Larger Payment, Shorter Term, Bigger Savings

By
Real Estate Broker/Owner with Morningside Homes, LLC 720-231-5200 DRE# ER300941
 
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Some people consider a house payment as basic as monthly utilities but with a plan and some discipline, you can be mortgage free.

Consider a person borrowed $300,000 at 3% for 30 years, the principal and interest payment would be $1,264.81 and at the end of 12 years, the unpaid balance on the mortgage would be $210,900.

If that same person had financed the home on a 15-year term at 2.5%, the payments would have been $2,000 but the unpaid balance at the end of 12 years would be $69,310.  The homeowner will have a larger equity but they have also had to make higher payments.

15-year mortgages usually have a lower interest rate than the 30-year loans and at the time this article was written, the difference in a 30-year loan was about 0.5%.  A 15-year loan gives the lender their money back in half the time.  If rates go up during the interim, they will be able to loan it at the higher rate sooner.  For that reason, they are usually willing to offer a slightly lower rate on the shorter term.

Having a lower rate means paying less interest but another remarkable thing happens, lower interest rate loans amortize faster than higher rate loans.

 

30-year

15-year

$300,000 mortgage for 30 years

3%

2.5%

Monthly payment

$1,264.81

$2,000

Unpaid balance at end of 12 years

$210,900

$69,310

Increased equity

 

$141,590

Additional monthly payment

 

$735.56

Additional total payments for 12 years

 

$105,920

Savings

 

$35,670

This recognized wealth building technique with higher payments, saves interest and retires the mortgage sooner.  The shorter-term mortgage requires a commitment to make the higher payments each month rather than giving the borrower flexibility to spend or invest the difference each month for as long as the loan is in place.

To make you own calculations, go to the 30yr vs. 15yr Comparison.

Posted by

Buy or Sell with Patty Clark              Denver/Aurora Co. and surrounding areas 

Chris and Patty

    Helping Families Move with Care

  If you would like to be sent properties on a daily or weekly  basis just call or email me and let me know your wants and needs. A match will be made with a home you love and with monthly payments you can afford. I specialize in first time home buyers and sellers who are

          ready to downsize or move to a larger home as the family grows

     

                                                     Morningside Homes, LLC

patty@morningsidehomes.com

www.morningsidehomes.com
Cell: 720-231-5200                       CRS,GRI,WCR,SFR,CNE, MRE

 

Comments (1)

Gwen Fowler-864-638-3599 SC * Mountain* Lake*Home
Gwen Fowler Real Estate, Inc - Walhalla, SC
Gwen Fowler Real Estate, Inc.

We are making 3 payments a month.  2 on the due date and one in the middle.  This gives us 2 principal payments a month.  Trying to reduce our 30-year mortgage to 6 years.

Dec 01, 2021 01:32 PM