Wednesday, January 17, 2007

Make Your Mortages Your Friend

Make Mortages your friend for your future

Well, we hope when you looked into choosing the right mortgage for you did your homework, research. You probably learned about which you should go with rather it was fixed rate, a hybrid, or an ARM. Though, did you forget about something. How long are you wanting this mortgage?

It's pretty much a reflexive move that we always opt for a 30-year mortgage. For my money, if you know you're going to be staying in that home for at least the next 10 years, a 15-year mortgage is the smartest move if you can handle the higher payments.

First, the interest rate on a 15-year fixed rate mortgage is typically about a half a percentage point below a 30-year fixed. Right off the bat, then, you have a better deal. But the real payoff is that you'll pay so much less in interest payments over the life of the loan.

On a $200,000, 15-year fixed-rate mortgage at 5.5 percent, the total interest payments are about $94,000, compared to more than $231,000 on a 30-year fixed-rate at 6 percent. Clearly, the time you take to pay off your mortgage has a huge financial cost.

Obviously, the 15-year loan also requires a higher monthly payment ($1,634 versus $1,200 in the example above). If that's not doable, then at least try to send in an extra payment or two a year on your 30-year mortgage. Just one extra payment a year will shave 5 years off your mortgage, which is going to save you plenty of interest.

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