You're about to buy your first home -- and to sign your first mortgage. Before doing so, look at these tips on saving money on your mortgage!
It’s the American dream and it’s about to come true for you and your family – you’re buying your very first home. Or perhaps you’re saving for the house you will buy someday.
Whether it’s one bedroom or four, attached garage or detached, in the city or in the country, chances are you’ll need a mortgage to make your dream come true – whether it’s now or two years from now. There are very few people who can put down cold, hard cash to make such a big purchase these days.
And like most new homebuyers, you’re probably living on a pretty tight budget. So when you look at your mortgage loan options and notice the payment is lower for a 30-year mortgage than a 10- or 20-year mortgage, you might be tempted to opt for the lowest payment.
But before you sign on the dotted line, stop for a minute. Take a look at the difference between the amount of those payments and calculate how much that extra 10 or 20 years is going to cost you. You’ll be horrified.
Let’s look at an example. Say you need to finance $80,000 at 7% interest. The payments on a 30-year mortgage would be about $532.25 per month. That same mortgage at that same interest rate would carry monthly payments of approximately $620.24 if the loan were for a 20-year term. And that same exact $80,000 mortgage at the same 7% interest rate would cost you $928.87 per month over a period of 10 years. While it’s tempting to grab the lowest monthly payment and run, don’t.
Let’s look a little further – and do the math. What will the loan – principal and interest included – really cost you over the entire term of the loan? Over 30 years, that $80,000 mortgage is really going to cost you a total of $191,610. In a 20-year period, an $80,000 mortgage will actually cost you $148,857.60. But if you take out a 10-year mortgage instead – even if you have to skimp a little each month for those first 10 years to pay the higher amount – that same $80,000 loan will only cost you a total of $111,464.40. That’s high enough considering you’ll be paying $31,464.40 in interest alone! Why would you want to pay even more in interest just to stretch your payments out over a few more years?
Look at the difference! By financing your mortgage for 20 years instead of 30, you could save $42,752.40! If you finance your mortgage for 10 years instead of 20, you could save $37,393.20! And if you could finance your $80,000 mortgage at 7% interest for 10 years instead of 30 – you’d save a whopping $80,145.60 – nearly enough to buy another entire house!
Is stretching those payments out 10 and 20 more years respectively really worth the extra expense? Not likely.
Whenever possible, opt for the very shortest possible mortgage period you can afford. You’ll be amazed at all the money you can save just by adjusting the length of your loan!
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