Mortgage Payment Options: Bigger Payments, Bigger Savings

For many home buyers looking ahead, the most important question to be answered when searching for a mortgage is, “How much will my monthly payment be?” But is making the lowest possible monthly payment always the best way to go?
“Not necessarily,” said mortgage broker Kenneth Go, vice president, First Innovative Finance Group in Whittier, CA. “An adjustable rate mortgage (ARM) may start you with the lower monthly payment, but that payment will likely increase as the interest rate adjusts. More consumers today are opting for the safety and security of a traditional 30-year, fixed rate mortgage in which the payment stays the same for the life of the loan.”
But there are also other options to consider.

For example, said Go, a $200,000 mortgage for 30 years at 6% will result in a fixed monthly payment of $1,199 – and a total interest payment over that 30 years of $231,676.

The same principal balance paid over 15 years will cost $1,688 monthly – a payment of $489 more each month. But borrowers who can afford that extra amount will pay only $103,000 in total interest over the life of the loan. That is a savings of more than $125,000 in interest charges.

But the good news is there are savings to be realized even for those who cannot opt for the higher monthly payment.

“Making as little as one extra mortgage payment each year can help you pay off the mortgage sooner and save many thousands of dollars in interest,” Go said. A homeowner who puts aside $100 per month, and makes 13 mortgage payments each year instead of 12, will pay off the principal balance more than five years early – and realize more than $50,000 in total interest savings over the life of the loan.

“It is important for borrowers to have confidence in the loan and in their ability to make the monthly payments,” Go said. “A good mortgage broker can help you structure a loan that fits right into your comfort zone.”