Change your mortgage terms? Just ask
Apr 7th 2008 7:00PM
Updated Apr 16th 2008 11:04AM
Interest. Blechhh. Especially mortgage interest. You borrow some money from some lender then not only do they want their money back but a little extra, if you please.
How much do you pay in interest? It depends upon how much money you borrow and for how long. Typically the longer you borrow money the lower your payments will be. But the catch is that you'll also be paying more in interest charges while taking longer to pay down the principal. Comparing a 30-year fixed rate mortgage payment at 6% to a 15-year fixed rate of 5.75% on a $250K note you'll find the payments are about $1,499 and $2,076 respectively. Even though you'll notice that a 15-year fixed rate is most always about a fourth percent lower than a 30-year rate, the monthly payments are higher with a 15-year loan. And you also pay a lot more interest when you stretch a loan over a longer period of time.
Over the course of both loans, the 30-year note has you paying $289,595 in interest alone...more than what you originally borrowed! At the same time, the 15-year loan collects $123,684 in interest...less than half of a 30-year loan. The problem with a 15-year loan is that it's more expensive every month, nearly a third higher. Even though financial experts says it's best to pay less interest, not more, the 15-year loan may simply be out of reach for many borrowers. But you don't have to choose between just a 30 year or 15-year note...there are other choices.
How about a 20-year? Or even a 25-year? Lenders typically don't advertise loans with payback periods between 30 and 15 years but they're available. You just have to ask your lender.
If you really, really wanted the 15-year fixed rate mortgage at $2,109 per month but the payments would keep you up at night, consider a 20-year fixed rate at 6.00% or a 25-year loan at 6.00%. A 20-year loan under those terms would have a monthly payment at $1,791 per month and the 25-year would be lower still at $1,610. Both the 20 and 25 year note saves you on mortgage interest compared to the 30-year mortgage while not breaking your bank. Just because you don't see 20 and 25-year programs in the newspaper or on the internet doesn't mean they don't exist...they do.
You just have to ask.