Mortgages 101 by David Reed

Mortgages 101 by David Reed

Author:David Reed
Language: eng
Format: epub
Publisher: AMACOM
Published: 2018-01-21T05:00:00+00:00


8.6 DO I HAVE A CHOICE IN MY LOAN TERM?

Of course you do, as long as the lender offers it. Most loans start as low as 10 years, but terms can be anything between 10 and 50 years as long as the lender offers the product. Most advertisements on fixed-rate loans are for 30-year loans and sometimes for 15-year fixed loans.

The difference in term lies in the monthly payment and how much interest you can save over the long term. Even though the interest rate on a shorter term is usually lower, the monthly payments will be higher. For instance, for a 4 percent 30-year fixed rate on a $300,000 loan, the monthly payments are $1,654. For a similarly priced 15-year fixed loan at 3.75 percent, the payments inflate to $2,820. An increase of nearly 30 percent! Often this increase in monthly payment stops people from choosing a 15-year loan and they take the standard 30-year product instead. A benefit of choosing a shorter-term loan is that you’re building equity so much faster and your home is paid off sooner.

Another factor in choosing your payback period is how much interest you’re going to pay on that loan. Using the same example and taking both loans to term, you pay over $400,000 in interest with a 30-year loan and just over $175,000 with a 15-year note. That’s a huge difference. Yeah, I know that few people take loans to full term, but even then the math works because the bulk of mortgage interest is paid at the beginning of the loan, not toward the end. Again using this scenario, after 10 years the loan balance on a 30-year note is $251,312, while after 10 years the loan balance on a 15-year loan is already down to $111,400. That’s another reason to consider a shorter term for your mortgage.



Download



Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.