I made a new amortization schedule based on my new interest rate, remaining principal balance and monthly payment. When compared to my previous amortization schedule, the benefits of a 15-year fixed mortgage are super obvious. In order to show my amortization schedule within a reasonable amount of space I hid 11 of the 12 months of the year.

The first thing that jumps out at me is the amount of my monthly payment that goes towards principal. With my 15 year fixed mortgage, my first payment has $855.67 going towards principal. With my 30 year fixed mortgage, the first payment had $214.63 going towards principal. It wouldn’t be until the 18th year that I would begin paying around $850 towards principal. The 15-year mortgage quadrupled the amount of my monthly payment going towards principal.

The second thing that jumps out is the ratio of the interest to principal portions of my monthly payment. I am only paying slightly more towards interest than towards principal. In fact, the ratio shifts towards the principal’s favor before the first year is over. For my 30 year mortgage, my first payment was 85/15 interest/principal and it took 19 years to pay more towards principal than interest.

The final thing that jumped out was the total interest paid. My 15 year mortgage has me paying around $90,000 over the life of the loan. My 30 year mortgage had me paying around $275,000 over the life of the loan.

I know it’s kind of like comparing apples to oranges because the interest rates differ by 1.50%, but there is only one downside when comparing a 15 year to a 30 year mortgage. The monthly payment is higher for 15 year mortgages. My monthly payment increased by $350. There are people that argue for 30 year mortgages by saying it’s nice to have extra cash for emergencies. They also say it is better to invest that money ther than put it towards principal. They also say you can make a 30 year mortgage the same as a 15 year mortgage by paying the difference towards principal every month.

Each of those statements are valid points. I just have a really hard time comparing the two amortization schedules and not feeling happy that I have a 15 year mortgage rather than a 30 year mortgage. It’s painful to pay so much money every month and not see your equity increase very much. The numbers are very powerful.

FYI, learn how to make your own amortization schedule.

Fortunately, this will be the last in my posts regarding my mortgage refinancing journey. In my last post I mentioned that I was just waiting to close, and today I closed.  It feels fantastic to not have to worry about interest rates, closing costs, appraisals, etc. There was, however, one final obstacle that I had to hurdle prior to closing my refinance.

Three days ago my mortgage broker called and said that there was a minor hiccup with the refinance. He said everything was ready and the refinance was cleared, I just had to come up with $5,600 to escrow for property taxes. $5,600!!!!!!!! What!?!?! I was almost in shock. Why did I have to escrow $5,600 for property taxes? Apparently, the title company requires new construction properties who are closing within two months of property tax assessments to escrow 2% of the appraised value to cover their own behind.

I understand not wanting to be up a creak without a paddle, but $5,600? I discussed property taxes with my Mom for a few minutes where she informed me that when you pay property taxes, you are really paying for the prior year. Every October your property is assessed for property taxes. You then pay those property taxes in two installments, March and October. Your 2008 property taxes are paid for in March and October of 2009. So why did I have to escrow $5,600 to pay 2008 property taxes when I only lived in my condo for three months?

My mortgage lender couldn’t answer my question, so he sent me to his underwriter’s house yesterday. The underwriter had all of my documents ready to sign so that I could close if I got my questions squared away. He showed me the Hud and I nearly cried as the cash from borrower was $10,732.26. All I thought I was paying at closing was my closing costs of no more than $1,600.

There were two reasons for such a high number. First, the $5,600 escrow requirement as well as the fees necessary to set up the escrow account. What a rip. Second, my August mortgage payment hadn’t gone through when the underwriter put the package together so I had some principal, interest and late fees that were going to be removed once he verified my payment went through.

I finally got around to asking my question about property taxes. During the discussion I made him aware that the builder was still in charge of the property and association. As soon as I said that he told me I didn’t have to escrow $5,600 and he would cut the portion of my monthly payment that would be going into my escrow from $466 to $50.

I returned to the underwriter’s house this morning, the day the funds are dispersed, to sign all of the documents. Right away he showed me the Hud and I was pleased. The cash from borrower was now $2,760.41 instead of $10,732.26. The total cash from borrower was higher than the closing costs I was quoted ($1,600) because it included interest to both my old bank (Wells Fargo) and my new bank (Chase) for September. I won’t make my first payment until October. Also, I had to pay down principal until the outstanding balance was $240,000 to reach 20% of the appraised value and avoid PMI.

I’m definitely glad this whole refinancing is behind me. I now know what to expect from a refinancing. I learned some very important information about property taxes. I have a mortgage lender who I will definitely do repeat business with and recommend my friends to. I am no longer paying interest to Wells Fargo, which I’m ecstatic about after they screwed me out of $360. I have a significantly lower interest rate, when coupled with a lower term (15-year) will allow me to build up equity quicker and pay less in interest ($90,954.36 instead of $276,081.18, nearly $200,000 less!!!).

In the near future, look for a post about my new amortization schedule and my foray into property taxes. I will be discussing property taxes with the builder to figure out how this will work until I am given my own tax bill by the government.