While working yourself out of debt means you are working to reduce your monthly financial obligations, it might be worth it to actually go ahead and increase your mortgage payment. Read on to learn more.
You might currently have a 30 year mortgage. You probably signed up for this re-payment option because it was easy, offered the lowest payment available and usually didn’t require a down payment. You might have a rate that you consider to be pretty good – it might be between 5 – 6%. Of course, rates have continued to decrease. This might be the right time to reconsider a 15 year note.
What we are learning is that you might pay a little more each month for your 15 year mortgage, however, the overall savings over the life of the loan is dramatic. Check out this example of what you would have paid to have a 30 year fixed mortgage a few years ago vs. opting for a 15 year fixed loan today. The savings really speaks for itself:
Loan Amount: $150,000 Loan Amount: $150,000
Term: 30 years Term: 15 years
Interest Rate: 6% Interest Rate: 3.25%
Monthly Payment: $899.33 Monthly Payment: $1,054.00 ($154.67 more)
Total Interest Paid: $173,757.38 Total Interest Paid: $39,720.57
TOTAL SAVINGS: $134,036.81 in interest
My husband and I were always 30 year mortgage home owners. We thought a 15 year was not wise for us, based upon our financial situation. We have learned that we had to change the way we also looked at our mortgage payment. It was more than just what we had to send to the bank each month. What became more important was the total amount we would have to repay.
We recently refinanced our own mortgage. And, we, like so many, opted for a 15 year re-payment schedule. Our payment increased by just $100. The bigger issue was the amount we will put into our pockets. Over the course of the life of the loan, we will end up saving more than $100,000 in interest! As an added bonus, we will be out from under our mortgage by the time our children finish high school.
There is actually even more to consider regarding home ownership since the economy declined. Gone are the days of no-money down loans. Now, most lending institutions require a 10-15% cash down payment.
Also gone are the days when we can go ahead and purchase a home worth what the bank says they will loan to us. Instead, we are all forced to take ownership of our own budget and financial well being. No longer is the status quo that we all can own a home worth 3x our annual income. Instead, less is more is the new mantra.
(I am not a financial advisor and the information listed within this post is not to be construed a financial advice. Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)