Suppose someone purchases a 425,000 home and gives a 40,000 down payment. Due to their credit score, they have 4.25% interest rate and choses a 30 year loan and make 12 payments a year. How many months will this loan take to pay off?
How much equity will this person have built after 1.5 years?
How many mortgage payments will it take for the person to pay more on the principal than interest?
How much interest will this person ultimetly pay if they pay off the full 360 months?
Suppose someone purchases a 425,000 home and gives a 40,000 down payment. This buyer is going to take a 20 year loan which gives them a 3.5% interest rate and make 12 payments a year. How many months will this loan take to pay off?
How much money will have been paid to the principal after 1.5 years??
How much equity will this person have built after 1.5 years?
How much total interest was paid? (This is over the length of the loan) ((AKA after all 240 payments)
How much money was ultimetly saved by taking a 20 year loan which also comes with a lower interest rate?
One last note:
Many times a first time home buyer will only be given a 30 year loan even if they ask for a 20 year loan due to reasons the loan provider may or may not provide.
BUT THATS OK.
Don't feel that you are stuck. Just like a car loan, you can apply extra money to the principal whenever you want and that will decrease your overall interest and length of loan.
(I actually like this option because I overpay when I have extra money and don't overpay when I don't)