# You Shouldn’t be Paying Attention to the Interest Rate?

The elements of understanding a mortgage seem simple enough.  Your home, rate, term, taxes, insurance, and appreciation; with the primary focus being typically on the interest rate.  However, what if we said your attention shouldn’t be on the interest rate?

## Mortgage 101

There are many stages to a mortgage.  They coincide neatly with the many stages of your life.  First-time homebuyers the focus 95% of the time, is “Can I afford the payment?”  Later stage homeowner, it is “Am I building equity in my home?” However, payment and interest rate are often secondary in the true cost of a home.  Today’s borrowers when looking to refinance need to understand the cost of their home.

### Understanding Your Mortgage Cost ⁠— Interest Rate?

Let’s keep it simple. We’ll use some simple math to truly understand your mortgage cost or your home cost:

EXAMPLE

\$350,000 Mortgage Amount

5.5% Interest Rate

30 Year Term

\$1987.26 Principal and interest payment.  This excludes taxes and insurance.

(PLEASE NOTE THIS IS JUST FOR ILLUSTRATION PURPOSES)

That is the cost of your house, correct?  Nope. You have forgotten the most critical step in the process.  See below:

You now take \$1987.26 and multiply that by 360 = \$715,413.26

That is the cost of your home in mortgage amount and interest payments!  That is more than double the original cost of the home.

However, there is good news…

You have more options than the normal “go-to” terms and conditions.  You have the ability in a refinance to pick the best financial options that make sense for you and your situation.  While a mortgage should be about payment for most, a proper mortgage and proper refinance can do more than that.

EXAMPLE:

\$350,000 Mortgage Amount on Refinance

2.99% Interest Rate

15 Year Term

\$2415.35 Monthly Payment excluding taxes and insurance.

(PLEASE NOTE THIS IS JUST FOR ILLUSTRATION PURPOSES)

Now, let’s do the math and see what the cost of your home is now?  Take \$2415.35 and multiply by 180, the total number of your payments.  That equals \$434,763.00

Real world numbers for you:  \$280,650.26.  That is real money savings.  Actual dollars, that you work for, that are saved — and almost \$300,000 dollars at that!  You may ask, “I am paying slightly more per month!”  That is 100% correct. Your net savings in actual money coming from your checking account at some point is \$190,650.26.

The cost of doing business does not have to be extreme (like double the cost).  You can control the cost of doing business with a bank or mortgage lender.

### Understanding Your Mortgage, Why We Shouldn’t Pay Attention to Interest Rates!

The above was a crude example to get you to focus on the fact that the cost of a mortgage is not all about the interest rate and payment.  When doing a refinance, you don’t have to be conditioned to “accept” terms of 30 years.  Truly understanding your mortgage is seeing what in real dollars you are paying today, 5 years from now, 11 years from now and beyond.  That way, you have a plan for putting significant money back in your pocket for retirement, a college fund, and so on.  What would it look like to be debt-free or mortgage-free in 15 years?  Understanding your mortgage is about understanding your options.

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