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When we say
basic we really mean basic....
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 Mortgage loans are
used to pay the difference between the purchase
price and the cash available for a down payment.
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| A person with
$15,000 in cash |
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$15,000 |
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$85,000 mortgage loan |
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+
85,000 |
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buy a hundred thousand dollar home |
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$100,000 |
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- Mortgage lenders charges a fee for the
use of their money. The biggest fee is the interest, expressed as an
annual percent of the loan and typically falls in a range between a low of 5%
and a high
of 12%.
- Lenders and brokers also charge application fees,
credit report fees, appraisal fees and the mysterious points.
These are sometimes lumped together as an origination fee.
- The annual percentage rate (APR)
combines the base interest rate with points and other fees to
provide a figure to compare different loans.
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Fixed
or Adjustable ?
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Most of us are familiar with Fixed Rate Mortgage Loans, loans where the
interest rate and the monthly payment is fixed for the life of the
mortgage (usually 30, 20 or 15 years). |
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Adjustable Rate
Mortgage Loans (ARMs) have lower initial interest rates but
these rates
may change as often as every six months. |
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At an interest rate of
7.5% The 30 year, fixed rate mortgage is paid back in 360 (30x12) monthly
payments of $594 each.
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The 15 year mortgage is
paid back in 180 payments of $787,
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or almost $200 per month more
than the 30 year mortgage (which is why few people choose 15 year
mortgages).
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When we look at total payments
for the same $85,000 mortgage we see that total interest on a
30 year mortgage is almost twice the total interest on a 15
year mortgage:
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Mortgage
Term |
Total
Payments |
Total
Interest |
| 15
year |
$141,660 |
$56,660 |
| 20
year |
$164,160 |
$79,160 |
| 30
year |
$213,840 |
$128,840 |
With
a 30 year mortgage, the borrower pays $594 per month for 360 months for
a total of $213,840: ($85,000 to repay the principal plus
$128,840 in interest ! )
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- A 15
year mortgage loan is usually the least expensive way to to go, but
only for those who can afford the larger monthly payments.
- If you plan to keep the house for ten or more years,
look at our calculation of monthly
housing cost and consider a 15 year mortgage loan.
- Most people will move in eight or less
years. For these folks the lower monthly payments of a 30 year mortgage
loan might be a better choice. An adjustable rate mortgage loan
might even be cheaper. Look at our calculation of monthly
housing cost.
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Top
of page |
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Copyright January 1, 2003
Audrie.com Corporation
PO Box 870454
Stone Mtn, GA 30087
All rights reserved
Fax: 770-469-2180
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