![]() |
Total Cost Of Credit vs. Monthly PaymentsI read a press release the other day which points to the fact we need to be very careful with our finances. The subject of the release was home mortgages. A company was announcing the availability of 40 year mortgages for its customers. The stated purpose was to lower the monthly payments to make buying a home more affordable. Whenever I hear the phrase "more affordable", I put my hand on my wallet because the attempt to empty it will begin any moment. Almost never is that phrase used in relation to the total cost of financing. It is always used in reference to the size of the monthly payment, as in this example. Let's see what it really means. I did the math. A mortgage for a $100,000 home at 6% for 30 years would have a monthly payment of about $600 for principal and interest. You would pay about $216,000 over the life of the loan of which $116,000 would be interest.. A mortgage on that same home for 40 years would be at 6.25%, with a monthly payment of $565. The payments over the life of the loan would total about $271,200 and $171,200 of the total would be interest. The forty year mortgage has a higher interest rate (usually between.25 and .50 percent) because the lender has his money at risk for a longer time (Lenders are well aware that time is money. You should be as aware). This higher rate coupled with the extra ten years of the loan, has the borrower paying 47% more interest, or $55,000 more over the life of the loan. Even with a lower payment that supposedly makes it more affordable to purchase that home. Sounds like a pretty good deal for the lender. Another problem the borrower faces is building equity much more slowly in the beginning of the loan. The extra interest expense paid for the extended length of the loan prevents equity from building up quickly. All of this for a monthly payment that is only $35 less. You need to think in terms of overall cost and not just monthly payments. The total cost is what you will give back to your creditors. The focus on the monthly payment takes attention away from the total amount to be repaid. You need to look at this with any indebtedness, car payments, personal loans, credit cards: figure the total cost, not just what you pay each month. You'll begin to hear more about these loans I'm sure. Think long and hard before you lengthen your indebtedness. The goal is to become debt free and to do it as fast as possible. Advise your families and friends to do the same.
The 6 types of mortgage refinances — which is best for you? Business Insider Today's mortgage and refinance rates: February 14, 2021 | Rates down Business Insider Morris Bank: Making the refinancing and mortgage process easier Statesboro Herald Mortgage rates are falling to unprecedented lows in 2021 — refinance now to save money Q13 FOX (Seattle) Should you refinance a home equity loan? Fox Business Rocket Companies reports record $9 billion profit for 2020 Detroit Free Press Should I Refinance to Get Rid of PMI? Motley Fool Statement on First Citizens Bank $16 Billion Community Benefit Agreement for Fair Lending & Green Homes Milwaukee Neighborhood News Service ‘Humbling’ week in bond markets leads to fears of paradigm shift Financial Times Top 5 mortgage refinance questions answered Fox Business How do I get the most out of my mortgage refinance? Fox Business Pros and cons of a cash-out mortgage refinance Fox Business How to decide if you should refinance your mortgage Fox Business Comfort, Health and Safety are Top Motivators for Home Improvement Projects During The Pandemic Business Wire Mortgage refinance: Everything you need to know Fox Business How to refinance your mortgage Fox Business Mortgage refinance rates continue hitting record lows – here’s how to get the best deal now Fox Business Who's exempt from the new mortgage refinance fee? Fox Business How a mortgage refinance affects your net worth Fox Business Everything You Should Know About The New Mortgage Refinancing Fee That Goes Into Effect Dec. 1 Forbes How to refinance your mortgage in 5 easy steps Fox Business What are the hidden costs of refinancing a mortgage? Fox Business 4 ways to get lower mortgage refinance rates Fox Business Today’s mortgage refinance rates hold steady for third consecutive day | December 11, 2020 Fox Business The best mortgage refinance lenders of February 2021 Business Insider Complete Checklist of Mortgage Refinancing Requirements Credible News 10 things to know before refinancing your mortgage Fox Business Refinancing your mortgage? Don’t make this mistake Fox Business 10 tips for getting the best mortgage refinance rate, from checking your credit report to choosing the right lender Business Insider How to get a low-cost mortgage refinance Bankrate.com Today’s mortgage refinance rates climb upward — though one key rate holds steady | October 23, 2020 Fox Business How to Refinance Your Home | Home Lending Chase News & Stories How to refinance your mortgage without closing costs Fox Business Today's mortgage refinance rates hold steady at unprecedented lows | October 16, 2020 - Fox Business 3 Mortgage Refinance Strategies to Consider in 2021 The Motley Fool
|