Great Article from TheMortgageReports that I wanted to share. With the record low rates, it costs 21% less in interest payments to own your home. That is a huge savings over the life of the loan making it a great time to buy and even a better time to refinance. I hae been posting about the low rates, but this article puts this into a practical real-world explanation on what it means.
Homeowners Paying 21% Less To Own Their Homes
Mortgage rates have plunged this year, driving down the long-term costs of homeownership. Regardless of loan type — either FHA, USDA, conforming or jumbo –mortgage payments are downright cheap as compared to just six months ago.
REALTORS® will tell you it’s a great time to buy a home. That may be true.
It’s an even better time to refinance one.
Here’s why : When you make your mortgage payment each month, a portion of your payment is interest. The lower your interest rate, the less interest you pay each month. This math applies to all amortizing loans — 30-year schedule, 15-year schedule or otherwise.
Over the life of a loan, the interest cost savings can be substantial.
As a real-life example of two 30-year fixed rate mortgages for $300,000 — one from April 2011 and one from today :
- April 2011 : The $300,000 mortgage requires $275,000 in interest paid over time
- November 2011 : The $300,000 mortgage requires $217,000 in interest paid over time
In other words, at today’s rates, with a $300,000 mortgage, you can chop $57,000 off your long-term mortgage interest costs as compared to a mortgage from just 6 months ago.
That’s a 21% savings and the math applies to all loan sizes…
The article goes on to talk about amortization schedule, the major reason that prevents me from wanting to refinance all the time. Each time you refinance the amortization starts all over. However with this big of drop in rates, that is becoming a non factor – click on their article to find out why.
- Mortgage Rates update (craigkamman.com)
- Mortgage Rates and Refinance Index (calculatedriskblog.com)
- About Tax Deductions for a Mortgage (turbotax.intuit.com)