Loanapalooza - Mortgage

Mortgage Data

Some squares are determined to compare Loanapalooza with other rock festivals of the past: LIBORstock, Altamortgage, Santana at Sunset at the Pima County Fairgrounds. Whatever man, let them have their "comparisons," Loanapalooza is above all that hullaballoo. Our individuality is as plain as flannel, as starkly pale as our skins, and as sullen and lonely as our inner sanctuaries locked tightly behind our outer projections of self. We go to great lengths to prove our individuality - using the amazing power of math to show you just how awesome a mortgage can be. So stand up, toss some mud, and dream about Starbucks stock - we're taking you on mortgage ride through Mathematica!

Mortgage Math = American Rock

The importance of mortgage math cannot be understated at Loanapalooza:

you can see what rates you might qualify for, and how those rates will effect your overall payments.
you can see the difference between various term lengths. Would a shorter term with higher monthly payments and lower overall accumulated interest perl your financial ganglia?
Even flooooowww, waltz around like butterflies, yeah....oh come on Pearl Jam. I'm not finished yet! Its a mortgage, dudes! Show some respect.

Mortgage Math Tutorial #1 - Term length

Your mortgage can be repaid in various lengths of time- called terms - lasting 10, 15, 20, or 30 years. Lets say you need a $100,000 loan to complete your home purchase, and your fixed rate of interest will be a hefty 8.5% APR:

on a 15-year term option, your monthly payments will be $985, for a total repayment of $177,300 after those 15 years.
on a 30-year term option, your monthly payments will be $796 (lower), for a grand total of $276,840 (higher) after 30 years.
The difference comes to $99,540, all in interest, for the added 15 years of your mortgage. Yow! But you'll pay $89 less each month, enough to buy a half-day ticket to Loanapalooza! Rock on!

Tutorial #2 - Interest rates vs. points

Paying points to your lender to lower your mortgage rate is a bombastic way to save some money. Gotta spend it to make it, so spend away if you can:

a point is one percent of the mortgage amount that you pay to the lender for an arbitrary decrease in their quoted rate.
Lets say a suit offers you this deal: for your $150,000 loan at 6.0% for 30-years, he'll charge you two points for a 0.5% decrease in rate.
one point is 1% of the loan amount, so in this case you'd pay 1% of $150,000 - or $1,500 - twice, so $3000. $3000 up front just to lower your interest rate by half a percent. Whatever man, I ain't no sucka! Wait, what kind of festival is this again? Whatever, I've had enough of your rules.
So you pay the 3 grand, no more rocking for you, and now see how much you stand to save.
for the original 6.0% 30-year mortgage, your pay $899.33 a month, for a total of $323,757.28, $173,757.28 of which was interest.
for that $3000 fee, you pay only 5.5%, meaning $851.68 a month for a total of $306,606.06, $156,606.06 of which was interest.
So, $173,757.28 - $156,606.06 = $17,151.22 in savings, or a 572% return on your original point investment. Not to shabby!

Wait, where did everyone go? Ahh, man! Math rocks so much harder than Alice in Chains.