Questions & Answers
Get the answers on home selling and buying.
15, 30, & 40 Year Loans - Q & A
Q:
What about a 15-year v. 30 year loan?
A: 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 1999 Inman News Features
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