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Unformatted text preview: ly surprised to discover that they can pay off the loan in half the time with a monthly payment that is only about 25 percent higher. Not only will they own the home free and clear sooner, but they pay considerably less interest over the life of the loan. For example, assume you need a $200,000 mortgage and can borrow at fixed rates. The shorter loan would carry a lower rate (because it presents less risk for the lender). The accompanying table shows how the two mortgages compare: The extra $431 a month, or a total of $77,580, saves $157,765 in interest payments over the life of the loan, for net savings of $80,185! Term Rate Monthly principal and interest Total interest paid over the term of the loan 15 years 6.50% $1,742 $113,625 30 years 6.85% $1,311 $271,390 Why isn’t everyone rushing to take out a shorter mortgage? Many homeowners either can’t afford the higher monthly payment or would rather have the extra spending money now. Others hope to do even better by investing the difference themselves...
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