Real Estate
February 22, 2018
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It’s easy to save in mortgage interest expense

By: Scott Sheldon
January 26, 2018

If you hate your mortgage as much as everyone else does, this article is for you. One of the things people hate about home mortgages is the amount of interest they pay over the total term of the loan. Following is a strategy to help you pay off your house faster without breaking your pocket in the process.

Most people today who purchase and refinance a home will take on a 30- year fixed rate mortgage. The main benefit of the 30-year fixed rate mortgage is by far the most affordable in terms of payment. It’s also the most expensive type of mortgage because you pay double the amount you’re borrowing in interest over the total 360-month term. A few years into the mortgage people start thinking to themselves “How can I start reducing my interest expense?”

Few options people have would be refinancing it into a 25-year or 20-year or even an aggressive 15-year mortgage which contains lower rates than the average 30-year fixed rate.

Another solution for people would be to simply make a bi-weekly mortgage payment. The challenge with this is that most mortgage loan servicers do not offer a bi-weekly mortgage payment plan. The reason why they don’t is that it benefits you not them. Make no mistake banks want the interest you are paying them for as long as possible. Banks do not want you paying off the mortgage, as a result, it does not financially benefit them for you to have a bi-weekly payment plan set up. One of the wonderful ways to offset this is to simply make a 13th mortgage payment every year. Let’s say your mortgage payment is $2,500 dollars per month. Simply make a 13th payment. Making a 13th mortgage payment every year is effectively the same thing as having a bi-weekly mortgage plan and it doesn’t cost you anything. Do make sure to specifically inform your payment servicer that you want your payment applied directly to the principal.

You might see solicitations in the mail from third-party companies offering to do a bi-weekly payment plan for you in exchange for a nominal fee. Avoid them. Most of them are nothing more than scams. You can do the same thing yourself with a little money planning. If you do not have the financial discipline to double up on your payment or want to radically reduce your interest expense and you have the income and financial capacity to do it, absolutely move into a shorter-term loan such as a 15-year, as the interest is typically about 1 percent lower than the average 30- year mortgage and those loans are still under 4 percent. Dollar for dollar the amount of interest you will pay on a 15-year mortgage versus having a longer-term loan is substantial. A qualified mortgage advisor can walk you through pay down options and help you select the option that makes the most financial sense for you and your family.

Looking to get a mortgage? Begin now, it is quick & easy.

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.