how to pay off mortgage in 5 years

you found a house and you have an offer. The offer is accepted, and you are thrilled! You agree, at a purchase price of $ 300,000, and you are able to down 3%. The means you need a mortgage for $ 291,000. Now you are ready for a mortgage.
Have many of you will want the mortgage with the lowest and the lowest cost? (I bet your hand went up!) Have you ever thought that maybe - just maybe - you can use a higher mortgage and pay less per month?

Let me explain the situation. Firstly, I speak 30 fixed mortgage comparison. I am not talking about adjustable rate mortgages, Option ARMS (Pick-a-payment loans), 3-2-1 Buydowns, 2-1 Buydowns, or interest only mortgages.

To ensure that we're all on the same track, I compare three different fully depreciation 30-year fixed mortgage on a loan amount of $ 291,000. This is only 3% down on a purchase price of $ 300,000.

We are all on the same track? Good! Now let me ask this question: Which program will lead to the lowest monthly payment:

1. A 30-year fixed mortgage at 6.5% with PMI, 2 A 30-year fixed mortgage at 6.875% with Lender Paid PMI, or 3 A 30-year fixed FHA mortgage to 6.25% with MIP?

(Note: PMI = private mortgage insurance. MIP = monthly premium)
Did you pick # 1 program? Or did you choose program # 3? (I bet none of you re-program # 2!)

Let's break them one by one:
1) A 30-year fixed mortgage at 6.5% with PMI
If you select this mortgage, your monthly mortgage payment is $ 2091.52. You pay $ 1839.32/mo for principal and interest, and $ 252.20/mo for mortgage insurance.
2) A 30-year fixed mortgage at 6.875% with LPMI
If you select this mortgage, your monthly mortgage payment is $ 1911.66. The lender pays the mortgage insurance premium, so that your total mortgage payment is $ 1911.66/mo for principal and interest.
3) A 30-year fixed FHA mortgage to 6.25% with MIP

If you select this mortgage, your monthly mortgage payment is $ 1941.68. With FHA mortgages, it is a prepaid mortgage insurance premium of 1.5%. You can assume the role that the loan, which I in this case. So, your original loan amount is $ 295,365. Your monthly mortgage payment is $ 1818.61. They will also pay a reduced mortgage insurance premium of $ 123.07/mo.

Score
As you can see, in this case, option 2, or the mortgage with the highest interest rate that actually lead to the lowest monthly mortgage payment. In this case, you save $ 179.86 months payments in comparison to the conventional mortgage with PMI. You save a total of $ 2158.32/year. That's 1 mortgage payment per year! You save more than $ 10,790 in payments over 5 years.
If you have a lower credit score (less than 680), you can contact the FHA option (option 3). Even if you are in advance of the MIP, your entire monthly payment is only a little higher than the conventional mortgage with PMI (Option 1) because the interest rate is less, and the monthly MIP is lower. In this case, you save $ 149.84 months payments in comparison to the conventional mortgage with PMI (Option 1), for a total of $ 1798.08/year. That is about 1 mortgage payment per year! You save more than $ 8990 in payments over 5 years.

Well, some people say, in the course of 30 years, the higher mortgage interest rate will result in more payments. That is true. It is. But how many people remain in their current mortgage over 30 years? Not many. Most people will refinance or sell their current purchase and another in 4-7 years.

Others will say that if the principal balance of the existing mortgage is less than 78% of the original balance of the note, the PMI must be eliminated by law. This is also true. But you know how long it takes to get to this point? It will take 157 months. That's more than 13 years! Can you wait so long?

Finally, others say that if you can prove at least 20% equity in the home, you can subscribe to the lender for the removal of PMI. This is also true. I ask you: How long will it take in today's real estate market for your house to increase in value and your principal balance drops to the point where you have 20% equity? 2 years? 5 years? 10 years? If houses appreciate at a rate of 3% per year (by the way, is not the case in most areas today), it will take you 5 years in this case, to see 20% equity in your house. Your house is on a value of at least $ 341,000 in 5 years as the remaining mortgage principal balance is $ 272,770. Hmmm. Would you like to this opportunity?

Conclusion
When comparing mortgages, not just shop rates. The comparison of the monthly mortgage payments on the loan programs, both with and without PMI PMI. Also compare the two programs with the FHA program to see what the lowest monthly payment. And be sure to weigh all options before selecting the mortgage program that is right for you. I sincerely hope that these tips and ideas are of value for you. For more information about mortgages, or if there is any way I can be of service, please do not hesitate to call me. I think it is a privilege, as a service for you!

Yours sincerely

Lew Corcoran

Sr. Mortgage Consultant