Mortgage Tip

[Quarrior]

This is in now way any kind of advertisement. I just want to pass along a tip to those that may not be aware of it.

When buying a home never buy it using a 15 year note. Always get a 30 year note. The reason is the payments on the 30 year note are lower.

However, you can pay off the 30 year note in 15 years or less.

Here's how:

1. Get an amortization schedule printout for your loan from your lender and hang it on the wall in your office or wherever you do your bills.

2. Every month pay your full payment and the following month's principle.

Doing this reduces the principle faster and reduces the total interest paid over the period of the loan.

Getting the 30 year loan you are not locked into the higher payment just in case you have an emergency one month, you don't get hurt by skipping that extra principle payment.

Most lenders will not tell you about this idea, but the honest ones will tell you it works.

 

[Damselfish]

But, the rate on a 15 year note is generally lower than a 30 year.

 

[tc]

Be careful of the wording on the prepayment clauses and how (and when) the money is applied. It may not be as simple as you think.

 

[Quarrior]

Be careful of the wording on the prepayment clauses and how (and when) the money is applied. It may not be as simple as you think.

Good point. Most if not all mortgages have a place on the payment stub which says something like "extra principle". That is where you plug in the amount you are adding.

Even adding an extra $100.00 per month can make a huge difference in how long it takes to pay off loan and the interest saved.

 

[Quarrior]

But, the rate on a 15 year note is generally lower than a 30 year.

This is true, but doing what I posted negates the difference.

 

[Wayward Son]

Or you get get a 15 year note, do the same thing & pay it off in about 7 years.

 

[Damselfish]

This is true, but doing what I posted negates the difference.

um no, it doesn't. A lower rate is a lower rate. A 15 year loan at a lower rate will cost you less in the end, than a 30 year loan at a higher rate that is paid off in 15 years. Not saying doing the 30 year may not be a good idea sometimes, just pointing out another aspect.

 

[neil]

Here's a calculator to play with that will show you the effect of extra payments.
http://www.bankrate.com/brm/mortgage-calculator.asp

 

[Scuba_Jenny]

I was told that making one extra payment per year will drop the 30 year loan to just over 15. How correct is that?


EDIT: I just tried the calculator that Neil linked to. Plugged in my mortgage amount, interest rate, date of mortgage and got a number. Then I calculated adding $50/month and it dropped my ending date by almost 8 years!

 

[Cacia]

love this stuff,

wish we had a consumer forum
I try and make two pmts a month
But it's a 30 year, no pre-paymt penalty

same question as Jenny..I heard that but the numbers don't run