Since I began work in originating loans, I have reviewed tens of thousands of credit reports, mortgage states, income documents, and so on. I rarely find people in their 40s or even their 50s who have paid off a majority of their mortgage. Why is that? The reason is that most people don’t stay in their mortgages for very long, and when they choose to purchase a new home or refinance, they start the madness of a 30-year term all over again.

In the first five years of a 30-year mortgage, the bank collects 27% of the interest. Ultimately, you’re paying very little principle and a majority of the interest. By the fifteenth year of the mortgage, the bank collects 71% of the interest. Once you hit 15 years, you start to accelerate the principal reduction. That’s why most people never pay off the loan—they don’t make it to the 15-year mark.

Over the years, I’ve successfully educated many people about the benefits of a shorter-term loan. Why? Because the script is flipped; you’re no longer paying a majority of interest in the first five years, but you are paying a majority of principal.  That allows you to pay off the house faster and reach a milestone in life where you have a majority of your home paid off by using your mortgage as a tool to fulfill your future financial objectives. 

“That’s why most people never pay off the loan—they don’t make it to the 15-year mark.”

If you’ve been making a mortgage payment for a while, you probably owe less than your original loan balance. So if you convert your loan to a 20-year loan, the monthly payment difference is sometimes minimal or even nonexistent, especially if the interest rate is declining at the same time. With rates starting to inch higher, now is a good time to consider refinancing. 

If you have any questions or would like to have your mortgage analyzed and learn about the benefits of a short-term loan, don’t hesitate to give us a call or send an email. We’d love to have a conversation with you.