When borrowing money for a mortgage, homebuyers are primarily concerned
with simply qualifying. Still, paying attention to the length of the
loan is a borrowing tip that can save you a ton of money.
Home Loans
In the mortgage industry, the length of your loan used to be the only
major issue you had to deal with. How times have changed! In the
current market, the variety of loans that exist are simply stunning. Of
course, the massive increase in loan options has inevitably led to
massive confusion.
Borrowing Tip
Regardless of the type of loan you go with, you should always try to
keep your loan term as short as possible. The shorter the loan period,
the less you will pay in interest. Here an example using 15 and 30 year
loans.
Assume our first homebuyer gets a $100,000 loan at 8 percent interest.
He length of the loan is 30 years with a monthly payment of $733.76.
For this mortgage, our homebuyer is going to pay $164,155.25 in
interest over the life of the loan.
Now, take the same scenario, but reduce the term of the loan to 15
years. Our homebuyer is going to see the monthly payment bumped to
$955.65 per month. Over the length of the loan, our homebuyer is going
to pay $90,000 less in interest payments over the life of the loan. On
top of this, the house will be paid off in half the time.
When borrowing money for a home purchase, you have to carefully budget
your finances. If you can afford increased monthly payments, however, a
shorter loan length is going to save you a lot of money over time.
