Daybed Set

So you scrimped and saved and found a way to buy your first home. You're proud of the fact that your efforts have earned you a substantial down payment, allowing you to get a smaller loan to pay for the house. Your friends tell you to get an interest only loan or a short term ARM. "Rates are much better," they tell you "and you can just refinance before it adjusts." While it may be tempting, you're no dummy. "Only a fool would get something other than a 15 or 30 year fixed!" You can still hear the words of your father counseling you about the purchase.

Not quite being able to afford the 15 year payment, you opt for the 30 year and couldn't be happier. Your rate is good, your rate is fixed, and your paying down your house with each payment. You did the smart thing . . . right? While it's true that a 30 year fixed offers you the peace of mind that your loan will never adjust, there's a serious flaw that most people see but just don't grasp enough to do something about. Have you ever took the time to add up how much that peace of mind is actually costing you?

Consider this: a $200,000 loan with a 30 year fixed rate of 7% takes 29 months and costs you a jaw dropping $33,000 in interest just to pay down a mere $5,000 of principal. Don't believe me? Find any online Amortization calculator and see for yourself. Doesn't seem very fair, does it? Let's be realistic about this. We all know that banks take quite a bit of risk in loaning you hundreds of thousands of dollars. They deserve compensation for their risk but $33,000 to your $5,000?! And that's just the first 29 months - over the entire life of the loan (30 years) that $200,000 will actually cost you a total of $479,000!!! I know it's a tough pill to swallow but relax, there IS a better way. . . Enter the Mortgage Checking Account.

By combining your mortgage with your checking account, you can harness those lazy, idle dollars that sit in your checking or savings account at the end of each month and put them to use for you in your mortgage in the form of paid down principal. Each month you start with a lower loan balance and since the payment is based on a daily balance, you pay less interest each month. Consider the following example: Let's take the same $200,000 we used in the previous example. Let's also say you make $4,000 per month in net income and that you pay a total of $3,200 in bills each month, including you mortgage payment. That leaves you with $800 a month left over. You deposit your paycheck into your checking account as usual and after your bills are paid, that $800 that would have sat in your checking account doing nothing, now sits in your mortgage. You started with a loan balance of $200,000 but now, after only 1 month, you owe $199,200. And that's what next months payment will be based off of. Repeat this 5 more times and what would have taken you 29 months to do with a 30 year fixed, now took you a mere 6. The best part is, however, what would have cost you $33,000 in interest, now was cut down to just under $7,000. Feel better? It gets even better.

Because this is a checking account, you can access your money the same way you normally would with a conventional checking account. Free unlimited checks, on-line bill pay, ATM and a debit card can be used to access your cash or pay your bills. This loan is a great tool for those wanting to pay their house off in half the time, reverse mortgages and investors looking to accumulate cash while saving 5% - 8% in interest each month. While the mortgage checking account can be an outstanding tool for some, it's not for everyone and not everyone can qualify. Your money should work for YOU, NOT the banks.

Tyler Berry is a mortgage broker with Masters Team Mortgage in Folsom, California. He has worked as a Realtor as well as a mortgage broker with the latter being his passion. He now focuses exclusively on Home Financing and investment opportunities. For information on the Mortgage Checking Account or anything else in home finance, email him at tyler.berry@mac.com