Interesting

Interesting was Originally Posted on July 1, 2014 by lavarock

October marks a 1st for me. I will be mortgage free for once in my life. This is unlike times when I have sold one house and am buying another (then you are mortgage free for perhaps days).

When I decided to move to Hawaii, I sold a house on the mainland and got this mortgage. Because the farm is leasehold and the lease had 15 years remaining on it, any mortgage could only be 10 years or less. Since mortgage companies don’t like less than 10 year notes, we agreed on 10 years.

I was paying $149,000 for the farm, put $49,000 down and financed $100,000 for 10 years at the current rate of about 5%. I would not be able to refinance because of certain conditions of the lease, but 5% was cheap enough.

If I had gotten a traditional 30 year mortgage, borrowing that $100,000 would have cost em an additional $93,000 in interest. I would have paid $537 a month for 30 years.

Instead, with a 10 year mortgage, that $100,000 mortgage only cost me $27,000 in interest and I paid $1061 per month for 10 years.

Most people buying a house know that they will pay extra because of a mortgage, but don’t look at the real cost involved by adding up the cost of the mortgage interest.

I could have paid this mortgage off early, but I would not have saved much money. In fact, recently I have invested at Prosper.Com and am making 9% on my investment. For every dollar I invest there actually makes me 4% (9%-5%=4%).

Comparing the two mortgages above, they both have interest of $228 vrs $258 a month, but with the 10 year mortgage, I only paid that interest 1/3 as long.

Some mortgage companies will let you pay extra each month towards your mortgage. Sometimes they offer that as a “service” but charge you a fee to make an extra payment each month. Some people pay extra each month and apply that amount to lower their principle, reducing their final payment date by a few years. You can go to Bankrate.Com and use a calculator to see what you pay for a loan and how best to pay it off. Make sure that you understand if your bank will charge you for early payoffs, etc. You should not have to pay a fee to pay off extra principle, just make sure you understand how to do that without a fee.