Star Financial Debt Free in 10 Mortgage Review

February 13, 2012 No Comments »
Star Financial Debt Free in 10 Mortgage Review

Every once in a while I take a look at certain mortgage products I see advertised to determine if they make any sense for homeowners.

Today we’ll take a look at Star Financial’s “Debt Free in 10 Mortgage,” which put simply, is a 10-year fixed mortgage.

In other words, your mortgage is fixed for the entire term, and amortizes over 10 years as opposed to 30.

It’s an alternative to the traditional 30-year fixed, or the widely used 15-year fixed.

Much Larger Mortgage Payments

This means much larger mortgage payments than a 30-year fixed, but much less interest paid throughout the shorter term of the loan.

Star bills it as a way to kick debt to the curb, especially if you plan to retire in the near future.

The community bank actually offers loan terms of 7 and 10 years, so you could be (mortgage) debt free in as little as seven years if you want to get super aggressive.

To qualify, you must have a minimum credit score of 720, the loan-to-value ratio must not exceed 80%, it must be a conforming loan amount, and it must be tied to a primary or secondary residence.

[What credit score do I need to get a mortgage?]

They’re currently advertising a mortgage rate of 3.125% for the 10-year mortgage, and a slightly lower rate for the 7-year mortgage.

You’ll Save a Ton of Interest

The main advantage to both these types of loans is that you’ll save a ton in interest, via the shorter term and the lower interest rate.

Let’s look at an example:

$300,000 loan amount

10-year fixed mortgage @3.125%: $2914.16 monthly payment
Total interest paid: $49,699.20

30-year fixed mortgage @3.875: $1410.71 monthly payment
Total interest paid: $207,855.60

As you can see, the 10-year mortgage would save you more than $150,000 in interest over the life of the loan, assuming you paid it off over 30 years.

Additionally, you’d be mortgage-free 20 years sooner. At the same time, your monthly payment would double as a result.

Does it Make Sense?

While this could be great news for you, keep in mind that mortgage rates are historically lower than they’ve ever been.

This means there’s a good chance they won’t ever go any lower.

[Will mortgage rates go any lower?]

It also means your mortgage is funded by really cheap money, so you could be better off investing your money elsewhere and keeping your mortgage around longer.

Especially if inflation comes along anytime soon. If it does, your mortgage money will be even cheaper, which strengthens the argument not to pay it down in a hurry.

Of course, if you’re simply investing your money in a CD or a similar savings account that yields a dismal 1% or so, paying down the mortgage quicker make senses.

But if you invest in stocks and other higher-yielding securities, there’s an argument to pay the mortgage down a bit more slowly (traditionally) as well.

[Should I pay the mortgage down early?]

That said, you’ll need to do the math and consider your lifestyle and investing risk appetite to determine if going with a shorter-term mortgage makes sense.

While companies always make it sound like paying off your mortgage as quickly as possible is the best deal out there, it’s not always the case for every individual borrower.

Finally, keep in mind that this program is not really unique. It’s just a short-term, fixed mortgage that you can find with pretty much any bank or lender out there.

So if you’re set on a short-term mortgage, be sure to do plenty of shopping around before committing to one lender.

Read more: ING Easy Orange Mortgage review.

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