Monday, November 07, 2011

The reality (warm, good, feeling-ness) of low interest rates

As mentioned in a post last week, this month began a new chapter in our mortgaged home ownership adventure. We moved from a decent-rate 30 year fixed to a low-rate 15 year fixed. We get better value for our money. Simply put, we pay a bit more a month to save a lot more over the next dozen and a half years.

Another aspect I think that adds to the warm, good, feeling-ness is realizing the increasing monthly adjustment to the amount of payment that is applied to the principal, each month thereafter. This is akin to the good feeling that comes from making extra payments over the standard monthly amount, knowing that each month there is more extra money going into the principal.

With our old mortgage we banked about $320 a month towards the principal. Each month thereafter, an extra $1 would be applied to the principal if making no extra payments. $321 the next month, $322 for the next, $323 for the next, and so on and so forth. After a number of months the rate would jump to $2. And after many months, years really, the amount would starting swinging more aggressively.

Now, with the new mortgage payment (with about $900 going to the principal) I am excited to see how much more each additional month we apply towards the principal. My lender showed me an approximated amortization table before we refi'd but I do not recall the difference from month to month. Instead of digging up that document, I will just patiently await next month to review December's payment details to see how much extra we are chunking away towards the principal. More than a $1 for sure. And closer to a mortgage free tomorrow...

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