The next 4-7 years may see a virtually “Flat” appreciation rate with perhaps small baby-steps of increases. How to build equity other than appreciation–how about the OLD FASHIONED WAY? Equity Build up by paying DOWN your mortgage. Novel concept huh? Check out the numbers below between the rapid pay-off 15 year old (remember, shorter the amortization period, the QUICKER your loan will be paid off but the HIGHER your monthly payment will be) and the longer, traditional 30 Year Amortization schedule. It’s pretty dramatic to say the least!
15 Year Amortization Schedule
30 Year Amortization Schedule
These payments are based on a $300,000 loan amount. The 15 Year Amortized loan is at 3.75% . The 30 Year Amortization loan is for 4.25% MAJOR difference between 15 year vs 30 year amortization schedules? Your monthly payment is approx 31% HIGHER or in this case $705.85 more per month as it has a shorter time (15 year) BUT the savings of the quicker pay-off schedule are breathtaking! At the end of 5 years you will owe 71% of your beginning balance with the 15 year loan—the 30 year? You’ll still owe 90.5%!! Or at the end of 5 years with a 15 year loan you’ll have dramatic equity BUILD UP (very crucial in a flat market!) of $84,973 vs. $28,601 with a traditional 30 year loan! That’s a whopping $56,000+ difference!
Just Imagaine—Mid 30’s, buying your first home, good income, can afford the difference in the payments and when you’re at the ancient age of 50 your HOME IS PAID OFF!! And THAT DAY WILL COME!! Or the same can be said for the 50 year old, peak income years, refinance, do a 15 year OR JUST START MAKING 15 YEAR PAYMENTS!! Retirement and the home is paid off.
Just look at the column under “Principal” and note it is approx 3 to 1 in the amount of money PAID down per month on the loan balance! If you can afford the extra monthly payment give this a hard, long look!