Finances, etc.

Learn more about the mortgage options you have when buying a home. Contact us if you have questions or would like additional information.

30-Year vs 15-Year Mortgage

Monthly payments are higher on a 15-year mortgage, however, the savings in interest payments are substantial.

Example:

100,000 mortgage @ 7% interest rate.

Monthly payments: $665.30 (30 year) vs. $898.23 (15 year).

Total Interest paid: $139,508 (30 year) vs. $61,789 (15 year).

If you can afford it, go with the 15-year mortgage!

Fixed Rate Mortgage (FRM) vs Adjustable Rate Mortgage (ARM)

FRM carries the same monthly payments over the life of the mortgage. ARM payments can go up or down depending on the market interest rates. However, keep in mind that the ARM initial interest rate is discounted, i.e. even if market interest rates stay constant, your second and possibly third-year interest rate (and monthly payments) will go up. The payment typically will be higher in the third year than if you had taken an FRM unless market interest rates decline significantly.

Therefore, an ARM is advantage only if:

  1. You plan to sell your home within 3-5 years or
  2. You can only afford the lower (discounted) initial interest rate of the ARM.

Accelerated Payment Program

Some banks offer payment programs under which you make bi-weekly instead of monthly payments.

The advantage is lower total interest payments over the life of the mortgage.

Example:

$100,000 mortgage @ 7% interest rate, 30 years

Monthly payments: $665.30

Bi-weekly payments: $332.65 (half of the above)

Total interest paid: $139,508 (monthly) vs. $104,912 (bi-weekly)

Duration of the mortgage: 30 year (monthly) vs. 23.5 (bi-weekly)

4 Buy-Down (e.g. 3-2-1)

A 3-2-1 Buy-Down means that the seller pays 3% of the mortgage payments in the first year, 2% in the second year and so on. This enables you to purchase a home that you otherwise could not afford. Instead of the seller, a relative can provide a buy-down. For a $100,000 mortgage @ 7% interest, the seller/relative would pay a total of $6,840 during the 3 years of the buy-down duration.

For more information on the home mortgage loan process, we recommend contacting Nick Parent at The Vermont Mortgage Company. Visit him on the web at Vermontmortgagecompany.com.

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