 | Randy Vickers is the owner of Priority Mortgage Corp of Wichita, which opened in Jan. 1989, is the oldest locally owned mortgage company in Wichita. Randy has been in the real state business since 1983 and is a licensed real estate broker as well as a licensed mortgage broker. Priority Mortgage Corp of Wichita KS Lic #1996-0122. Randy can be reached at 316-721-7700 |
Real Estate
2005-07-01 11:46:00
Is a 15-year loan better?
ANSWER: Whether to take out a 30 year loan or a shorter term loan is a question that has been asked for a long time. And the answer is different for everyone. It all depends on what your goals are for the repayment of the loan used to purchase your home. For example, if you take out a loan for 15 years rather than 30, more of your monthly payment will go toward the principle, and less of it for the interest. An amortization table will demonstrate this to you very clearly. Your payment is broken down into Principle, Interest, Escrow for taxes and insurance, and sometimes PMI, or private mortgage insurance. Most lenders require that the Buyer purchase and pay for this private mortgage insurance on loans exceeding 80% LTV (loan to value) which protects the lender against the Buyer's default on the loan. The monthly payment on a 15 year loan is also higher than the payment on a 30 year loan, as you might expect.There is an advantage to taking out the commonplace 30 year loan that most people don't know about. Besides the monthly required payment being lower than on a 15 year payout loan, by picking up an extra principle payment each month in addition to your regular monthly payment, you actually save that month's interest, and you also effectively cut off a month from the term of your loan. What that means is that each month, if you were to do this extra principle payment, together with your regular payment, you would pay off your 30 year loan in 15 years or less. But you would only be obligated for the lesser payment each month rather than the higher payment on a 15 year loan. Many people have paid their home off early utilizing this method of payment. A much better plan than running up another credit card balance. More next month...
