It's a worthwhile question: “Why utilize a mortgage other than a 30-year fixed mortgage?” Rate, payment, and term have been ingrained in our society. Have you ever stopped to really consider, though, what this mortgage is costing you? Have you taken the time to challenge the accepted thinking on this subject? Maybe the accepted thinking is what the lenders tell you because this is what they want you to believe.
Taking your 30-year mortgage to term, generally you've paid one dollar of interest for every dollar borrowed. In reality, few people take their mortgage to term.
Today, the average homeowner holds a mortgage for about five years. Did you know that refinancing and resetting every five years to lower your rate or pull cash out affords you a cost of three to five dollars of interest for every dollar you've paid down in principal? The average interest costs during the first 5 years of a loan are roughly 25 percent of the original principal. How many times has the average homeowner refinanced in the past 10 years? Two, three, four times? That's a lot of interest paid to banks, all because of the way the traditional 30-year mortgage (all other mortgage products as well) calculates interest, also known as amortization. The loan amount and payment you make monthly is front-loaded with interest, meaning the bank is assured of being paid first.
Good news, there is another option available to financially responsible homeowners now.
Imagine your lender allowing you to offset the principal on your mortgage by the amount sitting in your checking/savings accounts. Imagine having $25,000 in checking/savings and a $400,000 mortgage. Instead of getting “free” checking with the bank and paying interest on the full $400,000, the bank allows you to offset the amount owed on your home by what's in your bank accounts. Now you are paying interest on only $375,000. Add to this the opportunity to use your monthly income to further drive down your average daily balance. Compound this effect monthly over a long period. The bank's profits are now your profits!
This product now exists in the United States and has been employed around the world for years. In many cases, when you approach your mortgage in this way you have driven down your interest-paid to about 50 cents or less for each $1 borrowed, all the while having the ability to instantly access the equity you've accrued should you need it. There is no need to refinance, pay more fees, and start lining the bank's pockets.
The next time you finance your home, look at the 30-year fixed amortization schedule and ask yourself, “Is this mortgage truly my best option?” It's your home, your money, your benefit, and your gain. Think outside of their box and understand your options.
J.R. Phillips can be reached at
[email protected].
Taking your 30-year mortgage to term, generally you've paid one dollar of interest for every dollar borrowed. In reality, few people take their mortgage to term.
Today, the average homeowner holds a mortgage for about five years. Did you know that refinancing and resetting every five years to lower your rate or pull cash out affords you a cost of three to five dollars of interest for every dollar you've paid down in principal? The average interest costs during the first 5 years of a loan are roughly 25 percent of the original principal. How many times has the average homeowner refinanced in the past 10 years? Two, three, four times? That's a lot of interest paid to banks, all because of the way the traditional 30-year mortgage (all other mortgage products as well) calculates interest, also known as amortization. The loan amount and payment you make monthly is front-loaded with interest, meaning the bank is assured of being paid first.
Good news, there is another option available to financially responsible homeowners now.
Imagine your lender allowing you to offset the principal on your mortgage by the amount sitting in your checking/savings accounts. Imagine having $25,000 in checking/savings and a $400,000 mortgage. Instead of getting “free” checking with the bank and paying interest on the full $400,000, the bank allows you to offset the amount owed on your home by what's in your bank accounts. Now you are paying interest on only $375,000. Add to this the opportunity to use your monthly income to further drive down your average daily balance. Compound this effect monthly over a long period. The bank's profits are now your profits!
This product now exists in the United States and has been employed around the world for years. In many cases, when you approach your mortgage in this way you have driven down your interest-paid to about 50 cents or less for each $1 borrowed, all the while having the ability to instantly access the equity you've accrued should you need it. There is no need to refinance, pay more fees, and start lining the bank's pockets.
The next time you finance your home, look at the 30-year fixed amortization schedule and ask yourself, “Is this mortgage truly my best option?” It's your home, your money, your benefit, and your gain. Think outside of their box and understand your options.
J.R. Phillips can be reached at
[email protected].