Q-My wife and I recently bought a home with a $115,000 loan, but the deal closed later than we expected and we were able to save an extra $1,200 while we waited to move in. Our loan is for 30 years, with an 8.5 percent interest rate and an $884.26 monthly payment. If we use the $1,200 to make a one-time “principal-only” payment now, how much interest would we save over the life of the loan?
A-You could save about $13,125 in future interest charges and cut 16 months off the life of your 30-year loan by making a one-time “principal-only” payment of $1,200 now.
You might find it hard to believe that a single, $1,200-payment today can provide such huge savings. But remember, the checks you will send to your lender each month will be used to pay interest on the loan first-what little is left will then be applied toward the amount you originally borrowed. That’s why almost $815 of your first $884 payment will be gobbled up by interest, and also why it will take nearly 23 years of payments before you reach the “50-50” mark-the point where half of your payment goes toward paying off the loan and half goes toward interest.
If you don’t make a $1,200 payment now, you’ll pay about $203,318 in finance charges over the next 30 years. But if you make the payment and reduce your starting loan balance to $113,800 from $115,000, you’ll hit the “50-50” mark more than a year sooner and pay the loan off in 28 years and eight months. Trimming 16 months off your loan will subsequently reduce your overall finance charges to about $190,193. That’s still a lot of money, but it’s $13,125 less than you’d pay if you spent your $1,200 on something else.
You could save even more money if you simply added a much smaller amount to each of your future monthly payments. For example, if you spent the $1,200 on something else but decided to systematically add only $50 to each payment, you’d slash nearly six years off the life of your 30-year mortgage and save a staggering $46,318 in future finance charges!
Q-I recently read about a man who died of carbon-monoxide poisoning after a furnace malfunctioned. Does anyone make carbon-monoxide detectors?
A-Yes, several companies now make detectors that can sense deadly carbon-monoxide gas in the home. More than 200 people a year are killed by this colorless, odorless gas. One of its most recent victims was tennis great Vitas Gerulaitis, who died in his sleep while staying with a friend in a home with a faulty heater.
The Consumer Product Safety Commission says that most poisoning cases result from an inefficient or malfunctioning furnace, space heater or fuel-burning appliance. However, other sources include fireplaces and wood stoves. Common charcoal also emits the gas when it burns, so never use it indoors.
The best carbon-monoxide detectors work much like smoke alarms and typically retail for between $50 and $75. You mount them on your ceiling, and they buzz or ring if the gas is detected. Some firms also manufacture less-expensive “detector cards” that mount on a wall and change color if the gas is present, but they don’t trigger an alarm and thus won’t do any good if the gas begins to leak while everyone is asleep.
If you can’t find these detectors at local home-improvement or hardware stores, your gas or electric company should be able to tell you where to buy them.
It should be noted that the City of Chicago requires carbon-monoxide detectors in all residential buildings.
Q-Earlier in the fall, you said that Congress was considering increasing the amount of money a veteran could borrow through the VA’s home-loan program. Was the limit raised?
A-Yes. Although most housing-related proposals died a quiet death in Congress this year, lawmakers approved a bill to raise the limit on loans guaranteed by the Veterans Administration. Qualified veterans can now get a no-down-payment VA loan for as much as $203,000, compared to an old limit of $184,000.
The higher limit will primarily benefit vets who live in high-cost cities in the West and Northeast, where even a modest home can cost more than $200,000.
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Write to David Myers at P.O. Box 2960, Culver City, Calif. 90231-2960.
