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HomeTeam Equity

October 24th, 2012 10:55 AM

Mortgage rates are at all-time lows. In fact, they have been on the decline for the last 20 months.  

 

As mortgage rates drop, so does a homeowner's total mortgage interest over the term of the loan. Compared to two years ago, homeowners are paying 38% less mortgage interest over the life of their loans.

 

The early years of a loan are typically interest-heavy. With today's 30-year fixed rate mortgage rates, the first payment of a new 30-year fixed rate mortgage is 37% principal. Let's compare this with rates from 2 years ago:

  • October 2012 : First mortgage payment is comprised of 37% principal, 63% interest
  • October 2010 : First mortgage payment is comprised of 22% principal, 78% interest

If you had financed your home 2 years ago, it would take you more than 10 years to reach the same 37/63 ratio that's available to today's home buyers and refinancing households on their first day with the loan. Not only do today's new homeowners pay less interest, but they establish equity sooner by paying down their mortgage principal more quickly.

 

Falling mortgage rates make for a cumulative effect on household savings. That low payment lasts for 30 years, and the effects can be huge. Assuming two $300,000 mortgages, one started this year and one started 2 years ago, the difference in mortgage interest paid over 30 years is $107,000. That's more than one-third of the original amount borrowed.

  • October 2012 : A $300,000 mortgage requires $178,000 in mortgage interest in 30 years
  • October 2010 : A $300,000 mortgage requires $285,000 in mortgage interest in 30 years

Compared to mortgage rates of 2 years ago, a homeowner will pay 38% less mortgage interest over the life of a 30-year loan.  

 

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Source:  Freddie Mac, 30 year fixed rate, loan amount $300,000.

Views: 16

Comment by Sue Copening on November 25, 2012 at 7:22pm

Use the WORTH ACCOUNT and cut even THAT interest in half... plus pay off the entire mortgage in 1/3 to 1/2 the normal time - along with any other debt you have.  This AWARD WINNING program has an "A" rating in the Better Business Bureau.  Learn more: http://WorthGPS.com

 

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