A Shorter Amortization Will Save You Thousands
With today's historically low interest rates, it makes sense to shorten the number of years your mortgage is amortized over. Doing this will not only pay off your mortgage years earlier, but it will also save yourself thousands of dollars over the life of your mortgage. For example, a mortgage of $275,000 amortized over 25 years at a 5 year fixed rate of 3.09%, will have a monthly payment of $1314.16, and leave you with a balance at maturity of $235,460.06. The same mortgage, amorized over 20 years, will have a monthly payment of $1534.84 (just over $200 more per month) but will leave you with a balance at maturity of $221,168.55-- $14,291.51 less.
If you're used to paying much higher interest rates, lower your amorization is a smart way to take advantage of today's low rates and pay down your mortgage faster. You can still end up paying about the same or less per month than you previously have at an interest rate in the 6% range, while putting more towards the principal.
Posted by Alana Myers
on November 14, 2012