Who Said 30 Years?

If you follow my articles each month, you know that I don’t write about mortgages.  My goal is to impart wisdom as it relates to your personal finances.  I teach a Dave Ramsey lesson each month.  This month however, the topic is mortgages.  You see, over the past few years I have become the mortgage man who tells you to STOP BORROWING MONEY!  Every other lender out there is telling you that now is the time to refinance.  Well, perhaps, but you have to consider more than just the rate.

When I talk to folks about their mortgage I always recommend the 15 year fixed.  Why?  Well, the 15 year mortgage always gets paid off in 15 years or less.  The 30 year mortgage never gets paid off in 30 years.  It get’s refinanced over and over.  People need money so they pull equity out.  Most people keep their 30 year loan for an average of 5 years and then refinance back to a 30 year again…never gaining, but losing ground on paying off their home.

Let’s run some numbers to put this in perspective.  Here is a real life situation for you to consider.  This is my personal loan scenario.  I had a loan amount of $334,582 on a 30 Year Fixed at 6.25% with a monthly payment of $2,060.08.  I recently obtained a loan modification and my lender reduced my rate to 2% for the first 5 years and extended the loan to 35 years in order to bring my payment down.  My new payment is $1,102.91. 

What are my options?  There are several, but let’s consider these two…

1.       If I make every payment as planned I will pay $615,808 over 35 years.

2.      If I continue to make my old payment of $2,060 I will pay the loan off in 15.8 years and pay a total of $390,576.  That is a savings of $225,232!  How can I afford to NOT do this?

Most people only dream of paying off their home but don’t think it is a reality.  They continually refinance and use the savings to buy more stuff.  If you are one of the fortunate ones who is able to refinance or obtain a loan modification, please make the right decision and start paying down that mortgage.  I plan on taking no more than10 years to pay my house off.  My kids will still be in high school and we will be 100% debt free. 

Don’t believe it takes 30 years to pay off your home.  Where did the 30 year mortgage come from anyway?  I am not sure but I suspect the idea came from a banker.

With rates at 4.625% on a 30 Year Fixed with no points you probably should refinance.  I strongly encourage that you to have a plan so that you finish paying it off in at least half the time. Go For It!  You can always reach me at    alex@ChinoHillsMortgageMan.com