Little-known mortgage misstep will cost homeowners tens of thousands

AMERICANS are being urged to avoid a little-known mortgage misstep which could cost homeowners tens of thousands.

A popular finance guru has revealed his top tips to avoid being caught in the costly trap and even offered a useful solution.

2

Dave Ramsey has advised homebuyers to avoid committing to a cheap monthly payment scheme.

He says despite the offers often looking as if they will be easier to manage it can actually end up costing homeowners heaps more over time.    

Ramsay explained that a 30-year mortgage can sometimes offer lower monthly payments to make up for the length of contract.

But due to the added years worth of repayments, people will actually be paying significantly more cash due to increased compound interest.

Ramsay said in a recent blog: “Sure, the 30-year plan gives you a smaller monthly payment.

“But this longer, drawn-out repayment plan has more of your money going toward the interest each month – which also makes the principal balance go down much slower.”

An example which shows why Ramsay’s advice is so key to keeping costs down is by comparing two $200,000 mortgages with a $40,000 downpayment.

One which is fixed for 15 years at 6.5 per cent interest would leave the homeowner with a monthly payment of $1,394.

The same mortgage but over 30 years with a 7 per cent interest would bring the monthly payment way down to $1,011.

However, it would end up with accruing $223,217.48 in interest.

The 15-year option would only be $90,879.11 – marking a huge difference.

To ensure buyers are aware of exactly how much interest they will be paying overtime, Ramsey recommends creating an amortization schedule.

This helps to break down each loan payment until the mortgage is fully paid off.

It will also show just how much goes towards interest and how much reduces the original amount borrowed. 

This helps to offer consumers a much clearer insight into their future home payments and how they will be applied.

Ramsey wrote: “As with any type of goal setting, an amortization table gives you a game plan and the confidence to take on the mammoth task of paying off your house.”

Financial planner Mike Bernard also shared three steps to take if you are feeling stuck in your home by a low-interest mortgage.

The Wise Money Show, hosted by Korhorn Financial Group, releases a range of videos to help people increase their financial literacy.

First, he says that prospective homebuyers need to focus on planning by seriously considering what a new mortgage would cost in interest.

He then advises that prospective buyers essentially start making that predicted payment into the new savings account to save up for when it becomes a reality.

The final piece of advice he provides is for homeowners to ensure that their house is ready to buy.

Since the housing market is so variable and subject to change with every piece of fiscal legislation or major historical event, being ready for when the market is optimal to sell is important.

This comes as mortgage expert Brian McCauley reveals his top tips for successfully getting a loan in today’s high-inflation economy.

McCauley, founder and owner of Dallas Mortgage News, said despite there being a lot of doom and gloom about inflation and interest rates it currently is a “great time” to buy.

“Even though interest rates are up, it’s actually a great time for buyers to get a home,” he exclusively told The US Sun. 

“Yes, the rate and payment aren’t ideal but that rate is temporary and refinance options will be available in the next 12-24 months so they can lower the rate and payment.

“During a ‘cooling’ housing market, it gives buyers the upper hand now that more inventory is available. 

“Not only can they ‘find’ a home but the opportunity to get a discount on the home, via the price, seller paid closing costs or repairs at seller’s expense, is almost at an all-time high so the opening for buyers is definitely there.”