Home Loan Tips
Financial Capital Group
"I want a 15 year loan, but can't qualify."
Home loans (mortgages) amortized over 15 years carry lower interest rates than home loans amortized over 30 years. 30 year mortgages are much more popular because the monthly payments are lower.
Example $200,000 Home Loan:
- 30 Year Amortization at 4.125% interest = $969.30 per month
- 15 Year Amortization at 3.500% interest = $1,429.77 per month
The 15 year payment is almost 50% higher than the 30 year payment so it's easy to see why 30 year home loans are so popular. But the 15 year mortgage has a lower interest rate and 50% fewer monthly payments.
There are many borrowers who can afford to make the higher 15 year monthly payment but mortgage underwriting guidelines stop them from qualifying for the shorter loan with a lower interest rate.
The following basics can save you thousands of dollars in interest and cut the number of your mortgage payments.
First, part of each monthly payment goes to principal pay-down and part goes to interest.
Second, the interest is calculated on the remaining balance of the loan each month so even though the payment stays the same, you pay less interest and more principal every month.
Third, if the loan has no prepayment penalty (the majority of 15 and 30 mortgages do not) you can choose to increase your monthly payment at anytime as often as you want.
If you can afford $1,429.77 per month but can only qualify for $969.30 per month, go ahead and get the 30 year loan and just make the 15 year payments. The numbers may surprise you.
In the above example, by making the 15 year payment on a 30 year home loan you save $76,659 in interest. And, you'll pay off that 30 year mortgage in 15 years and nine months.
Not bad if you can't qualify for a 15 year loan but you can afford the payments on a 15 year loan!
The interest rates used in the example above and the spread between them is for illustrative purposes only.
Source: lvmortgage
Financial Capital Group, LLC is a lender that provides home and commercial finance solutions for business, professionals, individuals and families since 1999. Our love and care for others is directed as much within our walls as it is outside of them. Our desire is to work together to meet the needs of our customers.
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