With the new year quickly approaching, it’s that time of year when many of us are focusing on making commitments to improve upon ourselves. If your financial health is part of your resolutions this year, here’s a tip to consider.
The 30-year fixed rate mortgage products have become an essential part of home ownership in the United States. The longer amortization period of a 30-year mortgage translates into a lower monthly payment, but with that benefit also comes an expense — an interest expense to be specific.
Not only do mortgages with longer durations tend to have higher interest rates, they also have a higher total interest expense over the life of the loan. For example, a 30-year fixed rate mortgage with a loan amount of $500,000 and an interest rate of 3.00% would have a monthly payment of $2,108.
This monthly payment would be made 360 times on a 30-year fixed rate mortgage, which would mean that the homeowner here would be paying a total of $758,887.20 over that 30-year period. Since the original loan amount was $500,000, which would mean the homeowner would have paid $258,887 in interest over the life of the loan.
That can be a tough pill to swallow given that the homeowner here is going to end up paying a total interest expense of roughly half the amount they originally borrowed. So how would one enjoy the financial flexibility of the 30-year fixed mortgage product, while still lowering the amount of interest paid over the life of the loan?
The answer is simple. All you have to do is pay a little more each month. For the purposes of this example, let’s say the same homeowner we discussed above is going to add $200 to their mortgage payment each month, and that $200 gets applied to the loan balance.
This small additional payment being made each month will save the homeowner a whopping $38,126 over the life of the loan, in addition to allowing the loan to be paid off four years sooner than originally planned. Sound appealing? Consider making this smart financial tip a part of your 2022 resolutions.
Looking into a mortgage or refinancing now? Consult with a professional lender at Alpine Bank Mortgage.