15, 30, & 40 Year Loans
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Q: |
What about a
15-year v. 30 year loan? |
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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. |
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Q: |
What about
splitting my mortgage in two and paying bi-weekly?
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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. |
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Q: |
Are 40-year
mortgages a good idea? |
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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.
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