Long Term Strategies and Short Sale Warning

We've all heard it, interest rates are at historical lows.  How do you take advantage of the current low rates?  Maybe you purchased or refinanced in the last few years and your current rate is, for example, 5.5%.  A lot of people I talk to say "it doesn't make any sense to refinance since I'm not lowering my payment much."  That might be true but there are other things to think about when making that decision.  You might want to think about the long term as well as the payments to see what refinancing can do for you.  You might also look at some of the options that you don't hear much about.

Warning:  Math Coming Up (Don't fall asleep on me!)

Lets look at an example with of a $200,000 loan where the existing interest rate is 5.5%.  That would make a payment of $1135.58 per month.

Option 1:  Refinance into a 4.75% (APR of 4.754) 30 year loan.  This lowers the payment to $1043.29 saving $92.29 per month.  Long term thinking:  If you plan to keep the loan say, 10 years, the savings comes to $11,074!

Option 2:  Look at a 25 year mortgage.  This is one of those loans you don't hear much about but it is available.  Leaving the rate the same at 4.75% the payment comes to $1140.23.  Long term thinking:  That payment is about $97 more than the 30 year option but only $4.65 more the 5.5% payment.  And here's the kicker, over the term of the loan the interest savings by lowering from 30 to 25 years comes to $33,516!

Option 3:  Look at a 20 year mortgage.  Again, not a loan you hear much about.  On this loan lets look at a rate of 4.625% (APR of 4.63%).  The payment here would be $1278.83.  Long term thinking:  The payment is $236 over the 30 year option and $143 over the current payment.  But, you could pay off your loan in 20 years and the interest savings over the 30 year option (over the life of the loan) comes to $68,668!  Now we're talking about some serious money!

OK, math over.  I know that's a lot of numbers and you're probably close to going into a coma now.  What you need to take out of all of that is that there are other things to think about when when making a decision about financing.  You need to look not only at the payment but what the long term effects of the program you choose are. 

Short Sale Warning:
For those of you thinking about selling your home as short sale here's something I ran across that you should be aware of.  Some mortgage servicers are continuing to report delinquencies up to 10 months after the short sale closes.  Once you close on your short sale make sure you contact your servicer (who you make your payment to) and tell them to stop reporting any further late payments.  This can help to reestablish your credit much more quickly.