Most people do not comment on the reality of a 30 Year Fixed mortgage. But every once in a while, someone will really think about it, or their eyes may widen when they see on their Promissory Note, “Last payment due August 1, 2040.” And think about it: where you will be in 30 years (How old will you be? How old will your children be? How will things have changed in your life and lifestyle?)
The U.S. is actually quite unique in offering such a long term for a mortgage. But for us, it’s a reality and helps provide affordable payments over a long period (affordable especially at rates these days). But some don’t like to think that they’ll still be making a house payment after such a long period of time.
For those people, a 15 Year Fixed or 20 Year Fixed term is one solution to shortening the length of paying off your mortgage, but 1. not everyone can afford or qualify for this and, 2. they may not make sense from a long-term tax perspective.
Another thing you can do to shorten the length of your loan is to make extra payments towards principle. You can set up a biweekly payment plan, which essentially translates to making 13 payments in 1 year, or you can pay random additional amounts each month depending on your finances. I always recommend calling the 800# listed on your statement and ask how they want you to do it – some request a separate check; others say to just increase your payment and in the memo write “towards principle.”
If you make 1 additional payment each year, you will shorten your mortgage by about 4 years and 4 months (at today’s interest rates), meaning that instead of paying off your mortgage in 30 years, you will pay it off in 25 years and 8 months.
And feel free to ask your mortgage consultant to run an amortization schedule for you to see how it changes!
