With the new year quickly approaching, many of us are focusing on making commitments to improve ourselves, and if improving the financial health of yourself or your loved ones is one of your resolutions, consider this tip.
Due to current low mortgage rates, 30-year fixed rate mortgages have become a staple in home ownership in the United States. While the longer amortization period of a 30-year mortgage often results in a lower monthly payment than with current 15 year mortgage rates, it also means a higher interest expense.
Not only do mortgages with longer durations usually have higher interest rates, but they also incur a higher total interest expense over the life of the loan. For instance, a 30-year fixed rate mortgage with a loan amount of $500,000 and an interest rate of 3.00% would have a monthly payment of $2,108 and a total interest expense of $258,887 over the 30-year period.
That could be a lot to bear, given that the total interest expense is roughly half the amount borrowed. So, how can you enjoy the financial flexibility of a 30-year fixed mortgage while still reducing the amount of interest paid over its life?
The solution is simple: pay a little more each month. In this example, if the homeowner adds $200 to their monthly mortgage payment and applies it to the loan balance, they will save $38,126 and pay off the loan four years earlier than originally planned.
Sounds appealing? Consider incorporating this smart financial tip into your 2022 resolutions.
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