Shorter loan terms mean big savings
The usual loan term for borrowers is a 30-year mortgage on their purchased property. However, it should be noted that a shorter term can save the buyer thousands of dollars.
For example, a loan of $ 250,000 at a fixed interest rate of 4.5% would produce a monthly payment of $ 1,912 for a term of 15 years. This gives a total of $ 344,247 for 15 years. The total payment over 30 years climbs to $ 456,017 even with lower monthly payments of $ 1,276. This represents a difference in savings of $ 111,770.
Lenders also generally offer lower interest rates for 15-year home loans, as these are considered to be less risky. Since 15-year mortgages carry less risk for the lender, borrowers typically benefit from a lower interest rate in the short term. Homeowners also build equity on a property faster with less interest on the loan that will also be paid off in half the time of a 30-year loan.
While savings may also be greater for shorter-term loans, higher monthly payments also mean less money available for immediate savings, car payments, and other bills.
Another option for borrowers who want to increase their home equity but cannot afford the larger monthly payments on a 15-year mortgage is to take out a 30-year loan with the option to add more. money in addition to monthly payments. It is important to check with lenders first if they allow additional principal payments on a longer term mortgage.