You should invest as much time in finding the best home mortgage rates in Fort Collins CO as you do in finding the right home. Even at current historically low interest rates, saving money on a mortgage can significantly reduce the cost of your house. For a $300,000 house, typical costs might be:
. Total cost: $300,000
. Down payment: $60,000
. Mortgage Amount: $240,000
. Term: 30 years
. Rate: Fixed, 4.5 percent
. Property Tax: $2,400/year
. Insurance: $850/year
. Monthly Payment: $1,486.87 (PITI; including taxes and insurance)
. Total Payments $437,778
. Total Interest $197,778
Keeping everything else the same but finding a lower interest rate of 3.5 percent would result in a total payment over the life of the mortgage of $387,974, and a total savings of $50,000.
A down payment of at least 20 percent will save you substantial money in the long run. If you fall below this magic number, you must pay mortgage insurance, either private mortgage insurance (PMI) or government-backed (FHA or VA), to protect the lender if you default on the loan. The least expensive are VA loans, available only to veterans. Next best is PMI, as it is only required until your equity in the home reaches 20 percent of the home’s value. FHA insurance premiums are required for the lifetime of the loan. Mortgage insurance can add an annual 0.3 to 1.5 percent of the cost of your house to your mortgage, depending on your credit score and the amount of your down payment.
The shorter the length of the mortgage and the faster you pay it off, the less you will spend in interest. For the $240,000 mortgage above, choosing a 15-year mortgage over a 30-year one would reduce the total payments from $437,778 to $330,477 by reducing total interest from $197,778 to $90,477, albeit increasing the monthly payments from $1,486.87 to $2,106.81. Even paying down the principal of your loan in small increments can result in big savings on interest.
Adjustable rate mortgages (ARMs) can offer substantially lower initial interest rates, although they carry the risk of higher long term rates if the Federal Reserve increases interest rates, as is probable. However, if you plan to sell your house in five to seven years, the initially low rates of ARMs can result in significant savings.