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Bill Reetz, Realtor ®
GRI, CRS, ABR, CLHMS, E-Pro
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Summit County Colorado Real Estate, RE/MAX Properties of the Summit Cowboy Real Estate for all your real estate needs in Breckenridge, Keystone, Copper Mountain, Frisco, Dillon, Silverthorne, Summit County Colorado.
| Mortgage
Length |
| 15-Year,
30-Year, or a Biweekly Mortgage? |
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| In the
past, the 30-year, fixed-rate mortgage was the standard choice
for most homebuyers. Today, however, lenders offer a wide array
of loan types in varying lengths--including 15, 20, 30 and even
40-year mortgages. |
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| Deciding
what length is best for you should be based on several factors
including: your purchasing power, your anticipated future income
and how disciplined you want to be about paying off the mortgage. |
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| What
are the benefits of a shorter loan term? |
| Some homeowners
choose fixed-rate loans that are less than 30 years in order
to save money by paying less interest over the life of the loan.
For example, a $100,000 loan at 8 percent interest comes with
a monthly payment of around $734 (excluding taxes and homeowner's
insurance). Over 30 years, this adds up to $264,240. In other
words, over the life of the loan you would pay a whopping $164,240
just in interest. |
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| With a
15-year loan, however, the monthly payments on the same loan
would be approximately $956--for a total of $172,080. The monthly
payments are more than $200 more than they would be for a 30-year
mortgage, but over the life of the loan you would save more
than $92,000. |
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| What
are the advantages to a 30-year loan? |
| Despite
the interest savings of a 15-year loan, they're not for everyone.
For one thing, the higher monthly payment might not allow some
homeowners to qualify for a house they could otherwise afford
with the lower payments of a 30-year mortgage. The lower monthly
payment can also provide a greater sense of security in the
event your future earning power might decrease. |
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| Furthermore,
with a little bit of financial discipline, there are a variety
of methods that can help you pay off a 30-year loan faster with
only a moderately higher monthly payment. One such choice is
the biweekly mortgage payment plan, which is now offered by
many lenders for both new and existing loans. |
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| Biweekly
mortgages |
| As the
name implies, biweekly mortgage payments are made every two
weeks instead of once a month--which over a year works out to
the equivalent of making one extra monthly payment (compared
to a traditional payment plan). One extra payment a year may
not sound like much, but it can really add up over time. In
fact, switching from a traditional payment plan to a biweekly
mortgage can actually shorten the term of a 30-year loan by
several years and save you thousands in interest. |
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| If you're
interested in a biweekly payment plan, make sure to check with
your lender. In many cases, lenders also offer direct payment
services that automatically withdraw funds from your bank account,
saving you the trouble of having to write and mail a check every
two weeks. |
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| Making
extra payments yourself--do it early! |
| Another
way to pay off your loan more quickly is to simply include extra
funds with your monthly payment. Most lenders will allow you
to make extra payments towards the principal balance of your
loan without penalty. This is especially attractive to homebuyers
who are concerned about their future earning power, but still
want to be aggressive about paying off their loan. |
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| For example,
if you had a 30-year loan, you might decide to send the equivalent
of one or two extra payments a year (which could shorten the
overall length of the loan by many years). But if your financial
situation suddenly took a turn for the worse, you could always
fall back on the regular monthly payment. |
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| One important
note, though, is that if you do decide to send extra funds,
make sure to do it EARLY in the life of the loan. This is because
most home loans are calculated in such a way that the first
few years of payments are almost entirely interest, while the
last few years are mostly applied towards the principal balance.
Thus, you can get the most bang for your buck by making the
extra payments early in the life of the loan. |
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