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HOME BUYERS GUIDE
A comprehensive guide
to home ownership presented by the "The House Team"
REPAYMENT OPTIONS
Amortization:
The gradual repayment of a debt by means of partial
payments on the principal at regular intervals. The amortization period is
the time required to repay the debt completely.
The amortization period has a dramatic effect on the
amount of interest paid over the length of the mortgage. Consider the following
example*:
$100,000 mortgage with an interest rate of 5.50%
With a 25-year amortization the monthly payments are
$610.
With a 20-year amortization the monthly payments are
only increased by $75 to $685. The savings in interest would be $18,864*.
With a 15-year amortization the monthly payments are
increased by only $204 to $814. The savings in interest would be $36,635*.
Payment Schedules:
Most mortgages have very flexible payment alternatives.
Weekly, bi-weekly, or monthly payments are most common. These choices also
have a great effect on the overall interest payments. Consider the following
example*:
$100,000 mortgage at 5.50% interest over a 5-year term
| |
Payment |
Balance
(end of term) |
Potential Interest Savings
(over amortization) |
| Accelerated Weekly |
$152 |
$85,609 |
$14,583* |
| Accelerated Bi-weekly |
$305 |
$85,633 |
$14,418* |
| Monthly |
$610 |
$89,188 |
- |
* The example assumes the interest rate will remain
constant through the whole amortization period.
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