This free online calculator will show you how much you will save in interest expenses if you make 1/2 of your mortgage payment every two weeks instead of making a full mortgage payment once monthly.
In effect, you will be making one extra mortgage payment per year, leading to significantly faster amortization -- without hardly noticing the additional cash outflow from the small overpayment. But, as you're about to discover, you will certainly notice the "increased" cash flow that will occur when you pay your mortgage off way ahead of schedule!
How to Save Money on Your Mortgage
Usually coming in at around 30 percent of their income, a mortgage loan payment is the largest payment most people make each month. Not only is it often a large payment, but it is also a lengthy payment, often taking homeowners most of their adult life to pay off. If they only had to pay the purchase price of their homes, mortgage costs would not be so burdensome, but the added interest can often cause people to end up paying twice the purchase amount or more by the time they have paid off their mortgage.
With this in mind, you may want to look for ways to spend less on your mortgage. While buying a smaller house is always one option, the best option is simply to make your money spread as far as possible by paying more money towards your principle amount and wasting less money on interest. Preparing ahead of time for homeownership, understanding your loan and payment, paying ahead on your loan and refinancing to get the best interest rate available are all ways to reduce your interest payment and free yourself from your mortgage debt faster.
Preparing Yourself Financially for Homeownership
The first steps to homeownership actually begin long before you even start looking at houses. You should begin by establishing a good credit score, saving up money for a down payment and setting aside money in an emergency fund.
Establishing Your Credit Score
Your credit score is a number assigned to you based on your past credit history. It is based on factors such as whether you have always made your bill payments on time, how much debt you owe, and how many different companies you have credit accounts with such as banks, credit card companies and utility companies. Companies use this number, which represents their risk in lending you money, to determine if they should approve you for things such as auto loans, credit cards and rental agreements.
There are three main consumer credit reporting agencies: Equifax, Experian and TransUnion. Every American citizen of working age who possesses a social security number is entitled to one free credit report from each of these agencies one time per calendar year. Obtaining your actual credit score (the number) costs a small fee, but it is often worth it. The official website to obtain copies of your credit reports is: AnnualCreditReport.com.
It is essential that you view your credit reports regularly to make sure that the reports do not contain any misinformation that could lower your credit score. Your credit score is what qualifies your for credit. If you have a high credit score, you should get approved easily and receive an excellent interest rate. If you have a low credit score, you may either receive high interest rates or you may not be approved at all.
If you are looking to buy a home in the near future, you should first check to make sure your credit report only contains accurate information. You should check far enough in advance so there is time to fix any errors or raise your credit score if it is too low to get a favorable interest rate. If you find any inaccurate information on your report, you should immediately call and have the information corrected. If all the information in correct, but your scores are low, you should immediately set out to improve your credit score by lowering your debt, catching up on late payments or opening a greater variety of accounts to establish more lines of credit. A high credit score can easily save you thousands or even tens or hundreds of thousands of dollars by allowing you to get a better interest rate on your home loan.
Saving Up a Down Payment
While you certainly do not have to have all the money upfront, buying a home usually does require a rather large down payment. The typical down payment required for a conventional bank loan is between five and 20 percent of the home's value. For a $300,000 home, a five percent down payment would be $15,000, while a 20 percent down payment would be $60,000.
There are other options available for some people, however. Veterans are able to get a zero down payment veteran's loan backed by the federal government. Veteran's loans are exempt from private mortgage insurance, but they are not dischargeable in bankruptcy. The USDA Rural Development Loan is available to people with an income below 115 percent of the median income in their area who wish to buy a home in certain designated rural areas. FHA loans allow people to purchase a home with only three and half percent down. There are limits on FHA loan amounts, but people are allowed to use gifts and donations from charities to help them make their down payments. Many communities also have charities or organizations that can help people finance homeownership.
Even if you are able to buy a home with a small down payment, you may want to make a larger down payment anyway. Making a larger down payment can lower your interest rate, help you afford a larger house or eliminate the need to pay private mortgage insurance, a fee homeowners pay as part of their mortgage amount when they have less than 20 percent of their home's value in equity. You should not make a larger payment than you need to if it will take away from your emergency fund, however. You will want to make sure that you have a financial safety net in case the unforeseeable happens.
Do be aware that the down payment amount does not include closing costs such as fees for obtaining a mortgage, title insurance and transfer taxes, which are due at closing and can cost you between two and seven percent of the sale price.
Setting Aside an Emergency Fund
In addition to saving up a large down payment, you should also set money aside in an emergency fund. Whether you buy a new house or an older house, all homes will need some routine maintenance and repair at some point. You will want to have the money set aside for this as repairs such as roof replacements and basement leaks can be very costly. Furthermore, a well-funded emergency fund will help protect you from losing your home in a situation such as illness, accident, divorce or job loss where you may have trouble making mortgage payments. Financial guru Suze Orman recommends having an emergency fund equal to eight month's income.
Beginning Your Search
Get Prequalified for a Loan
Once you have established a good credit score, saved up a down payment and set aside money in an emergency fund, you are ready to start searching for your dream home. Begin by getting prequalified for a loan. This will let you know what price range you should look in and it shows real estate agents and sellers that you are serious about buying a home. Plus, it will speed up the process once you are ready to put in an offer on a home you love. It is generally recommended that housing payments be around 30 percent of a person's income, though the actual amount people can comfortably afford will depend on factors such as how much other debt they have and how reliable their income is.
Start Looking at Houses in Your Price Range
Now you are finally ready to start looking for houses in your price range. It is best to look at a large number of homes in a variety of locations, since the home you end up loving may not be the same as the home you start off looking for. Tell your real estate agent what you love and do not love about every home you see; he or she can help you find a home that meets your dreams and expectations. Do not be surprised if you cannot afford everything on your home wish list. Factors such as location, number of bedrooms and bathrooms, updates and upgrades, and nearby schools can all affect a home's value. Determine which features are must-haves and find the home that is the best fit for you and your family. Choosing a home in your price range is important in getting a home with affordable payments
Options for a Tight Budget
If your budget is too small for the type of home you want or need, there are options you can explore. If you are fairly handy, or know someone who is, you may consider buying a fixer-upper. While you will want the general structure of the house to be in good shape, a house that only has cosmetic damage can be bought for less and fixed up easily and affordably. You may also consider renting out part of your home either to a roommate who lives with you or a renter who lives in a separate part of your home. Having another person living in your home can really help you afford your mortgage payments. You may also choose a smaller home, a home with fewer features or a home in a less expensive neighborhood.
Shopping for a Mortgage Company
When shopping for a mortgage company, you have two options: you can either use a mortgage broker to find a mortgage lender for you or you can find a lender yourself. While mortgage brokers do charge you for their services, they do the work of finding a great rate for you, saving you plenty of time and money. It can also be nice to have a knowledgeable person available to help you through the sometimes confusing home buying process. If you choose to shop for a mortgage yourself, be aware that too many inquiries into your credit report by various lenders may make it look as though you cannot get approved for credit and may consequently lower your score. It will not hurt your score if you shop around within a small time frame, such as a two week span, however, so plan accordingly.
If there is a particular mortgage company you want to use but their rates are not competitive, you may try bringing a competitor's rate quote to them to see if they will match it. Some banks will be willing to do this for you in an effort to get your business.
Choosing a Loan
When choosing your mortgage loan, it is essential that you understand the various terms used. Understanding these terms will help you choose the right loan for you.
The loan amount is the amount of money you need to borrow to purchase your house. The larger your down payment, the smaller the amount you will need to borrow. Your loan amount is limited by the amount that you qualify for based on your credit score. On the other hand, some banks have minimum lending amounts, so you may not be able to obtain a very small mortgage either.
The interest rate is a percentage of the loan banks and other financial institutions charge when they lend you money. This is how they make money from your loan. With a lower interest rate, you can benefit from smaller mortgage payments or you can make larger payments and pay less interest over time. The interest rate you qualify for is based on current housing market conditions, your credit score and the amount of money you can put down on a house. If you do not qualify for a favorable interest rate when you first buy your house, you may refinance for a better interest rate later.
Length of the Loan
The length of a loan is how long it takes to pay off the loan. A 30 year mortgage loan is typical, though 15 and 20 year loans are common as well. Choosing to pay your mortgage off over a longer length of time will result in smaller monthly payments, but more interest paid over time. A shorter loan term will result in a slightly higher monthly payment, but less interest paid over time. For example, a $300,000 loan at a four percent interest rate will cost you $215,609 over 30 years, but only $99,431 in interest over 15 years. If you can afford the higher payment that comes with a shorter loan term, you can save yourself hundreds of thousands of dollars with a shorter loan term.
Mortgage “points” are an upfront amount you pay in order to lower your interest rate. One point is equal to one percent of your loan, so if you pay one point on a $300,000 loan, it will cost you $3,000. Every point you purchase lowers your interest rate between 1/8 and 1/4 percent. You can generally buy between one and three points.
Whether or not you buy any points is a personal decision. It can be advantageous to purchase them if you can only get a high interest rate and you plan on paying off your mortgage over a long period of time. It is generally not advantageous to purchase them if you will not stay in the home long enough to recoup the cost, or if buy them will prevent you from putting down a large enough payment to avoid paying private mortgage insurance.
Types of Loans
There are two main types of loan interest rates: fixed and adjustable (also referred to as variable). With a fixed interest rate, you pay the same interest rate throughout the life of the loan and your required payment amount never changes. Thirty year fixed rate mortgages used to be the only type of mortgage available and they are still the most common today. Fixed rate mortgages protect people from unpredictable interest rate fluctuations. They also allow people to lock in a low interest rate that they will maintain until their loan is paid off.
With an adjustable interest rate mortgage (ARM), your interest rate changes at set times throughout the term of your mortgage. While adjustable rate mortgages may offer attractively low interest rates to begin with, interest rates and payments can increase or decrease dramatically with market conditions. They do always have a floor cap, payment cap and life cap, which helps give homeowners some security. ARMs are best for people who plan on taking advantage of temporarily low interest rates and payments and then paying off their mortgages or refinancing quickly, before interest rates climb.
When choosing a loan, you will very likely want to choose one that does not have prepayment penalties, which are penalties homeowners incur by paying ahead on their mortgages or paying off their mortgages early. While these are relatively rare, they do still exist. Prepayment penalties may decrease the further into the loan term you get, but they can negate the benefits of paying off a mortgage early if they are too high. You should always ask if your loan comes with prepayment before signing on the dotted line.
A few other factors you may want to consider when shopping for a home loan include the methods of payment allowed, the company's rating with the Better Business Bureau and the company's branch availability, in case you need to talk to someone in person. While these factors may not directly affect you much financially, details like these could make your life much easier or more difficult. If one bank only accepts checks and you always forget to mail them in on time, finding a bank that does auto-debits can save you a substantial amount in fees and penalties.
Understanding Your Mortgage Payment
Your mortgage payment does not go entirely and directly towards paying down the amount you own. A mortgage payment may include payments for up to five different things: principle, interest, private mortgage insurance, property taxes and homeowner's insurance, each of which are explained below.
The principle amount is the amount of your loan before interest is applied. When you make a mortgage payment, some of the funds go to interest and some goes to pay down the principle, or loan balance.
The interest on your loan is the amount the bank charges you to lend you money. It is calculated as a percentage of your loan such as five percent. This is how banks make money from your loan. The higher your interest rate, the larger amount of money you will pay over the term of your loan. The average interest rate available is published in the newspaper and online, though you will soon get a sense of what is available by shopping around at various banks and lending institutions. Remember that the interest rates you qualify for will be based on your credit score. If you have an unfavorable credit score, you should not expect to receive the rates advertised, as those are often saved for those with the best credit scores. A trusted banker can help you determine what sort of rate you should expect based on your individual credit score.
Private Mortgage Insurance
Private mortgage insurance, or PMI, is a fee you pay as part of your mortgage if you make a down payment of less than 20 percent or if you have less than 20 percent equity in your home. This fee helps to protect the lender in the event that you default on your loan. Fees usually range from 0.3 to 1.15 percent and are currently tax deductible through 2013.
You can avoid paying PMI by putting a down payment of 20 percent down or greater when you buy your home. If you are unable to put this much down when you first buy your home, you can request that your PMI payments be discontinued once you have 20 percent equity built up in your home. Lenders are required by federal law to discontinue charging you PMI once your loan-to-value ratio hits 78 percent. Refinancing, having your home appraised at a lower value, and taking out a home equity loan can all cause you to need to pay PMI again.
Homeowners can either pay property taxes by paying the tax collecting agency directly or by paying into an escrow account each month and having their taxes automatically paid. Property taxes are based on a property's assessed value and are not negotiable. They pay for community services such as schools, libraries, road work and emergency services.
Homeowner's insurance is insurance that covers home repairs if your home is damaged due to weather or fire, replacement of personal items that are lost or stolen, and liability for damages or injuries caused by you, your family or your pets. Nearly all lenders require you to show proof of homeowner's insurance before they will give you a mortgage loan because it protects them if something happens to your home. You can shop around to find the best policy to meet your family's individual needs to make sure you get the right amount of coverage for the right price. Homeowner's insurance is often paid into the same escrow account as property taxes are, and then both bills are paid automatically when they become due. You can save money on your homeowner's insurance by obtaining it from the same company where you have your car insurance or life insurance.
Fixed Rate Mortgage Payments
If you have a fixed rate mortgage, your monthly payment for your principle and interest will stay the same over the life of the loan until your entire loan balance is paid off. (Your property taxes and homeowner's insurance will likely vary slightly, however, usually going up each year to account for inflation.) The first few payments you make will go almost entirely to interest as your large balance will result in a large amount of interest to be paid. As your loan balance is paid down over time, less of your payment goes to interest and more of it goes to paying off the principle.
Adjustable Rate Mortgage Payments
With an adjustable rate mortgage (ARM), your payment can fluctuate widely due to changes in interest rate. Like with a fixed rate mortgage payment, ARM payments largely go to interest in the beginning of the loan term and are gradually put more towards the principle as the loan amount decreases and less interest is accrued each month.
An exact breakdown of how much money goes to each of these five categories (or four, if taxes and homeowner's insurance are lumped together into a single escrow account) can be found on your monthly mortgage statement or from your lending institution upon request.
Should You Pay Off Your Mortgage Early?
If you read the paperwork when signing papers at closing, you may have noticed that over the life of the loan you can end up paying twice the amount you are buying the home for once you factor in interest payments. Opinions differ on whether or not paying off a mortgage early is the best financial move, so you will have to weigh the options and decide for yourself if it is the right move for your family.
Reasons to Pay Off Your Mortgage Early
Paying off your mortgage early means you will have one less bill due each month. A mortgage is often a homeowner's largest monthly bill, and having it paid off can free up a substantial amount of money for other endeavors, whether you want to put the money towards investments, traveling or just having more of a financial cushion each month. Many people nearing retirement age especially want to get rid of their mortgages since they will soon have little to no income coming in to pay the mortgage bill every month. Paying off the mortgage also gives people the peace of mind that comes with being completely debt free and the security of knowing that no matter what happens, they will always have a roof over their heads at night.
Reasons to Not Pay Off Your Mortgage Early
On the other hand, paying off your mortgage early does not always make the best financial sense. If you are struggling to make ends meet as it is, paying ahead on your mortgage will not give you any immediate benefit. If you do not have an emergency fund and you come upon hard times, all the money you poured into your mortgage is now gone and you have nothing to fall back on. Things like basic living expenses and medical bills should be the first priority.
Even if you do have extra funds each month, there may be better ways to put your money to work for you. If you have high interest credit cards, auto loans, department store credit cards or gas credit cards, those should be paid off entirely before a mortgage with a low interest rate. Also, it may be a smart financial move to put your extra money into investments that can offer you a higher payout than a low-interest mortgage. Furthermore, mortgage interest is tax deductible, so you get some of it back at tax time anyway.
Reducing Your Mortgage Payment
The decision of whether or not you should pay off your mortgage early is one that only you can make. It really depends on your current financial situation---whether you have an emergency fund and/or other debts—and what you think your financial situation will be like in the future. If you decide that paying down your mortgage is the best move for you, there are a few different ways to do so.
Paying Ahead on Your Loan
Round Up Your Monthly Payments
One very simply method of paying off your mortgage a little earlier is simply to round up your monthly payments. For example, if you have a $350,000 30-year mortgage at five percent, your monthly principle and interest payment will be $1878.88. Without making any extra payments, your mortgage will be paid off in 30 years and you will have paid $326,395.24 in interest over the life of the loan. If you round up your payments only $21.12 each month to make an even $1900 payment, your mortgage will be paid off nine months earlier and you will have paid $9,679.35 less in interest over the life of the loan. That is a savings of almost $10,000 with only a little more than $20 extra a month.
Pay Extra Each Month
If, instead of rounding up your payments a little, you want to add a more significant boost to your monthly mortgage payments, you can reduce your loan term and amount of interest paid by even more. Using the above example, if you add an extra $100 each month, your loan will be paid off three years and two months earlier and you will have paid $40,846.42 less in interest over the life of the loan. You do not need to add the same amount to your payments every month or even add extra every month. Anytime that you can add a little extra to your mortgage payments, no matter the amount, it will help bring down your balance faster.
Make Biweekly Payments
Mortgages are typically paid monthly, for a total of 12 payments each calendar year. If you were to make a half-payment twice a month, you would make 24 half-payments, or 12 full payments in a year. However, if you were to pay bi-weekly, every other week, you would end up making 26 half-payments, or 13 full payments, in a year. In other words, by making biweekly half-payments to your mortgage, you are essentially adding an extra payment each year.
Using the same $350,000 mortgage as above as an example, your half-payment amount would be $939.44—exactly half of your monthly payment amount. By making half-payments instead of monthly payments, however, your mortgage would be paid off in 25.3 years instead of 30 and you would save $58,396 in interest over the life of your loan. This is a great option for people who are paid bi-weekly anyways as they can just set something aside from every paycheck.
Make the Equivalent of 13 Payments a Year
If you want to pay the equivalent of 13 payments in a year without going to the hassle of writing 26 checks each year, you can also just add enough to each monthly payment to equal an extra payment each year. By dividing one payment by 12, you will get the amount that you need to add each month to effectively make 13 payments each year. Sticking with our same example, adding $156.57 extra to each monthly payment will result in your loan being paid off the same four years and eight months sooner with an interest savings of $59,382.51 over the course of the loan.
Set Aside a Lump Sum
You can also reduce your mortgage by making an extra payment if you find yourself with an extra lump sum of money, such as at tax time. Making an extra yearly payment of $1,000 will reduce your loan term by two years and eight months and your total interest paid over the life of the loan by $33,517.86. Money received as an inheritance, gift, work bonus or legal payout can be used for the same purpose.
When you pay extra towards your mortgage payment, make sure you have the extra amounts applied to the principal if you want to pay off your balance faster. Otherwise the payments may simply be applied to the next month's payment, resulting in you receiving a smaller bill next month but not reducing your loan balance.
There are many good mortgage payment calculators available online that you can use to see how payment changes you make can affect your loan's length and amount. To see how adding additional money to your principle each month can shorten and reduce your loan, use our extra payment calculator. To see how making bi-weekly payments can shorten and reduce your loan, use the calculator at the top of this page. If you have a specific pay-off date in mind and want to know what payments you need to make to meet your goal, use our early payoff calculator.
In addition to paying extra towards your mortgage, refinancing is another method of helping you pay down your mortgage faster. Refinancing offers people several benefits, such as lower interest rates, shorter loan terms and modifications to loan terms and conditions.
Lower Interest Rate
If you obtained a home loan with a poor credit score or at a time when interest rates were high, you may be able to obtain a lower interest rate by refinancing. With a lower interest rate, less of your payment goes to paying interest each month so more of your money is freed up to pay off your principle amount faster.
When you refinance your mortgage, you have the ability to choose any loan length you wish for your new loan. Choosing a longer loan term gives you smaller monthly payments, which is good for people struggling to make their mortgage payments, but choosing a smaller loan term will help you pay off your loan faster. If you are already seven years into a 30 year mortgage when you refinance, you may wish to make your new loan term 23 years to stay on track, or 15 or 20 years to try to pay it off faster. Because loans with shorter terms usually come with lower interest rates, the difference in the payments for 15, 20 and 30 year loans may not be all that different.
Switch to a Fixed Rate or Adjustable Rate Mortgage
Refinancing also allows you to change the type of mortgage you have. If you have a fixed rate mortgage but interest rates are going down, switching to an adjustable rate mortgage can help you get a more favorable interest rate. While ARMs do carry more risk, if you plan on only having the loan for a short time, the risk can be worth taking. On the other hand, if interest rates are going up, you may find yourself wanting to switch from an ARM to a fixed rate mortgage with more affordable payments.
Roll Other Debts into your Mortgage
With a refinance loan through the federal Home Affordable Refinance Program, homeowners can refinance at up to 125 percent of their home's value. This extra money is paid to the homeowner in cash at closing and the homeowner is free to spend it however he or she pleases, including making other purchases or paying down other debts at higher interest rates. While consolidating debts into one payment with a low interest rate can save people trouble and money, you should be careful about exchanging unsecured debt such as credit card debt for secured debt such as a mortgage. If you miss credit card payments, you will lower your credit score but not actually lose anything. If you miss house payments, you may lose your home.
When Refinancing Does Not Make Financial Sense
While refinancing can be a great way to reduce your interest rate, pay off your mortgage faster and save money over the life of your loan, there are a couple times when refinancing does not make financial sense. First of all, you should probably not refinance if a required appraisal raises your home's value and reduces your equity-to-value ratio, causing you to have to pay private mortgage insurance you were not required to pay before. Any savings you would get from a lowered interest rate would still end up going right to the bank as PMI payments.
Secondly, refinancing might not be the right move for you if you do not plan on staying in your home long enough to recoup the costs you pay at closing. If refinancing costs you $2,000 and saves you $100 every month on your mortgage payment, you will need to live in your home at least 20 months in order to recoup the costs and make refinancing worth it. Furthermore, that $100 must be money that is actually saved in interest, not just a payment that is reduced because it is spread out over a longer period of time.
If you are serious about getting out of mortgage debt and living in a house that is bigger than you need, you may want to consider downsizing. By trading in your larger house for a smaller one, you can significantly reduce or possibly even eliminate your mortgage payments if the equity you have in your current home is enough to purchase a smaller home outright. Downsizing also reduces your property taxes and your homeowner's insurance, both of which are based in part on your home's value or size. Downsizing can also reduce your electric, gas and water bills as well. The money that you save with smaller payments in each of these areas can be put towards paying ahead on your mortgage so you can pay it off faster.
Do note that even after your mortgage is completely gone, you will likely never be completely done spending money on your home. You will still always have property taxes and homeowner's insurance to pay. You will also want to put some money into home repairs and upgrades over time. Eliminating your monthly principle and interest payments can be very freeing, however.
Saving Money on Homeownership
In addition to saving money on your mortgage, there are a large number of ways to save money as a homeowner. Whether these methods are used to put more money in your pocket each month or to free up additional funds to pay off your mortgage faster, they are worth looking into.
Have a licensed inspector inspect your home before you move in. By having your home inspected before you buy it, you can save yourself the trouble and hassle of buying a home with a number of problems you may not know to look for. Home inspectors can let you know if home wiring is out of date, if the roof desperately needs replacing, if the home foundation is cracking or if there are carpenter ants in the walls.
Keep up on home maintenance. Homes required a lot of upkeep. Gutters need cleared out, furnace filters need changed and drier vents need cleaned. Procrastinating on routine home maintenance tasks can end up causing you many expensive problems later on. It is much easier and cheaper to simply keep up with home maintenance from the time you move in.
Learn how to complete home improvement tasks yourself. Every so often, homes need work done to them. While bigger jobs often require trained professionals, there are many jobs around the house that you can do yourself if you are handy. You can learn how to complete tasks such as adding attic insulation or replacing broken electrical plugs easily simply by reading how-to guides or watching youtube videos. Completing small home tasks yourself can save you hundreds of dollars. Large, complicated tasks really should be left to professionals, however.
Sign up for budget plans. Many people may not know that electric and utility companies often offer budget payment plans to help homeowners average out their monthly payments. Instead of charging you based on how much electricity you actually used for the month, some electricity companies will charge you based on your average usage over the past 12 months. This reduces the tendency for people to owe very little in the winter and very large payments in the summer.
Setting out to pay off your mortgage early can be a lofty but incredibly satisfying goal. While it is not for everyone, those who manage to free themselves from mortgage debt can breathe a sigh of relief knowing that they will always have a place to sleep at night no matter what unforeseen financial obstacles come their way. Paying off a mortgage early takes a great deal of hard work and determination, but it can be entirely worth it to have that weightless, debt-free peace of mind that comes with owning your home outright.
Sources & Further Reading
Key Tips & Advice
Things to consider when buying a home:
- While the 30-year mortgage is the most popular term in the United States, a 15-year term builds equity much quicker;
- Home buyers in the US move on average of once every 5 to 7 years;
- Early mortgage payments apply primarily to interest rather than the principal;
- Using a shorter loan term, paying extra & making bi-weekly payments can better help offset any transaction-based expenses.
Do Home Prices Always Go Up?
In the United States real estate prices have went up about 6-fold since 1970.
Our monetary policy is biased toward inflation. If you back out general inflation, outside of during market bubbles, real estate typically performs roughly inline with general inflation. Rather than looking at raw prices, better metrics to use for analyzing real estate prices are:
- Home price vs median income.
- Purchase price vs rent.