What does compounding do and why should I ask my lending institution if their mortgage is calculated monthly or semi annually?
Some lending institutions will offer to match the great mortgage interest rate that you have found. When they only match the interest rate everything looks equal. The next question you should ask is, “how are you compounding”? Why? Some institutions will switch from compounded semi annually to compounded monthly in order to match the rate. Does it make a difference? The difference may seem small but over a lengthy mortgage term it can cost you extra money and lengthened payment time. For example, a mortgage of $150,000 compounded semi annually at a rate of 5.4% amortized over 25 years has a monthly payment of $906.87. The same 5.4% compound monthly increases your payment to $912.19. This payment translates into a semi annual rate of more than 5.46%. In dollar value this would cost you $5.32 more per month, $63.84 per year and over a five year mortgage $319.20 plus extra interest on this money. This extra cost can add months to your mortgage. A mortgage broker is there to make certain t
Related Questions
- What does compounding do and why should I ask my lending institution if their mortgage is calculated monthly or semi annually?
- Do I need to send in a copy of the Mortgage Brokerage and Lending Transaction Journal to the Office annually?
- Which type of lending institution is better for a home mortgage; a mortgage company or traditional bank?
