Let’s take a look at 15 year versus 30 year mortgages.
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: We want to talk a little about those beautiful interest rates. Some people are taking a look at refinancing and feeling very confident. They may even be considering a 15 year mortgage in lieu of a 30 year mortgage for their personal residence.
Bob Nelson: And it’s an interesting concept. Certainly you could say, gee, I’m at such and such an age. Wouldn’t it be nice to own this thing free and clear 15 years from now or 30 years from now, but look at it this way. If you took out a mortgage that had an amortization or repayment schedule that was scheduled over 30 years, you could always step up the payment to make payments, monthly payments the size that would amortize it over 15 years. But let’s assume just briefly that you come up against a month where there is a shortfall for some reason. Your car needs repair or whatever or whatever. You can always back off to the minimum that would be required on that payment which would be based on the 30 years, not the 15 years, and then step back into that earlier schedule when you can.
Marcia Edwards: And I would encourage you to take a very close look and communicate very well with the lien holder, the lender on this, make sure that you’re paying everything in addition is going towards principal. You may be actually accidentally paying forward on payments ahead if they don’t know that your intention is principal.
Bob Nelson: Yeah that’s a good point.
Marcia Edwards: So you may even do it as a separate check, but just be really clear on your intentions. They also sometimes say you can pay every two weeks instead of monthly. That can be tricky too because when you look closely, you may see that they’re holding the first two week payment until they get the balance of your payment and then submitting it, so it hasn’t gained ground at all. So you really want to make sure that you understand how the payment’s going out on the lender’s side.
Bob Nelson: Well also, if you have a coupon booklet that the lender has given you, and with each payment you tear a page off out of the coupon booklet and include it with the check, it would be interesting to prepay two or three months in advance. Make sure that as you do that, you rip out the three months of payment coupons to put it in there. Now from that point forward, you are ahead of your payment schedule by a three month period of time. It would take you five and a half months of nonpayment of your loan before you are in trouble. Why? Well, the first three you’ve already paid and it takes about a month and a half after that.
Marcia Edwards: We’re looking for security here, that’s a great way to get some security.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.