Advice for buyers and sellers, from Justin Ruzicka

Truth on Home Mortgage Payments

FinancialInstitutionUnderstanding your home mortgage: Data based on $200,000 Purchase Price, $20,000 down payment resulting in: 30 year, $180,000 home loan at 5.5% Interest (no taxes or insurance are taken into consideration in this article, and there is no PMI).

Your monthly Loan Payment will be $1022, multiply that by 360 payments (30 years) = $367,920 total in payments. WOW, you are probably thinking. Per the Truth in Lending Act you are given this data at the time of your closing, but the jubilation of the day and event often glaze over the “TRUTH” you just read. I digress…

Total Payments $367,920 Less Original Loan $180,000 = $187,920 in interest. If you are paying attention to details you can see that 51% of your payments go towards Interest. YIKES, that seems like a lot of money. But it is not really that bad. After all you are getting a beautiful home.  🙂

If you make a $550 Extra Principal Payment the 3rd month of your loan, you save $2245 off interest. That is a 400% Return on your money, ok its is over 30 years so effectively making it 13.3% year Return….HMMMM, stock brokers suggest that a 12% return over the course of a lifetime is a “solid” return. It looks like if you put your money for work for your primary residence instead of putting it towards “investments” you are likely to gain more for yourself!

Making and extra $550 Principle Payment each year will save you $22,000 in interest. If you make 1 extra payment ($1022) each year for the first 10 years of your mortgage (and continue to pay $550/year there after in principal payments) you will save $33,700 of interest.   The best part is this makes a 30 year mortgage turn to a 25 year mortgage because you are using compound interest to your advantage.

If you are thinking about buying a home, saving 15% down is my suggestion, and paying a higher interest rate, instead of going with an FHA loan. If you want the “true” interest rates on FHA Loans, then come back next week for my blog on that.

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Justin Ruzicka, Realtor
Justin Ruzicka, RealtorThe House Guy
Much of my real estate career has been in buying, repairing, then selling the properties for a profit. I work for specific investment groups doing this, as well as manage a personal portfolio. The other 50% of my business is helping my neighbors, I have helped dozens of Families buy or sell their home.

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