Most mortgages are 30-year terms. But have you ever wondered what you are actually going to pay for your home over those 30 years? What about if you had a 20-year term? I think the difference will surprise you once you look at the math!
A $200,000 mortgage with a 4.75% interest rate and 30-year term would have a monthly payment of $1,043. At that rate the total interest you would pay over the 30 years would be $175,600! Zoinks! You're paying almost as much in interest as you did for the home. Suddenly 4.75% doesn't seem like such a low rate, does it?
However, if you had a $200,000 mortgage with a 4.5% interest rate on a 20-year term, your monthly payment would be $1,265. Total interest paid over the 20 years: $103,670!
You would spend an extra $222 per month for the 20-year term, but you would save $71,930 in interest payments and own your home free and clear a cool ten years earlier.
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