fbpx
Larger Payment, Shorter Term, Bigger Savings
Some people consider a house payment as basic as monthly utilities but with a plan and some discipline, you can be mortgage free.
Larger Payment, Shorter Term, Bigger Savings
Some people consider a house payment as basic as monthly utilities but with a plan and some discipline, you can be mortgage free.

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.

LIST OF BLOGS

Avoid Taxes by Keeping Track of Improvements

Keeping track of capital improvements to your home can help you avoid taxes later down the road when you sell it. Some homeowners don't even consider such a thing because they are aware of the capital gain exclusion of up to $500,000 for married homeowners and...

Laying the groundwork for the best mortgage

With mortgage rates having doubled what they were in early 2022, getting the lowest rate possible could mean the difference in being able to buy a home or at the very least, makes it much more affordable. Some people are waiting for rates to come down and while they...

Handling an Appraisal Gap

An appraisal gap describes the difference between the sales price and the lower amount of the appraisal required by the mortgage being obtained by the buyer. It becomes an issue if the seller is not willing to lower the price or the buyer is not willing to pay the...

Make your home offer the most appealing

Sales in March 2023 were down 2.4% month over month and still down 22.0% year over year according to the NAR Housing Snapshot. The median sales price dipped 0.9% to $375,700 and there are 2.6 months supply of homes on the market compared to 2 months a year ago....

Protect yourself with a new construction inspection

Builders of new homes offer or are required to warrant their work for a specified period. Municipal inspections are generally required during different stages to "ensure the life, health, safety, and welfare of the public" but even if something is missed,...

Higher Interest Rates May be the Help You Need

Like opening and closing a faucet increases and decreases the water flow, lowering interest rates increases home sales and raising interest rates decreases home sales. When home sales increase during periods of limited inventory, demand increases and prices go up....

Shopping Mortgage Rates

Nobel Prize recipient, Richard Thaler, in his research into seemingly irrational economic behaviors, "found that consumers generally search too little, get confused while evaluating complex alternatives, and are slow to switch from past choices, even if it costs...

Selling a Luxury Home: 10 critically important tips

Selling a Luxury Home: 10 critically important tips. The affluent who own luxury properties often value their privacy and require discreet handling of their real estate transactions. Therefore, it is crucial for them to seek the services of experienced professional...

RECENT POSTS

Shopping Mortgage Rates

Nobel Prize recipient, Richard Thaler, in his research into seemingly irrational economic...

ABOUT  TWENTY
THREE HOMES

The Twenty Three Homes are one of the premiere real estate groups locally, nationally and internationally, specifically dealing with high-end properties and exclusive clientele. Partner with Keller Williams Twenty Three Homes are full service real estate experts whose clients benefit from the custom tailored, hands on service while receiving all the exclusive amenities and resources of one of the most established and respected firms in the business.

GET IN TOUCH