you
Joseph D’Ambrosio
Joseph D'Ambrosio
Real Estate Consultant / Realtor
West USA Realty
623-204-2138
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The Veterans Day holiday on Monday contributed to a quiet week for economic news. On Wednesday the reading for the federal budget deficit for October fell from September’s reading of -$120 billion to -$92 billion.
