April 20th, 2016 | Shorter-term Mortgages
For homeowners with a mortgage, the best, long-term way to save money is to finance a home with a short-termed mortgage.
The word "term" is the number of years in which it's schedules to be paid-in-full.
15 year mortgage save more money than 20 year mortgages while the 20 year mortgages save more money than 30 year mortgages.
Shorter-term mortgages save money in two ways. First, mortgage rates for shorter-term loans typically are lower than longer-term loans. This means less mortgage interest paid per dollar. Second, shorter-term loans get paid down sooner.
Lot of interest gets paid in those extra 15 years. As a guideline estimate a 15 year mortgages reduce the amount of interest paid by $40,000 per $100,000 borrowed as compared to a 30 year mortgage.
As an example: A $200,000 loan @30 years @3.75% rate the interest paid over the life of the mortgage is $133,000. A $200,000 loan @15 years @3.25% rate the interest paid is $53,000. A savings of $80,000.
A savings that can purchase two new vehicles, fund a retirement plan, college tuition for a child or purchase a vacation home.
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