The Tale Of Two Amortization Schedules As A Guideline;
The Two Amortization Schedules Are Based On A Mortgage Of $750,000.00 – 25 Year Amortization
- Remember, when looking at the amortization schedule, you can create your payment as long as it’s above the minimum required.
- Look at the total interest paid over the five-year term. – Yes, the variable rate amortization will change, but look at what is saved in the meantime.
- Many mortgages, especially first-time homebuyers, terminate their mortgages in the first 40 months. You pay the majority of interest in the first two years with a fixed rate. So, if you are one of the ones that terminate your mortgage early, you’ve made the bank very happy.
- Look at the remaining balance of the mortgage.
Let’s get geeky and take a closer look at the math. Saving money is fun.
Insured Mortgage Amount of $750,000.00 at today’s rates
- 5yr Fixed Rate of 4.09% = a monthly payment of $3981.83 – straightforward
- 5- year Variable Rate at 2.25% = Prime minus 0.95% = a monthly payment of $3,267.09 – complicated math – but worth the time.
- A monthly savings of $714.74 – I know I can do a LOT with $714.74 a month or $8,576.88 a year.
- But what if you applied $8,576.88 a year to your principal balance? Or better yet, change your monthly payment to $3,891.83, and the difference goes directly to the principal balance each month. You will be paying off that mortgage in no time.
I am using a monthly payment for ease of writing, but a bi-weekly accelerated payment would have a more significant impact.
We all understand that Prime is increasing. So let’s take a closer look at that monthly payment with a few increases to Prime.
Remember the discount remains at -0.95%
Prime @ 3.20% = $3,267.09 – monthly savings = $714.74
Prime @ 3.45% = $3,359.75 – monthly savings = $622.08
Prime @ 3.70% = $3,453.84 – monthly savings = $527.99
Prime @ 3.95% = $3,549.34 – monthly savings = $432.49
Prime @ 4.20% = $3,646.24 – monthly savings = $335.59
Prime @ 4.45% = $3,744.53 – monthly savings = $237.30
Prime @ 4.70% = $3,844.17 – monthly savings = $137.66
Prime @ 4.95% = $3,945.15 – monthly savings = $36.68
Even with a 2% increase to Prime, you are still saving $36.68 per month – now apply what you save each month to your principal, and you are cleaning up. When we understand the savings, you take away the fear. I am here to support you.