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Total Cost Of Credit vs. Monthly Payments
I 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.
MORE RESOURCES updated Mon. December / 04 / 2023
Exclusive: S.F.'s Stonestown mall owner closes on refinancing $180M mortgage - San Francisco Chronicle
Exclusive: S.F.'s Stonestown mall owner closes on refinancing $180M mortgage San Francisco Chronicle
Mortgage Interest Rates Today, December 3, 2023 | Rates Remain Low After Dropping Last Week - Business Insider
Mortgage Interest Rates Today, December 3, 2023 | Rates Remain Low After Dropping Last Week Business Insider
Mortgage Interest Rates Today, December 2, 2023 | Rates Are Down, and They Should Drop More in 2024 - Business Insider
Mortgage Interest Rates Today, December 2, 2023 | Rates Are Down, and They Should Drop More in 2024 Business Insider
Mortgage Interest Rates Today, December 1, 2023 | Rates Fall Further, Boosting Affordability - Business Insider
Mortgage Interest Rates Today, December 1, 2023 | Rates Fall Further, Boosting Affordability Business Insider
How soon can you refinance a mortgage? CNN Underscored
Should you refinance your home after divorce? Here's what happens to your mortgage after untying the knot - CNBC
Should you refinance your home after divorce? Here's what happens to your mortgage after untying the knot CNBC
The best mortgage lenders for refinancing in December 2023 CNN Underscored
2 Reasons Why a Free Mortgage Refinance Could Be Right for You The Motley Fool
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INvestEd Student Loan Refinance Reviews 2023 Arizona Education News Service
What credit score do I need to refinance my mortgage? Yahoo Finance
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Refinancing your mortgage could save you thousands — here are some of the best refinance lenders - CNBC
Refinancing your mortgage could save you thousands — here are some of the best refinance lenders CNBC
Today's 30-Year Mortgage Refinance Rates U.S News & World Report Money
Should You Refinance Your Home Loan? Credible
Current mortgage refinance rates in 2023 USA TODAY
CFPB Mortgage Report Finds Jumps in Closing Costs and Denials ... - Consumer Financial Protection Bureau
CFPB Mortgage Report Finds Jumps in Closing Costs and Denials ... Consumer Financial Protection Bureau
Will Mortgage Rates Go Down in 2024? What Homebuyers Should ... Business Insider
Compare Today’s Refinance Rates U.S News & World Report Money
FHA Streamline Refinance: Your Full Guide | Chase.com Chase News & Stories
Mortgage refinance: What is it and how does it work? Yahoo Finance
15-Year Mortgage Refinance Rates: Compare Current Rates Business Insider
Loan officer: I’m seeing middle class homebuyers take on $7,000 mortgage payments thinking they can ‘always refinance when rates come down in the future’ - Fortune
Loan officer: I’m seeing middle class homebuyers take on $7,000 mortgage payments thinking they can ‘always refinance when rates come down in the future’ Fortune
Mortgage Rate Forecast: When Will Rates Go Down? | U.S. News U.S News & World Report Money
What Credit Score Is Needed To Refinance a House | Chase Chase News & Stories
Here's how sharply mortgage refinancing has dropped Yahoo Finance
How Soon Can You Refinance Your Mortgage? | Chase Chase News & Stories
These 4 mortgage lenders can be excellent choices for seniors — whether you're refinancing or getting a new home loan - CNBC
These 4 mortgage lenders can be excellent choices for seniors — whether you're refinancing or getting a new home loan CNBC
What's the cost of refinancing a mortgage? Mortgage Professional
What Happens After You Refinance a Car Loan? Investopedia
Should you refinance your mortgage to pay off debt? New York Post