Take charge of your financial future with shorter length home loans
With everything that goes into purchasing a home, many people overlook one very important financial tool. If they would take some time to compare payments on fifteen year and thirty years; they may be very surprised that the payments sometimes are not a large difference. And, the cost savings can be huge.
Let’s use an example of a $225,000 purchase price and a $180,000 loan amount using a conventional loan. With a credit score of 720, in today’s market, the rates are 4.5% for 30 years and 3.75% for 15 years. The principal and interest payments would be $913 for the 30 year term and $1313 for the 15 year term. The difference in payments is $400; not double as many would expect.
The difference in total payback on the loans is $92,415. That is quite a savings. Also, it allows the home owner to free up the payment they have been making to put into savings. If they would save the $1313 each month for the following 15 years, they would accumulate $236,430, not including interest.
Using the same purchase price and loan amount for a VA loan, the rate at today’s market for a 30 year term is 3.75% and on 15 years, it is 3.25%. In this scenario, the payment on the 30 year term is $835. And the 15 year term payment is $1270; $435 more each month.
The difference in total payback is $72,178. And, if the homeowner were to put the $1270 away in savings over the following 15 years, they would accumulate $228,508, not including interest.
For current home owners with existing loan balances, it might be wise to consider how much they can save in total payback if they were to refinance into lower rates and shorter terms.
With homes being the largest purchase and investment people make during their lifetimes, it makes sense to step back and put the whole picture into perspective.
Information provided by: JoAnn Moore, Licensed Mortgage Professional, Certified Military Housing Specialist, and President of The Mortgage Market of Delaware. Office 302.855.1306, Cell 302.236.1229 MMODJoAnn@aol.com
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