The following is a guest post from my dear friend Susan.
So, I went to the loan officer at the bank and asked if we could find a way to raise my mortgage payment. No, I have not lost my mind. It’s a long story that starts with my bedtime stories as a tot, some of them actually ended with the phrase “And that is why the bank is never your friend.” I will fast forward for you a bit.
This particular chapter of my banking history started with closing on my first house the day after Thanksgiving 2008. Remember the fall of 2008? (cue dreamy music) The credit markets were frozen, the state fund for new home buyers was out of money and there was no free 8 grand for buying a house. Just me, a credit score and a 3 bedroom ranch. My interest rate was 6.75%. I moved in and interest rates plummeted. I refinanced last summer to a 30 year fixed with a 5.25% rate. I was happy and making extra payments on the principle. This spring interest rates fell again to ALL TIME LOWS! or so the signs said. Grrrrr. Can’t I win?
I was grouching at my brother (who deals with finances all day) about the whole thing. He recommended I look at a 15 year instead of a 30 year. As a big sister does, I told him he was nuts and that would never work as I am just a lowly teacher for goodness sake, I am not made of money. And, as a classic younger brother, he got out his calculator to check. Yup, he was right, I could.
I went off to the bank and had the lady in the suit do the math. I currently had a monthly payment of $481. Making that payment I would have paid $81,226 in interest over the life of a 30 year loan. I was approved for a 15 year fixed at the rate of 4.375% with a monthly payment of $648. Yes, that is nearly $170 a month higher but here is the kicker……. I will pay $31, 279 in interest over the life of the loan.
I have a feeling that someone out there is finding flaws in my math and I will admit I am looking at apples and oranges. The only thing that is the same between the two loans is the principle. However, since I can afford the higher payment now to save what could have been $50,000 in interest payments I am thrilled. Oh, wait, make that $49,000 as I have to pay to have the place appraised (again) and pay for the closing costs (again). Dear old Dad was right, the bank isn’t my friend. But, I think we may be able to come to an uneasy understanding.
Be sure to check out other great posts from Guest Blogger Susan.