July 12th, 2018 10:28 PM by Jackie A. Graves, President
If you're brand new to the wonderful world of home loans, you
might be a bit overwhelmed at how many different types of financing options are
really out there. There's a fixed rate loan and there's an adjustable rate
loan. There's also what is referred to as a "hybrid" loan, which in
essence is an adjustable rate mortgage but has an initial period where the rate
is fixed for say three or five years before turning into a loan that can adjust
once very six months or a year.
you decide you want a hybrid loan, then you'll need to decide which rate you
want to take. Do you want a lower rate and pay a discount point to get that
rate or will you opt for the no-point option and take a slightly higher rate?
Do you want to lock in that rate right away or wait for a while until you get
closer to the closing date? If you want to lock now, how long do you want your
lock period to be?
questions and more will be presented to you by your loan officer and we must
admit it can get confusing at times due to the many decisions you have to make.
One of the decisions will be how long you want the loan term to be. Is a 30
year fixed rate better or is the 15 year program the wiser choice?
most popular loan in today's marketplace is the 30-year fixed. Every mortgage
company offers it and it's the one most heavily advertised. But what's the
attraction with the 15 year term? A 15 year loan will have slightly lower rates
compared to a similarly priced 30 year loan. It's just that the payments will
be much higher.
look at a $200,000 loan amount and take a sample rate of say 4.25%. A 30 year
loan at 4.25% and $200,000 yields a payment of $983. A 15 year loan at 4.125%
gives us a $1,491 payment. That's quite a difference and one of the reasons
borrowers select the longer term due to the lower payment. Yet the 15 year
allure isn't the lower payment, but the lower interest paid.
the life of the 30 year loan, there will be $154,196 in interest paid. That's
way more than half the original loan amount. With the 15 year, the amount of
interest paid falls dramatically to $68,548 and that's why some borrowers
choose the 15.
however borrowers want the 15 year term but the payments can be so high they no
longer qualify. But it's not an "either, or" proposition. Did you
know there are other terms? There is a 20 year and a 25 year term. These two
choices provide a "middle of the road" option and results in a lower
payment than a 15 year but still saves on long term interest.
speaking with your loan officer about your financing options, if you're just
getting quotes for a 30 and a 15 year loan, ask about the 20 and 25 year term.
You just might find the perfect balance between payment and long term interest.
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