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Wednesday, February 12, 2014

Potential Problem In Home Mortgage 

There's a potential problem in opting for home mortgage. In order to get the loan, you will have to qualify. That means your income has to be high enough to make the payments, based on a formula the lender uses. For example, some banks want your monthly income. If your lender applies 28 percent in the repayment formula, you would need to make more than $3,600 per month to qualify for the 9 percent loss. Many people who are capable of making the monthly payments don't get the loan, because they don't qualify.

The second part of this test is the total cost of your home. Remember, the purchase price you negotiate for a home isn't its real cost. This example will prove that point. The total of payments under the 30-year loan will be $315,928.80. Add on your down payment of $20,000, and your house will cost $335,928.80. On the 15-year loan, the total of payments is much less, only $182,568.60.

Again, adding the payment, the total cost of your house would be $202,568.60. Again, adding the down payment, the total cost of your house would be $202,568.60. Even though this is more than twice the purchase price, it is much less than the cost with a 30-year loan. With the 15-year repayment schedule, you cut the cost by $133,360.20.

Why does a $120,000 house cost two to three times the stated amount? Interest. The lender charges interest each and every month, and the interest is always based on the amount of your loan that's still outstanding. When you owe a lot, your interest is very high. In fact, in the early years of your loan, very little of your monthly payment goes toward principal. Almost all of it is for interest. For example, on that 10 percent, 30-year loan on which you would pay $877.58 per month, your first payment is made up of $833.33 interest and only $44.25 principal.

A 30-year loan's balance falls very slowly during the first few years. After the end of the 10th year (one-third of the way through the period), you will have paid off only about 9 percent of the total loan. Out of the $100,000, you will still owe about $90,900 to the lender. In fact, you will have paid off only one-half of the loan by the middle of the 24th year. In the last 6 years, you will pay off the other half.

In terms of opting for home loans Minneapolis, it's always ideal to have the Minneapolis loan broker help you along the way.

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