Friday, April 29, 2011

Hoping to Save $100K+ On My Mortgage

"Bargain Hunting", saving money, and being cheap go far beyond the grocery/retail stores & coupons.  Today, I'm going to touch base a little on how an average person can save a ton of money if they pre-pay their mortgage just slightly every month.

I won't go into many details about my personal mortgage - I think the general consensus in the country (world?) is it's tacky to do so.  I personally don't have many issues with it though.  If a friend or neighbor wanted to talk actual figures about personal finance - I would be happy to divulge the information.  I think we live in a world where nothing is "normal" and I think people assume things about how much things costs, how much people get paid, how much people pay for certain items just because in most of these cases, the only example we have is what we pay/get paid for things.  I have no shame in admitting we're pretty poor! 

Many moons ago, the husband and I bought a house.  Well, it was just shy of 3 1/2 years ago - not that many moons.  We'll probably never move again - mostly due to the fact that it would be nearly impossible to pack up all our crap.  We're also very comfortable.  Anyways, when we first got our initial mortgage, I was ecstatic at the rate.  With our old loan, and just the "minimum" payments made every month, we would have paid $225,907 over the course of 30 years on interest.  YOWZERS!  At that time, our payment was $8 shy of a "solid figure" (meaning, ending in 00).  So every month, I thought I was big and bad and would pay $8 extra dollars to our mortgage. 

I never really thought about refinancing.  I was happy where we were at.  However, thanks to Facebook, I'm friends with a guy I went to high school with - who is a gung ho mortgage lender.  He posts rates and whatnot from time to time when they are good.  So one morning, he posted a rate that his office was giving out to some people.  With some quick math and a handy dandy online mortgage calculator - I realized I would be a fool not to refinance.

Refinancing sucked.  It took over 60 days.  I had to find paperwork I wasn't even sure I had (I'm not very organized).  I even had to write letters explaining why other lenders checked my credit report recently (I shopped around - if I was going to drop a few thousand on fees and whatnot to refinance, I wanted the best rate with the best people).  It was much different than our experience of buying a house back in 2003 - when we were able to close in only 6 days with no money down at all - you know, the glory days when they threw out mortgages to anyone like candy in a parade. 

Well it finally happened.  We closed back in December.  With the new mortgage, we shaved $179 off our minimum monthly payment and if we only pay that payment - we will only pay $154,905 over the course of 30 years in interest.  Essentially (not completely, because we did have 3 years of payments at the higher rate), a savings of  $71,002 in interest over the course of 30 years.  Since times are fine, financially speaking, I've actually just been paying our old payment to our new loan.  An overpayment of $187 a month.  If I can continue this, we will only pay $109,617 in interest on the loan.  Essentially, a savings of $116,290 from only paying the minimum payment on our initial loan - and a savings of over $45,000 on my current loan of just paying the minimum payment.  An added bonus, with just $187 more a month, our 30 year mortgage will be paid off in 22 years, 2 months.  Also - if times do get tough - I do know that I can find an "extra" $187 by lowering our mortgage payment down to the minimum payment. 

Obviously there are many things in life to save for - education, retirement, emergencies, vacations.  Sometimes, you just have to weigh your choices and figure out what is important to you.  I'm not a complete fool - I know a lot of people would have a hard time to just pony up an extra $187 a month to their mortgage.  Heck - I know there are people who don't even have any extra money for any type of savings.  But, if you are ever in a position like me - where you are used to paying a certain amount and get to refinance - consider keeping up the old payment.  Especially if you pretty certain you are going to be at your home for a long time.  Or - if you want to knock some time off your mortgage - just round up to the "solid figure."  Every mortgage and rate is different - so if you want to check how extra payments will effect your personal situation, click THIS CALUCLATOR FROM BANK RATE to input your own information.  Lastly, there is NOTHING wrong with just paying your minimum monthly payment.  Tons of people do it.  You don't need to bend over backwards to try to pre-pay your mortgage.  It's just a quirk I have and passing along the information in case anyone is interested. 

Want to know how you compare to other homeowners?  Did you know the average US mortgage is $1295. The average MA homeowner's mortgage payment is $1781.  The average Alabama homeowner's mortgage payment is only $913.  I have zero idea if these figures include taxes & insurance (I would not make a good research assistant)  - but you can see - there is a lot of disparity about what is "normal".  Same would hold true if I threw up figures from the average mortgage payment in Newton, MA vs. Lowell, MA.  I'm sure they are VERY different.  

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