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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.
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| 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.
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| 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. |
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Copyright 1999 Inman News Features
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