Vince Lombardi, the legendary coach of the Green Bay Packers, was once asked about how important winning is to him. He said "winning isn't everything, it's the only thing!" That is exactly how I feel about the residential, owner occupied home mortgage. It is the most important financial decision you most likely will ever make in your lifetime. And guess what -- most people do what their Realtor suggests, barber suggests, or aunt or uncle points out. Not that any of these people aren't qualified to give financial advice, they just do not take the time to understand YOUR financial condition. What happens next is the beginning of a financial loss that need not happen.
Most purchasers of a new house know about 30-year loans, and a good majority of them know about 15 year fixed loans, but very few know about a 20-year loan. That is a financial tragedy! Let's compare and contrast a 30-year and a 20-year loan on an amount of $325,000:
|Monthly Payment:||$1,969 (@ 6.125%)||$2,323 (@ 6.00%)||$354/mo.|
|Balance after 5 years:||$303,190||$276,724||$21,240|
|Balance after 10 years:||$273,316||$210,844||$42,480|
|Balance after 20 years:||$177,653||$ 0||$84,960|
A small difference in a monthly payment over time becomes an exceptional amount of money. While the payment may have been a bit tight at the beginning, most borrowers grow into the payment over the term of the loan and are generally quite capable of making the monthly payment with ease. Add to the above picture the reality that after 20 years, the borrower has $2,323 a month that he or she may use to invest for ten years before the 30-year borrower is even done making payments!
The sum of the money that is available over the next ten years is a staggering two hundred and seventy eight thousand six hundred dollars ($278,600).
ALL THIS IS AVAILABLE FOR THE RIGHT DECISION TO SPEND $354 A MONTH!
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.