The difference in payments and overall savings
between a 15-year fixed-rate loan and a
30-year fixed-rate loan depends on the interest
rate and the loan amount. Using a $100,000
loan and 7.25% interest rate as an example,
monthly payments on the 15-year note would
be $912.86. Monthly payments on a $100,000
loan at 7.25% fixed for 30 years would be
$682.18.
The
15-year note offers the opportunity to
save considerable money over the life
of the loan, since the period of amortization
is half that of the 30-year note. This
means that the total interest paid on
a 15-year note as compared to a 30-year
note is significantly less.
However,
calculating the overall savings of the
15-year note over the 30-year note depends
on several individual circumstances, such
as the borrower's changing income status.
Q:
What
about splitting my mortgage in two and paying
bi-weekly?
A:
Some people set on paying off their home
loan early and reducing interest charges
opt for a biweekly mortgage. Monthly payments
are divided in half, payable every two weeks.
Because
there are 52 weeks in a year, the program
results in 26 half-payments, or the equivalent
of 13 monthly payments per year instead
of 12. Using the biweekly payment system,
a homeowner with a $70,000, 30-year biweekly
mortgage at 10 percent interest could
save $60,000 in interest and pay off the
balance in less than 21 years.
Q:
Are
40-year mortgages a good idea?
A:
Smaller monthly payments are the primary
advantage of adding 10 years to the traditional
30-year mortgage, but real estate experts
say the shorter-term loan usually is more
beneficial for the home buyer. The drawback
becomes apparent simply by calculating the
cost of additional interest payments, which
can total thousands for a few dollars difference
in mortgage payments.
Copyright
2006 Inman News Features
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