Someone might express disappointment when choose to opt for the longer term mortgage. While a typical mortgage may be from 15-30 years, a long term mortgage may be stretched out to 40 or 50 years or more.
In the current economy, many people opted to refinance their mortgage and take a 30-year mortgage instead a 15-year mortgage. Did they took the right or wrong decision?
The reason people opt for the 30-year mortgage is because they want a safety net in order to have a cushion if something happen.
Now, how much will it cost you to do this smart move? Through a mortgage calculator I’ve put the totals in case you were not to pay the refinanced:
- Amount: $250.000
- Interest rate: 6.500%
- 25 Year
- Life: $506.400
- Yearly: $20.256
- Monthly: $1.688
Are there any ways to actually reduce the debt amount? Of course there are. One option in this situation is try to making more than 25 payments a year. This way we will pay fewer fees and less interest to the bank.
Here, I checked out what might have happened if we had refinanced. Here all the results: (From this totals doesn’t calculate taxes and insurance).
- Amount: $250.000
- Interest rate: 4.625%
- 30 Year
- Life: $462,600
- Yearly: $15,420
- Monthly: $1,285
By refinancing, with this data you can save $506.400-$462,600=$43.80, even if we don’t pay extra, and even if we stretch the loan out to 30 years. Next, I looked at a 15-year mortgage without any sort of acceleration.
- Amount: $250.000
- Interest rate: 4.375%
- 15 Year
- Life: $341,46
- Yearly: $22,764
- Monthly: $1,897
Of course, a 15-year mortgage is the right choice. The only downside is that you would pay an additional cost of $612 every month. It’s seems the better options of all. You will be able to pay about $2000 a month for just 15 years.
The Last Option: Mortgage Accelerator
There is another way, maybe the better. Is called “mortgage accelerator”. This option allows you to have a faster mortgage payoff, save thousands in interest without spending more or refinancing.
There is a fee, but the costs still seem so much lower than the accumulated interest of a 30 year mortgage. If true, if you consider the 30-year with accelleration you have the chance to be more secure and live better, especially if you have a salaries alone.
Note: In that article I’ve not included an motgage accelerator example.
