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15 Comments on Real Estate Math and Owning Your Pasadena Home Sooner
Hi Michael - It's always instructive to examine the power of compound interest. The best time we've found to point out this effect is at closing, when the buyer gets a look at that bank disclosure that shows how much they'll be paying over the life of the loan.
Michael. I love your math. It is amazing that one extra payment shaves off 7 years on a 30 year mortgage. It sounds so simple - like child's play.
Did you know that there is a way to save a lot of $$$ on your Pasadena CA mortgage? Contact Realtor® Michael Jacobs for more details and put Michael's real estate knowledge to work for you today!
Dick -- I agree this concept may be too overwhelming in the beginning of the home buying process(too many other things going on). When reviewing the interest charges at the loan document signing portion presents a eye-opening opportunity.
Belinda -- simple if you can come up with an extra payment -- can work out well for those who receive bonuses or are commission based.
John -- I would rather take the money myself than pay seven or more years extra to a lender(s) -- just sayin'.
To All of You - Thanks for stopping by and commenting
That forumla is one that I give to all my clients at closing. It is a smart move. Thanks, Michael.
Don -- most new homeowners get very excited by the concept.
I love it, Michael. I was useless at math in school but even I understood this. One extra month, 7 less years. Makes sense.
Hi Michael - Many first time homebuyers are astounded when they see on their mortgage statement that all but a few dollars is going to interest and that their principal balance hardly moves. I have made it a practice to add a few hundred dollars to each payment, earmarked for principal, and that balance starts reducing rapidly, with more and more of the regular payment going toward principal reduction.
I have shared this plan with clients who have found it exciting. If done nearly every month, the house is paid off really quickly. And the best thing is that you can skip the extra any month your cash is short without any penalty because it's all voluntary.
Susan -- in the beginning of a traditonal mortgage it's practically all interest so every little bit towards the principal is a good thing --- I also warn homeowners to avoid banks who charge to convert to such a plan -- as you said when it's voluntary the borrower is in charge -- when they can make an extra payment, great and when it's not possible simply don't do it.
This is the kind of math I love. Math that saves my buyers money. Afterall, that is my overall goal.
Michael, you are very clever great post, keep up the good work. See you in the Rain!
Tammie -- me too! One of my favorite things to share with buyers.
Hi Endre -- thanks very much.
Michael - So simple, and so many don't understand how easily this can be done.
Great post and way to simplify this concept. One of the other strategies I advise, if available, is to refinance into a lower rate but same term, and to keep making the existing payment. So, for example, if you have a 30-year fixed at 4.5% and you can refinance into another 30-year at 3.75%, and your payment is currently $1750 per month, you would not avail yourself of the lower payment you'd get on the new loan. But your monthly principal advancements will also shave years off the term of the loan and it's totally transparent to you.
Many folks feel as though they have to save 1% or 2% on their rates before they refinance, but depending on the financial goal, these hard and fast rules may not apply.
Christine -- K.I.S.S. works for me.
Rob -- thanks for the professional perspective and that's a good strategy. Since you are already payiing the "higher" amount, it should be a lot easier. I appreciate the comment.