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This question is probably one of the most common ones asked. Over and over again, people choose the length of their loan for all the wrong reasons. They choose the length of the mortgage based on the monthly payment, or being able to qualify for the mortgage, or whatever.
Sometimes, it's because of an emotional decision.
"I want to pay this debt off!"
"I want it free and clear, as soon as possible!"
Ever heard that one before?
But, what's any of that got to do with the real question, which is:
WHAT WILL BE LEAST EXPENSIVE FOR YOU
IN THE SHORT...AND LONG RUN???
That's what you want - right?
Don't you want the loan to cost you the least?
Sure...but it's important to know how to make the right choices and calculations so that you DO pay the least amount possible!
Let's look at an example:
You would be amazed at how much interest you pay on your mortgage over the life of the loan. For example, over a 30-year loan of $100,000 at 9%, it will cost you a monthly payment of about $804.
Sounds okay doesn't it?
But when you read the fine print, over the term of the loan you will pay over $189,000 in interest!
Wow.
That's unbelievable, but true.
Let's take a look at some other options.
If you were to set up a prepayment fund, and add only $67 a month to it, and have it forwarded directly to your mortgage company every two weeks - you would save over $61,000 in interest over the life of your loan; and pay off your house in just under 22 years!
If you kept paying the normal $804 per month on that loan, you would owe over $55,000 at the end of year 22. (You would also still have 8 years left to go on your mortgage.)
By setting up this simple prepayment program, you would owe ZERO at the end of year 22!
What a difference huh?
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