Which mortgage option should I go with?
by Mortgage Rates on Sunday, September 19th, 2010 | 4 Comments
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Depends what you are doing with your money. If you are just going leave it in a bank account earning less than 1.625% then you should pay it back. If you can earn more, then take advantage of a rare situation where you can earns more on your assets than you pay on your liabilities.
Of course, there could be numerous other factors, like having the cash available for the unexpected, or paying off other debt, or riskier investments, etc.
Also, are you sure that the current rate is 1.625% – I thought there would be a minimum and based on the payment of $576 you either have a lot going into your escrow account or the rate is higher than 1.625.
Stay with the lower payment, and make the lump sums.
Or, write one check for $576, and another marked pay to principal for $624. If you can do that for the rest of the loan, it will be less than half of the months or years you still owe before it belongs to you.
Every monthly payment first goes to interest, fees etc, you can specify that the lumps, or extra checks, go to principal balance, which decreases the amount of money that they are financing, lowering the price of the interest, and the house, in the long term. Takes years off the payments.
Attacking the principal is always the smartest thing to do, it builds your equity faster, reduces your excess payments.
Just please, before you do anything towards extra payments, if you have not already saved at least 3 months expenses in an easy to get to place, do that first. Every person should be able to live as they are for three months without doing anything except withdraw from the bank in case something horrible happens. I’m sure that you’ve done this since you are knowledgeable enough to talk about ammorotization and sensible enough to check interest rates and schedules in the first place.
Best of luck.
Wow you have a flexible bank. I work in the compliance field and work with Hundreds of banks across the South East states and have never heard of such flexibility. First I would say if you are considering the option I would look at the paper work thoroughly b/c they can say anything they want…if its not on your note/deed it is worthless. You are one of the lucky ones who have actually benefited from an adjustable rate mortgage and it sounds like with that low of a rate your bank didn’t have a floor on it. My guess is they are trying to back peddle and figure out a way to start earning some interest on you, b/c at 1.625% they are probably losing money. I would hold steady for now and if you can make the extra payments just make those extra payments directly to principle, this will help you pay it down much quicker then reamoritizing it anyway. I would watch the rates though and keep your eye on prime…if it starts going up drastically depending on the market so if you see these changes you may want to consider a refi then. If you keep your mortgage how it is and increase your payment from $576 to the $1200 they are offering you you would pay it off in that same 10yr time frame anyway.
One thing you didn’t mention is if they are willing to lock in your rate if you increase your payment and shorten your amoritization period. If they are going to lock you in at that, count your blessings, sign the paper and move on b/c that is the best rate I have heard of. If it isn’t locking it in I don’t see a huge benefit except alot of paper work and less flexibility. Good Luck.
look interest is the time value of money. How long will you use it. So stay with the smaller payment and send as much as you wish over and above that every month marked to principal only. that way you are in control always