[Mears]

Yikes!!! The savings are unbelievable.

[justlurking]

It's worth pointing out that one does not have to refinance to take advantage of a shorter mortgage. All you have to do is make an additional principle payment each month. using the =PMT() and =PV() functions in Excel, it isn't difficult to figure out how much extra you need to pay.

Of course, one reason the shortened mortgages are so popular is because you can refinance at a much lower rate and keep your payment about the same. I refinanced from a 30-year loan to a 15-year loan last year, but my payment only went up about $80/month.

I refinanced at 5%. I can now get 4.625% at the same mortgage company. I can't believe they are still going down.

[Texas Eagle]

You can achieve some of the same benefits of shorter-term mortgage simply by taking out a 30-year mortgage and making extra principal payments.

That's what we did. We had our loan officer print out the numbers for a 30 year loan at 5.75% and a 15 year loan at 4.75%. Then we had him figure out the monthly payment broken down by prinicipal and interest.

We discovered that even with the lower rate for the 15 year loan, we would save tons of money that would otherwise go to interest by going with the 30 year loan and make the 15 year payments.

[Joe Hadenuf]

My bet is that mortgage rates will be dropping even further. If they start raising interest rates anytime soon, during this economy, they will only make it worse.

[P.O.E.]

Make sure to figure not just your interest and cashflow savings.

Remember, you are resetting your amortization clock - the early years of a mortgage are mostly interest - you may just be throwing away all the payments you have already made.

Each case is different.

[P.O.E.]

Oh, and one more thing. Make sure not to over-leverage.

If the real estate market goes down, you could get caught with negative equity.

[E. Pluribus Unum]

Instead of refinancing my 30 year/6.125% loan with 29.5 years left on it, I am paying an extra $800 a month which will pay it off in 9 years.

If I refinanced at 4.5% and made the same monthly payment it would be paid off in 8 years, but I have to come up with $2500 closing costs right now and it would only save me about $4000 in interest.

If you already have a fairly decent rate and have the discipline to pay extra each month, refinancing is not really necessary to obtain huge savings in interest, plus if something happens and your income is drastically cut you have the safety net of being able to drop the extra monthly payment and not lose the house.

[Petronski]

Meanwhile down the street, other people are taking out seven year car loans...on cars from GM!!!!

[sysvr4]

Rick is right, folks. The thing you guys are forgetting is that interest paid on mortgages is tax deductible. This means that your effective interest rate is considerably lower than the stated rate once you consider the tax benefits.

For example, assume the following:

1) Loan amount of $150,000
2) Interest rate of 6%
3) Term of 30 years
4) 30% tax bracket for borrowing individual

Over the term of that 30 years, you'd pay $173,757 worth of interest. But at the same time, you'd save $52,127 over that same 30 years in taxes from the interest deductions. Thus, you'd have an effective cumulative interest of $121,630 ($173,757 - $52,127).

That being the case, your effective interest rate is closer to 4.5% than the stated rate of 6%. It may be even lower... the higher your tax bracket, the more your tax savings and the lower your effective rate. The prevailing thought is that you can invest your money over that 30 years at a higher rate than your (this example) AFTER TAX interest rate of 4.5%, meaning you'd be to the plus with any money you DON'T invest in your mortgage, but DO invest in an effective portfolio/401k/IRA/whatever.

So, the point is, borrow for as LONG as you can, as cheaply as you can, because you're borrowing cheaper than you can make money (you do believe your portfolio can do better than 4.5% over the long term, yes?) and invest whatever you have left in tax-deferred vehicles and you'll actually come out way ahead of where you would if you put the money in your house.

I know this will never convince a number of you, but this is standard practice amoung people "in the know" financially. You don't have to believe it, but you should ask someone you trust that knows what they're talking about before passing judgement. Hope this helps,

Jeff

[Fred Mertz]

I need to go for a 10 year vs a 15 year loan. I have 20 years left on my 30 year mortgage and I don't know what I'm waiting for.

Thanks for posting this article.

[Pete'sWife]

Our first home had a mortgage of 14.625%.

It was 1979 and, yes, Jimmuh Carter was President.

Thanks, Jimmuh.

[aShepard]

WHATEVER YOU DO!

NEVER, NEVER, EVER CONSIDER WASHINGTON MUTUAL AS YOUR MORTGAGE LENDER.

I'M VERY SERIOUS, THEY HAVE NO CLUE WITH CUSTOMER SERVICE, HAVE NO ABILITY TO POST PAYMENTS PROPERLY, HAVE NO KNOWLEDGE OF HOW TO READ A CUSTOMER'S STATEMENT; WILL NEVER RESPOND TO AN INQUIRY FROM A CUSTOMER.

I'VE BEEN IN A MAJOR BITCH SESSION WITH WASHINGTON MUTUAL FOR MANY MONTHS, THEM DECLARING FORECLOSURE, WHILE MY PAYMENTS HAVE BEEN HELD IN THEIR BLACK HOLE "SUSPENSE ACCOUNT - FULLY CURRENT" WHILE THESE A-HOLES CAN'T FIND THE ACCOUNT ACTIVITY.

!!!NEVER, NEVER, EVER, BE SERVICED BY WASHIGTON MUTUAL!!!!

((Craig Davis, President, are you listening??)

[Centurion2000]

bump ... interesting

[GOPJ]

bump for later

[Sloth]

I'm looking at buying some acreage & dropping a new manufactured home on it. If I do, I will almost certainly do a 15-yr. mortgage.

[Southack]

fyi

[nutmeg]

bump

[cookcounty]

Wow. 15 months ago I refinanced and asked about a 10-year, but all the banks acted like I was speaking Khirghizian, basically told me there wasn't such a thing.. Maybe I should try again, but the process of re-fi is such a pain, and then they sell your mortgage---I had 4 banks in the first 7 months, which has finally stabilized (for now!).

[jehosophat]

Daschle is deeply saddened!