Saturday Reporter-Herald August 27, 2011 D1
Real Estate Matters
www.reporterherald.com • Saturday, August 27, 2011 • Reporter-Herald
Making extra payment will reduce loan term five years ILYCE GLINK TRIBUNE MEDIA SERVICES
Q
uestion: In one of your recent articles, you addressed the point of making one extra mortgage payment a year to reduce the term of a mortgage. Your response states that doing this will reduce the term of a 30-year mortgage by 12 years, which is incorrect. It’s closer to 5 years; term will be reduced to around 25 years. The interest savings over the life of the loan is huge, though. Answer: Thanks for that catch. You are generally correct that making an extra payment each year on your loan will reduce the length of the term of your loan between four and six years. One reason the timeline differs is that the earlier you make a prepayment, the greater your prepayment works for you. But you will also have greater results with a mortgage that carries a higher rate of interest. I ran some numbers on an online mortgage calculator. Let’s assume you buy a house and take out a 30year fixed-rate loan at 7 percent for $200,000. Your monthly payment would be $1,330.60. If you made one extra payment per year, you’d pay off the loan in 24 years, saving six years of payments. But what happens when you get the same loan at 4 percent? Your monthly payment is just $954.83, a savings of nearly $400 per month. But if you make one extra payment per year, you’d pay off the loan in 26 years, saving only four years of payments. Why is that? It turns out that the lower the interest rate on the loan, the less effective it is to prepay your mortgage. You’re paying less interest overall (which is good), but you can’t make the numbers work quite the same way. If your monthly mortgage payment to your lender includes an amount equal to your real estate taxes and insurance, you will accelerate the prepayment of your loan. That’s because instead of making one extra payment, it may be as much as two or more. For example, if you made an extra annual payment of $1,900 (or roughly twice the regular payment) on the 30-year $200,000 loan at 4 percent, you’d save seven years of payments rather than just four. If you made a $2,700 extra payment (three times the regular payment), you’d pay off your loan in 21 years. But if you had the same $200,000 loan at 7 percent, and you made a $2,700 extra payment each year (which is just twice the $1,330 monthly payment), you’d also bring down your loan term to 21 years. Again, having a higher interest rate makes prepaying work better. I should have clarified that point in the prior article. Thanks for your comment.
Milestone for
Oakwood Homes PAID ADVERTISEMENT
Amid its 20/20 promotion, Oakwood Homes is nearing 10,000 homes sold in Colorado. family in personalizing their home.” Through September 5, Oakwood’s Gilpin model will be on display as part of the Parade of Homes. Being a unique, open floor plan, it’s definitely a big hit for buyers in Thompson River Ranch with 1,531 finished square feet above ground and up to five bedrooms and four bathrooms with a basement starting as low as $171,300. With four homes currently available for quick move-in, two of them are Gilpins. Both priced in
the low $200s, it’s a spacious yet affordable choice even compared to resale homes so visit them this weekend for the Parade of Homes to see it and the other models open to view. Contact Mike Welty or Dwayne Montoya at 970-669-9801 for additional information on the community. You can find more information on Thompson River Ranch or start building and personalizing your home today at www.OakwoodHomesCO.com.
lected previously, while others prefer the more affordable route and pick hen you look across Thomp- choices they would have added reson River Ranch, you can gardless.” These choices allow every see over 300 homes in this family to truly have the exact home continually fast growing community. they want. “It’s completely up to the From its location, it’s easy to get to from anywhere in Northern Colorado. Easy access has been a huge draw for families through Loveland, Greeley and Fort Collins since it is right in the middle at Interstate 25 and U.S. Highway 34. Thompson River Ranch was opened in 2006 and now has nearly 300 homeowners five years later. With the fast growth of the community, it has helped Oakwood Homes to soon close its 10,000th home in Colorado and ready to build many more starting in Loveland with their 20/20 promotion this weekend. The promotion, which was a big hit through August (nine sales in August alone), was extended through September 20 especially for this milestone, which they plan to reach by the end of August. For those that missed its first offering, it gives every buyer 20 points (for Oakwood’s 20 years of building homes) to use toward a large list of point-designated choices to put into their home for free. Whether it’s upgrading your kitchen, adding a spa bath or simply having closing costs covered, the control is in your hands as to what items on the list Oakwood will include for free. “Buyers fall in love with the area as soon as they visit, so the 20/20 promotion has been an added bonus,” said Dwayne Montoya, community manager for Oakwood Homes. “Some buyers enjoy being able to add choices they wouldn’t have se— Dwayne Montoya, community manager for Oakwood Homes
W
“Buyers fall in love with the area
as soon as they visit, so the 20/20 promotion has been an added bonus.”
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