The 30 year fixed-rate Mortgage… A Banker’s Dream.

Mr. Potter (greedy banker) picMany people are on auto-pilot when they get a mortgage and choose a 30 year fixed without understanding how much money it’s going to cost them without further planning. I’m not saying the 30 year fixed-rate mortgage (FRM) is bad, but you need to know what you’re getting into if you have one and there should be a specific strategy around it.

Bankers created the 30 year mortgage to make more money lending on people’s homes, but it also allowed more people to qualify for a mortgage as well. This increased the demand for financing and voila, a Bankers dream scenario. More people to make more money on. You see, in a 30 year FRM, almost no principle is paid in the first 7 years. So, if you plan to stay in a home for 5 years or less, then you’re basically renting with a mortgage deduction and no easy way out after the lease expiration.

For most people, it makes sense to get a 30 year FRM because of the flexibility involved, but very few people should have a Mortgage Strategy that calls for only paying the minimum payment on a 30 year loan. Paying extra amounts toward principle can make a HUGE difference in the amount of interest you pay and how quickly you pay off your home. Here is an example:

30 year fixed rate loan for $350,000.
Interest rate: 4%
Monthly payment: $1671 (principle & interest)
Total payout: $601,560
Interest paid: $251,560

If you paid $150 more per month, here’s what would happen:
– The loan would be paid off in less than 26 years, saving you 4+ years of making a mortgage payment.
– You would save $41,000+ in interest, which could be invested in your retirement account and accumulate to 6-figures worth of money over 30 years pretty easily.

If you paid $250 more per month, you save almost $62,000 in interest and cut that 30 year loan down to less than 24 years!

Don’t settle for auto-pilot on your mortgage, it will cost you way too much money! Be smarter than everyone else and put a Mortgage Strategy in place right away.

Other topics covered today:
– Today we just answered emails and talked about the dangerous 30 year FRM. Questions ranged from tax issues to short sales and bankruptcy.

On-Air Guest:
Jon Jerotz, VP of Mortgage Lending with Guaranteed Rate and San Diego Mortgage Expert.

Mr Credit Radio Show Podcast 3-25-13

Categories: Buying Real Estate, Mortgages, Radio Shows, San Diego Real Estate Market

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