You should be aware that none of the home loan mortgage rates you are quoted are correct. Oh, you may be told that the current rate is 4.59%, and from a technical and legal standpoint this is true. But in reality the actual usery interest rate is 90%. And over the cumulative life of a typical 30 year loan, the effective interest rate of your mortgage is 200%. Allow me to explain in this tutorial about today's mortgage rates and you will be as thoroughly disgusted, shocked, and hopefully moved to action as I was.
The First Reality
Pull out and take a look at your amortization schedule, the thick stapled package of papers that shows you month by month your payments throughout the life of the loan. It is broken down to show both the principal and interest for each month's payment.
Take a look at it, especially the first few years. OK, close the mouth after you realize that at the beginning of the loan, the home loan mortgage rates are really 90-95%, depending on how much you put as a down payment. How did I get that? Pull out the calculator and take the interest and divide it by the full payment amount. Move the decimal to the right twice and there you have your effective interest rate, what you actually pay verses what is quoted.
Let's take this a bit further. On the average, it takes 20 years for the tide to turn and begin paying more principle (known as home equity) then interest (the part given to the bank for the privilege of having a loan). Think about that one. 20 years later and your effective interest rate is still at 50%!
Oh sure, the last ten years of a loan excels the process and the last few payments are just a couple of percentage points in interest. So than one might say (especially the loan officer) that the lower effective interest rate at the end of the loan makes up for the higher interest rate at the beginning. Well, this may look to be true on paper, but in reality it is not only wrong, but very misleading (deceitful) and the person explaining this to you needs to read this article.
A Second Reality
For your second math assignment and reality check, you will discover that in the end you are paying 200% interest on your home loan mortgage rates loan. Use your calculator to add up all of the interest payments as well as a principle payments. What do you notice? That is correct. The triple payment effect. A $100,000 mortgage in reality costs $300,000 over the typical 30 years of life for a mortgage loan. Why does this happen? The power of compounding, whereas this time it favors the bank, not you. There is a great case to make for the 15 year mortgage loan that forces you to pay off earlier.
One More Point
All right, one more point to make about home loan mortgage rates that hopefully will set in an incredible reality and hopefully cause you to accelerate your payments to get that loan paid off as soon as possible.
It has been established through the use of your own amortization table and a calculator that the real interest (effective) rate starts out and over 90% and then goes down to a couple percent or two by the end of the 30 year term. What is forgotten about is the fact that a typical mortgage is refinanced every 3 to 5 years. And you know what that means? Yes, if the refinancing is for another 30 year term, which is typically the case, the amortization table starts over. As this cycle continues, the amount of interest that gets paid versus the principle continuously stays above the 90% real interest rate.
Getting caught unawares by the home loan mortgage rates myth becomes a vicious cycle and wealth destroyer.
Principles to Live By
1. Accelerate you payments and get that mortgage paid off in under ten years. Yes, it can be done! Interest payments caused by the usery home loan morgage rates is rent money. You purchased your home to get away from that and build equity.
2. If you are looking to buy and take out a mortgage, make sure you have at least 20% to put down to avoid the extra insurance, make the payments lower, and be in a better position to weather any financial storm when (not if) they come.
3. Above all, make sure that whatever home loan mortgage rates you are offered and will be paying each month fits into your household budgeting plan. Write down all the costs associated with the house including the mortgage, insurance, taxes, utilities, maintenance, lawn care, etc. Make sure this total does not exceed 40% of your take home pay. Any more than that and you will struggle needlessly. Work on making it less.
4. If you do not have a household budgeting plan in place, get it done before you buy. If you need a little help, I would be happy to talk with you and assess your financial situation and offer some concrete and effective financial coaching solutions. There is no cost for this as it is a great chance to determine if we are a good fit for each other to work out effective and life changing financial coaching and mentoring.
What Do You Choose?
However you choose to proceed with this information on today's mortgage rates, do so with caution. Taking on even a 15 year mortgage loan is a huge financial responsibility and burden. Owning a home is not a right, it is a privilege. If you borrow from a bank and are unable to pay it back, that is your fault for improper planning. Go through the process with the goal of saving money, getting out of debt, and living financially free.
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