I have a 30 year mortgage when is it the best time to convert to a 15 year loan?

Question

Is this a reasonable thing to do? I have only been in my home for one year! I want to pay it off sooner. accellerated mortgage loan? is this a scam? I hardly believe anything the morgage company offers because the interest rates are a rip off. any advise all welcome!

Answer 1

Buy a CD instead.
The Certificate of Deposit will earn almost as much interest as you are paying and when you have enough, pay off the loan. You might want to buy a bigger home later and use the CDs as down payment.

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By investing in CDs you have money if something goes wrong prior to paying off the mortgage.
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The Certificate of Deposit may pay a point less interest but you will lose more screwing with your loan or early payment penalties.
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The Majority of people who accelerate their mortgage regret it and many end up in default. Just save the money and draw interest.
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Answer 2

When is the right time to convert? When you are ready to do so, and when it makes financial sense to do so.

What does that really mean?

Getting a 15 year loan will reduce the amount of interest you pay over the life of the loan. But, your minimum payment will increase.

15 year mortgages typically have lower interest rates as well, which contributes to the reduction on the overall interest paid.

Can you afford the increased minimum payment? If so, it might be worth the effort to convert.

On the other hand, that increased payment will stay with you for the life of the loan. Is there a reason, in the future, where you could imagine not being able to afford the increase minimum payment? Birth of a child, or loss of a job spring to mind. If so, you might want to consider staying with the 30 year loan.

I have attached a link to a calculator that will help you work out the what-if scenarios. The calculator will also allow you to see the effect of a large one-time payment, and the effect of adding an additional amount against the principal every month.

Personally, I recommend sticking with the 30 year, and dedicating additional money every month against the principal. With today's low interest rates, converting is not really your best option.

Answer 3

Assuming you now have a loan with decent terms - interest rate and it is fixed rate - not one of the dangerous loans made the last few years - then don't get a new loan. You will just get more costs for the lending fees.

You can do exactly the same thing to pay off the mortgage early by making larger payments. If your payment is supposed to be $950, then pay each one $1000 or $1050 or whatever is better. Simply designate the extra payment for "principle". This will pay off the loan quicker and save you thousands, without you having to pay thousands in rifinance fees. Better yet, the more you pay, the faster it will get paid down.

Answer 4

The accelerated mortgage things are a scam. You can do exactly what they do, except you can do it without paying them $3500 for their program. Just pay additional principal each month.

Some suggested simply paying bi-weekly. Some lenders will not accept payments like this without charging you a fee.

Typically, if you can reduce your rate by at least 1 full % point, it makes sense to refinance to a 15 year depending on the closing costs involved.

Here's a website with some mortgage calculators. Play with them a bit and see how different scenarios will turn out.
http://www.dinkytown.net/mortgage.html

Answer 5

Okay you can do this without refinancing. If you want to switch your 30 year mortgage to pay off in 15 years, its possible to figure exactly what you will need to pay extra per month, knowing your current balance and interest rate ect.

These numbers are correct (give or take a few bucks), regardless of your loan amount. This is based on if you started at 30 years, I know you are a year in, but in that year you hardly paid anything to principal. So the numbers are assuming you did this from your first payment. It will only be off by a couple months at most.

Take your Principal and Interest that you currently pay. Not your total payment just your P&I. That is the amount without your escrow account, assuming you have one. Take your P&I and times it by this amount to take your 30 year to a 15 year. I will assume in my below scenarios your P&I payment is 1,000 dollars. This will be your new monthly payment

7.5% Rate. P&I * 1.32 ~ 1,000 * 1.32 = 1,320 dollars
7.0% Rate. P&I * 1.35 ~ 1,000 * 1.35 = 1,350 dollars
6.5% Rate. P&I * 1.378 ~ 1,000 * 1.378 = 1,378 dollars
6.0% Rate. P&I * 1.40 ~ 1,000 * 1.4 = 1,400 dollars
5.5% Rate. P&I * 1.43 ~ 1,000 * 1.43 = 1,430 dollars

If its inbetween split the difference. If you want it exact, just post your current P&I and your Interest Rate and anybody can run an Amortization Schedule for you. But these are correct ratios to times with to change a 30 year to a 15 year.

Using the posters example directly above me. On the 300 K at his payment of 1896. Using my formula to pay off in 15 years your payment would be $2,612.68. The exact amortization for a 15 year at the same rate is $2,613.32. So the formulas are pretty damn close without amortizing it.

Answer 6

You don't need another loan.

Pay the 30 year like a 15 year and you will accomplish the exact same thing.

Make sure the payment is a separate check designated in the memo section as "Principal Payment"

This will save you big bucks on the interest you will pay over the life of the loan.

Hope this helps.

Terry

Http://www.Welcome2Arizona.com

Answer 7

Accellerated mortgage loan sounds like on of those "special" plans that you have to pay a fee to set up.

Just pay extra on your principal and you will accomplish the same thing. It would be smart to make a separate check indicating it's a principal payment so it get properly posted.

Answer 8

Yes, the accellerated mortgage payment program is a scam. I can't believe people fall for this, or that it's still allowed. You can make extra payments anytime you want. Check to see if your loan has a pre-payment penalty clause.

Answer 9

the only time you would want to change to a 15 year is when the rate is about 1 percent better than what you have now

as others have said...you can just pay more on the principle

for example

300k loan amount
6.5%
30 year fixed
1896 payment

if you make a payment of 2300/ month

your term would be 18.91 years instead of 30

contact me with any questions....i can help you figure out your best strategy

Answer 10

One of the best ways to pay off your mortgage sooner without refinancing is to set up bi-weekly payments (directly taken out of your account). Even if you do not change the amount (divided over a month) just paying bi-weekly will cut years off your loan because the interest adds up every day. Otherwise, you can combine this with also adding extra amount to your mortgage. This way you don't pull out another loan, pay lender fees or alter your credit and you still pay it off sooner.

Answer 11

You don't have to convert anything--just make extra principal payments on your loan when you can. This gives you more flexibility and accomplishes the same goal.