30 Year Mortgage

Mortgage Length Calculating Which Is Best

For many people, purchasing a home is one of the largest and most important investments they will make after their education. It is important to make sure you choose the right mortgage, one you will be able to pay off within a reasonable amount of time. You also want to make sure you choose a mortgage which has the right length of time.

The length of your mortgage should depend on your financial circumstances. It should also depend on your future goals. How much can you afford to pay each month on a mortgage while still maintaining a healthy amount of savings? Being able to save a reasonable amount of money each month will protect you in the event of an emergency. You will also want to save money for the education of your children and your retirement. These are things you will want to take into consideration when choosing the length of your mortgage.

Common Mortgage Terms

Most mortgages have a length of 15 or 30 years. While some companies do offer 20 year mortgages, the interest rates for 15 and 30 year mortgages are fixed. Because of this they are used more often than mortgages which last 20 years. If you choose to take a 15 year mortgage, your monthly payments will be much higher. This will mean that you will have less income available to save. A 30 year mortgage will give you lower monthly payments, and will allow you to save more money than you would save with a shorter mortgage.

Weighing Up Your Options

It is important to weigh the advantages and disadvantages of both options before making a decision. Long term loans will give your more disposable income to spend on whatever you wish. They are flexible, and will also allow you to invest money. You can pay more money on the mortgage when you have it available so that the total amount can be reduced. You are also given tax benefits by the government because you are paying interest for a long period of time. These loans are also the easiest to be approved for.

Getting A Cheaper Rate

At the same time, long term mortgages also have higher interest rates. Because you are paying a large amount on the interest, you will pay more money in the long term. It also takes a long time to build up equity in the home. Long term loans also require long term commitments. You will want to make sure you have stable employment.

How To Pay Less For Your Loan

Short term mortgages are able to be paid off much faster. They have much lower interest rates and equity can be built up very quickly. Because the interest rate is low you will pay less over the long term when compared to a long term mortgage. At the same time, your purchasing power will be low and you will not have many tax benefits. Short term mortgage loans are also hard to get approved for. These loans tend to have higher monthly payments.

Whether you decide to get a short term loan or a long term one, you will be able to refinance to change the length of the mortgage. If you decide a few years after setting up a 30 year mortgage that you earn enough to pay it off much faster, you can refinance the mortgage for a shorter length of time. If you have a short term loan and it is difficult to make the monthly payments, you can refinance it to a 30 year mortgage.

Choose the Best Deal

The most important thing is to sit down and figure out which option suits you best. You should look at your current income, how stable it is, and how much you will have left over after paying the mortgage every month. You should choose a home which evenly matches your level of income.

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Monday, March 15th, 2010 Mortgage Fee No Comments

Mortgage Cycling Secrets Revealed

Have you heard about mortgage cycling? Maybe you’ve seen the ads for books on this “secret technique” for paying off your mortgage sooner. Is there some useful information in them? Yes, especially if you are not familiar with the basic premise that you can pay extra principle every year and you’ll pay off the loan sooner and save thousands on interest.

Mortgage cycling is dressed up as a “new” system, and of course there are many little tricks to doing this most effectively. There are more risky techniques too, like using short-term home-equity loans to pay down your primary mortgage now. This latter technique could cost you more in interest or even put you into financial trouble that leads towards foreclosure.

The safest way of “mortgage cycling” is to just put large lump sums of money towards your mortgage loan every few months to a year. Pay thousands of pounds extra per year, and you will pay off your loan many years sooner. No surprise there, right, but what if you don’t have the hundreds of pounds a month extra needed to do this?

Money For Mortgage Cycling

Don’t assume you can’t come up with SOME extra money, at least each year. Some will say they can’t, and yet still add hundreds of pounds per month to credit card payments from buying anything from expensive shoes to snowmobiles. There’s nothing wrong with buying these things, but the choice is yours if you want to pay down that mortgage instead.

You can also pay off large chunks of principle by using your annual tax refund, insurance settlements that are not otherwise allocated, and any cash gifts or prizes you may receive.

How much sooner you can pay off your mortgage depends on how much extra you pay and when. The sooner you pay extra money towards the principle, the better. Let’s demonstrate with a simple example, just making an extra payment each month.

Suppose you have a 160,000 30-year mortgage at a 7% annual interest rate. Regular monthly payments would be 1064.40. If you looked at your second payment you would see that it’s composed of 932.57 interest and 131.83 principle (the amount you actually pay down the loan). Just add 131.83 to your normal payment of 1064.40, and you have taken an entire month off the time it will take to pay off your mortgage.

If you did this each month, you would cut the time to pay off your loan in half. The principle part of the payment would be growing with each payment, so the extra payment would be a little more each month (around 137 by the end of the first year), but hopefully over the years your income will rise enough to afford that. Consider that if you pay normally, your last year of the mortgage you’ll pay 12,772.80 (1064.40 x 12 months). On the other hand, pay about an extra 1600 that first year, in the way shown above, and you’ll eliminate that entire last year – a savings of over 11,000!

Other ways to pay off extra principle need to be evaluated carefully. You could, for example, put a few thousand of your savings towards the loan now and save perhaps tens of thousands in interest over the years. However, will you then need to pay even higher credit card rates because you emptied your savings account and need some money? You could cash in stocks and apply the money to the loan, but will you be giving up a 9% return to pay down a 7% mortgage? You may also want to consider paying off any debts with higher interest rates before you apply extra money to your mortgage.

To keep it simple, set aside extra money every month and apply it to the loan. Then use any other money that may otherwise be squandered (like tax refunds). If you just do a few simple things to pay something extra on the loan each year, and you can forget about complicated mortgage cycling plans.

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Monday, February 22nd, 2010 Mortgage Fee No Comments

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