Now let`s take a moment to think about how nice it would be to be free of our monthly mortgage payments.
Q-I recently refinanced my mortgage. I got a pretty good deal – an 8.75 percent rate on a 30-year, fixed loan for $97,000. My new payment for principal and interest charges will be $763.11 a month, but I can afford to pay an extra $75 or $100 each month if it will help me to pay the loan off early and reduce my interest charges.
If I pay an extra $75 or $100 each month toward the principal, how much will it save me in the long-run? Also, how much faster will I pay the loan off?
A-I get a lot of questions from readers who want to add a little extra to each of their monthly payments in order to pay their loan off early and slash their interest charges.
Although I can`t answer each of their individual requests, I`ll answer yours because your $97,000 loan balance is near the national average.
If you keep your current $763.11 per month repayment schedule, you`ll pay $177,701 in future interest charges and you`ll have your loan paid off in 30 years.
If you pay an extra $75 each month beginning with your first monthly payment, you`ll pay $117,262 in future interest and you`ll pay your loan off in 21 years, four months. That would be a savings of $60,439 in finance charges and you`ll own your home ”free and clear” eight years, eight months sooner.
If you add $100 to each of your monthly payments, you`ll pay $106,369 in future interest and you`ll have the ”mortgage monkey” off your back in 19 years, eight months. That`s a savings of $71,332 in interest compared to your current repayment schedule and you`d have the loan paid off 10 years, four months sooner.
These huge savings result because each of your extra payments would be applied directly toward your outstanding loan balance instead of being gobbled up by interest. Those extra payments have a ”snowball” effect with each passing month, as more and more goes toward principal while less and less goes toward interest.
Since you can afford to pay a little extra each month, I heartily recommend that you begin making extra payments so you can celebrate independence from your lender a lot sooner.
Q-I am a professional carpet-installer, so I understand a lot about the insides of homes and I can spot quality work when I see it. The problem is, I have been shopping around to buy a house for myself, but I know nothing about things that I should be looking for outside of a home. Do you have any suggestions?
A-As you walk up to the house, take a good look at the front door: A small roof over the entryway will prevent you from getting soaking wet from rain as you fumble for your keys, and visitors will appreciate the cover as well.
Also pull your car into the driveway and then back out. You want a clear line of vision to the left and the right and don`t want to worry about backing up or down a hill.
Pay special attention to the front lawn. If it`s a new house, you could wind up paying several thousand dollars to have a yard put in or a sprinkler system installed. If it`s an older home, realize that you`ll have to spend a few hours each week gardening, or pay for a gardener`s services.
Also take a look at the windows. ”Double-glazed” windows, which have two panes of glass instead of one, can help keep your energy bills in check. And don`t forget to inspect the electrical hookup: Although most older homes have above-ground wires that are strung across their yard, newer homes get their electricity from underground cables.
The cables eliminate the need for unsightly wires and also make the home`s electrical system less vulnerable to storms, fires and even
earthquakes.
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Questions for David Myers can be sent to P.O. Box 2960, Culver City, Calif. 90231-2960.
