While a lot of people complain bitterly about the economy, home financing has been glaring bright spot. I recently found my federal truth-in lending disclosure statement from the 2002 purchase of my townhome.
Looking at what I was prepared to pay in terms of finance charges over the course of my 30-year loan shocks me now. And, my 7 percent interest rate at the time seemed like a good deal compared to my parent's generation that dealt with interest rates in double digits.
Paying double the value of the home
When I took out my 30-year mortgage in 2002, I was willing to pay $134,781 in finance charges. The total amount I would have paid in finance charges was more than the cost of the townhome, which was about $103,000. I didn't end up paying nearly that much in finance charges because I sold the townhome for about $133,000 after two years.
Buying my second home
When we purchased a second home in 2005, my husband and I had an interest rate of 5.9 percent. Two years ago, we were able to refinance at 4.65 percent through a special free program offered by our mortgage company. We recently locked in at 2.75 percent with another refinance. The balance on our mortgage is identical to what I paid on my townhome 10 years ago. But instead of paying $134,000 in finance charges, we will only be paying about $24,000.
Paying our home off earlier
If I had stayed in my townhome, I would have been paying off the 30-year mortgage until 2032 with a payment of almost $700, not including taxes and insurance. Even after selling my townhome and purchasing a single-family home in 2005 and refinancing, I will still have my current home paid off sooner. Since we took out a 15-year mortgage, our current home will be paid off in 2027 or five years ahead of my original schedule. What's amazing is the fact that our new mortgage payment is identical to the one I had for the townhome.
Playing the real estate game
Some homeowner critics argue that I wasted a lot of money by paying taxes, insurance, home owner's insurance and finance charges on my townhome and single-family home. However, I still think I'm further ahead financially than if I had stayed in my apartment. Rent for an apartment in my area is about $900 a month. For the same amount, I can pay off my mortgage in the next 15 years. If I hadn't purchased my first home 10 years ago, I would have spent $108,000 on rent. While no one has perfect timing, I think it makes financial sense to buy a home and pay it off before retirement.
For the past several years, I've heard experts repeat the mantra that mortgage rates are at historic lows. Until I started the refinance process, I didn't realize how much money I could really save in finance charges. Now, for the cost of a car, I can finance my home for the next 15 years. Then I never have to worry about living in a car when times get tough.
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