Roger Schlesinger

It really isn't that hard to figure out how good a loan will be for you, if you take the time to do a few simple calculations.  Since America's favorite loan is the 30 year loan, you should run all your calculations versus the 30 year loan.  Then you can clearly see what loan would be feasible for you and still save you a substantial amount of money.  If you work the formula you can see the big picture.  If you need something to get you to move I am sure I can get you a stimulus or two.  

I am going to lay out some simple rules that will make this even easier and will keep you from getting confused.  The loans we will be examining are all fixed, and except for the last payment in some cases all the payments will be the same for each loan.

There are just two items you need to make this comparison work: The monthly payment for principal and interest for each length of loan: 15 years, 20 years and 25 years. The only other item you will need is the total payments for five years in each amortization.

Now, let's see how it works.

$200,000 loan:

30 year fixed:  $1013.37 mo. x 5 Years = $60,802

20 year fixed:  $1251.84 mo. x 5 Years = $75,110

15 year fixed:  $1429.77 mo. x 5 Years = $85,786 

 Now, analyze the results:

1.  A 15 year loan cost $24,984 more than a 30 year each 5 year period. It will take 3 periods of 5 years to pay off a 15 year loan or $74,952 more than 3 periods of a 30 year.  The 30 year takes 6 periods of 5 payments, an extra 3 periods.  The cost of the extra 3 periods is $182,406 which is what you will save when you take a 15 year. You also can accumulate $182,406 in the last 15 years you aren't making the payments.

2. A 20 year loan costs $14,308 a period more than a 30 year loan and will need 4 periods to pay off the loan.  That cost is $17,272.  The extra 2 periods needed to finish paying the 30 year will be $121,604, which is also the amount you can accumulate in the last 10 years you aren't paying.

3. A 15 year loan costs $10,676 a period more than a 20 year loan. The extra period needed to finish paying the 20 year will cost $75,110, which again is the amount you can accumulate during the last 5 years you will not pay.

Roger Schlesinger

Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.