Joe's Money

Well well…  I received a notice in the mail today informing me the ownership of my mortgage has been transfered, sold, or assigned to our good friend, Fannie Mae.  What does this mean for me?  According to the notice, nothing.

Since I am in a fixed 30 year loan at 4.85% interest, my loan rate will never change.  The Fannie Mae notice also reflects this stating: The transfer of ownership does not affect any term or condition of the mortgage.

Something I learned from this notice…  I was always under the impression that Fannie Mae, along with others, originated (Issued) loans.  This appears to be a false assumption.  It states “Fannie Mae is a shareholder owned company with a public mission.  We do not make mortgage loans but instead provide funds to lenders by purchasing the loans they make.”  I had no idea.  Maybe I’m the only one that was clueless about this.

I had heard of loans being sold over and over when I started to look for financing for my home.  I chose a local credit union to try and avoid this but it looks like I failed considering my loan was sold not even 6 months later.  I still make my payments to my credit union but I still find this odd.  At least I didn’t end up sending my money to another bank I really can’t stand.  My credit union has always been leaps and bounds better than any bank I have ever tried.  I really wanted to keep my money within this community based organization.  At this point, I would only assume the interest made off my mortgage payments will go to Fannie Mae.

I wish I could make the assumption that all loans picked up by Fannie Mae were as secure as mine is.  If that were the case, maybe I’d buy a few shares.  After seeing them implode as of late throughout the housing bubble, I doubt thats the case.

One of the key indicators of the housing market is the corresponding loan rates.  Over the last week, the average rates dropped back into the 5% range.

According to Freddie Mac’s weekly report, the 30 year average mortgage rate dropped back to 4.87%.  This is the lowest rate seen since May of this year.  Mortgage tracker BankRate.com also noticed a drop in rates, but not quite as large as Freddie Mac.  BankRate.com sees the average rate at 5.22%.  15 year rates are even lower at 4.64%.

Also this past week, congress has been working to extend the $8,000 first time home buyers tax credit.  This should help would be home buyers jump into an already excellent buyers market.  Currently, the tax credit is set to expire November 30th.

Home owners last year definitely took advantage of the credit.  Last year the average 30 year mortgage weighed in at 6.2%.  To show the savings on these rates, consider this.  A $200,000 loan at last years 6.2% would show a monthly payment of $1225 while the same $200,000 loan at todays rates would save you about $125 per month.  Not bad!

These low rates helped boost mortgage applications last week.  Applications were up over 16%.

The simple answer is yes.  I don’t recommend doing this until all other debts are paid off because the rates on other loans, credit accounts, etc, are likely much higher than the interest rate on your mortgage.  However, once you have those paid off, any little bit extra you can pay towards your mortgage will save you a ton of money in the long run.  Since mortgages are front loaded in interest, the first third of your mortgage payments are almost all principal so you barely pay down the balance.  The bank doesn’t want you to know, but you can save a ton of money over the long run without spending a ton of extra money.

Lets take a look at my mortgage.  I ended up financing $125,600 after closing costs, everything said and done.  I locked in a fixed 30 year mortgage at 4.875%, this rate will be unheard of shortly.  I locked on almost to the day for this rate.

If I pay only the minimum on my mortgage, the payment is $665 per month.  This does not include taxes and insurance.  It will take me the full 30 year term to pay this off entirely and I will have paid over $113,600 on interest only.  Total payments would be about $239,200 over the life of the loan, or about twice what I paid for the house.

If I paid only an extra $50 per month on top of the minimum payment, I would have only paid $95,000 in interest and I would have paid the full loan off in 26 years instead of 30.

If I paid an extra $100 per month on top of the minimum payment, I would have only paid $81,900 in interest and I would have paid the full loan off in 23 years instead of 30.

If I paid an extra $200 per month on top of the minimum payment, I would have only paid $64,000 in interest and I would have paid the full loan off in 18 years instead of 30.

I don’t know about you, but saving 12 years of payments and $49,600 on interest payments sounds pretty good to me.

Check out the calculator here to input your data and see how much interest you are paying and how long it will take you to pay off your home loan.