4/1/2023 0 Comments Loan calc mortgageThe home you buy, may not be move-in ready, so carpets may need to be replaced, floors refinished and walls painted. Don't Go OverboardĪlthough a discretionary expense, home decoration/improvements must be addressed here. If you live in a neighborhood with a homeowners association, monthly or quarterly fees may be required. Lawn mowers, weed whackers, hedge trimmers, etc. Lawn maintenance is another expense which may be new to you. Without an emergency fund, these types of events can put you in the red. So you need to build a rainy day fund, because odds are against you that one day the air conditioner will fail or the roof will leak or one of your major appliances will go on the blink. If anything needs repaired, you are responsible for all the parts and installation. If you are a renter, you are accustomed to charges for utilities, but if you move into a larger house, be prepared for a larger heating and cooling bill. When the equity in your house reaches 20% the PMI can be removed, so this is another reason to choose the 15 year option - where your equity builds faster. This fee is also rolled into your monthly payment. It can cost 0.5% to 1% of the entire loan. This doesn't protect you, it protects the bank in case you default. If your down payment is under 20%, the bank will require private mortgage insurance (PMI). Otherwise, you will be faced with a large bill at the end of the year. Most people roll these two charges into their monthly mortgage. The more expensive the house, the more both of these will cost. Your county wants some of your money and so does your insurance company, so be prepared for property taxes and homeowners insurance. Principal and interest are not the only expenses tied to the loan. Forcing yourself to fit the higher payment into your budget from the start is the only way to ensure paying the loan off in 15 years and saving all that interest. Life happens, and the extra money slides through your fingers for things you no longer remember. You may say that you don't want to be locked into that higher payment and that you'll simply add extra each month to reduce some of that interest? It rarely happens. Quickly Compare Your Mortgage Payment Optionsįigure your savings by comparing 15-yr vs 30-yr loans or fixed vs arms side by side. Think of what your life would be like being mortgage free after only 15 years and having an extra $77,452 in your pocket! This time the total cost of borrowing $200,000 is $266,287 saving you $77,452 in interest compared to the 30-year option. After five years you still owe $146,117 after 10 years you still owe $80,328, and at the end of the term you will have paid the bank only $66,287 in interest. Right off the bat, more of your investment is going more to principal than interest. This is a bit more than our other example, but stay with me here. This scenario provides monthly principal and interest of $1,479.38. Let's take the same $200,000 fixed loan at 4%, but this time let's select a 15-year term. So In reality that $200,000 home really costs you $343,739! The 15-Year is the Real Winner After five years you still owe $180,895 after 10 years you still owe $157.568, and after 30 you will have paid the bank $143,739 in interest. The road to building equity is slow moving. Your monthly principal and interest is $954.83, but it would take 153 payments until more money is directed to principal than interest. For example, let's assume you have a $200,000 fixed mortgage for 30 years at 4% interest and no down payment. As time progresses more is placed toward principal, but it takes years before the interest and principal are equal paid. In the beginning, a large portion of your payment goes to interest. Unless you plan to move in a few years, the 15-year is the way to go. It can't be expressed enough that you should almost always choose a 15-year fixed mortgage. Using our amortization calculator you can enter various scenarios to reveal the true cost of the place you will call home & any other type of loan. This may seem like a no-brainer, but so many people look only at the monthly cost and never consider the total cost. No one factor affects the cost of purchasing a house more than length of the loan. The Full Monthly Repayment Chart and Understanding Your Payment Allocations
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