Want to possibly save some money on a mortgage? Well, of course! Read this!

Shared from our friends at Yahoo! Homes, this article is about the little-known mortgage that could save you big!

10-year, fixed-rate mortgages may be little known, but here are four money-saving reasons you may want to learn about them.

 

1. The Interest Rate on a 10-Year Loan is Much Lower (Compared to a 30-Year Loan)

If you're like most people, you refinance your mortgage for one main reason: to save money. So understandably, people usually focus on how their new interest rate will affect their monthly payment. 

But, focusing on the monthly payment alone can be detrimental to your savings! For example, even though the monthly payment on a 30-year will typically be much lower than with a shorter-term loan, the interest rate will be higher. So, you'll end up paying a lot more over the life of the loan in interest on a 30-year mortgage than you will on a 10-year. This is crucial to understand as the TOTAL interest, plus the purchase price of your home, is the true cost of your home. 

So, how much can you save in interest with a 10-year vs. a 30-year loan? Look at the average interest rates from August 13, 2013 according to PNC Bank. This compares a 30-year at a rate of 4.375 percent, with a 10-year at a rate of 3.125 percent, for a loan amount of $300,000.

	30-year mortgage	10-year mortgage
Loan Amount	$300,000	$300,000
Interest Rate	4.375 percent	3.125 percent
Monthly Payment	$1,497.86	$2,914.16
Total Interest Paid	$239,228.08	$49,699.74

That's pretty evident! If you can afford the higher monthly payment, you'll save almost a whopping $190,000 over the life of the loan!
  

2. Refinancing to a 10-Year Loan Won't Reset the Clock

Traditional wisdom says that if you've got fewer than 20 or 15 years left on your 30-year mortgage, refinancing probably should be avoided. That's because refinancing to another 30-year mortgage resets the clock on your mortgage.

But, refinancing to a 10-year mortgage with a low interest rate could turn that logic on its head, says Duffy. That's because most people who only have 15 or so years left on their mortgage probably have an interest rate much higher than today's historically low rates, he says. Why? Interest rates were a lot higher 15 years ago, and homeowners who haven't refinanced at all could still be stuck with these high rates.

For example, the interest rate for a 30-year, fixed-rate mortgage in January of 1995 was 9.15 percent, according to the Federal Reserve Board. Duffy says he recently helped a couple who only had 12 years left on their mortgage refinance to a 10-year mortgage.

"They initially had an interest rate of over 7 percent. They refinanced to a 10-year mortgage at a little over 3 percent," which saved them tens of thousands of dollars, he says. "So it was a terrific move."

3. You Can Build Equity Faster with a 10-Year Loan

Do you want to move in the next few years, but can't sell your home because it's worth less than the amount you owe on your mortgage? Refinancing to a 10-year, fixed-rate mortgage through a program like HARP, a government program that helps homeowners refinance their underwater homes, is one move that has helped more than a few people in that same situation.

How can this help? By refinancing to a 10-year mortgage, you can build equity faster, and own enough of your home so that it’s not underwater anymore when it comes time to sell. "I've done several 10-year loans for people who want to move in three years and the best way they can see to do it is to budget every month and pay that principal down quickly, so they do a 10-year fixed," says Duffy.

He says that the added benefit is that you can often get a lower interest rate when you refinance, and save a lot of money on interest as a result. Secondly, he adds, you could of course make extra payments without refinancing, but many know they won't have the discipline to put that money aside.

4 - A 10-Year Loan Allows for a Stress-Free Retirement 

The 10-year mortgage may be the right move if you're nearing retirement.

Here's why: For many people, their monthly mortgage payment is their biggest expense. Of course, when you're working, that may not be a big deal. But what about when you retire and you start seeing a lot less income?  That payment could become quite a burden, making your sunset years not quite as sunny. Worse, it could force you to sell your home, or put off retirement. Duffy says that these are two major reasons he's done many 10-year refinances.

"Homeowners are approaching retirement, it's on the horizon, and they reason that it's better to bite the bullet and pay more in a monthly payment while they're working and producing income than still have a payment when they're retired. It's all about getting debt-free by the time they reach retirement so they can really enjoy it," says Duffy.

Wow, those are some real eye-opening things you can discuss with your clients! With all the different mortgage loan and financing options that are available, education is always good!

Call 903.200.4988 or visit www.HomesByLainie.com!

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 ~Keller Williams Realty~