About real estate: Record-low rates make 15-year loans more attractive
The historic drop in rates on "quick pay" mortgages makes it easier for borrowers to cut their loan term in half and save tens of thousands of dollars in interest charges.
Q. We are planning to buy a new home, so we have followed your advice by checking the rates and terms offered by three different banks and mortgage brokers. One of them suggested we consider a 15-year loan instead of a 30 year, because the 15-year loan would knock an extra three-quarters of a percentage point off the interest rate, and we would own our home "free and clear" in half the time. This sounds like a great idea to us. What do you think?
A. I think that choosing a 15-year term over a 30-year repayment schedule is a good idea for most buyers and home refinancers, provided they can comfortably afford the higher monthly payments that the shorter-term loan would entail.
Rates on 15-year mortgages usually are one-half to three-quarters of a percentage point below those on their 30-year cousins, in part because the shorter term cuts the lender's risk posed by future inflation in half. The nationwide average rate on 15-year loans hit a record-low 2.97 percent in early June, according to mortgage giant Freddie Mac, while the rate on 30-year loans stood at 3.75 percent.
Choosing a 15-year mortgage allows borrowers to own their home debt-free in half the usual time and can slash more than 50 percent or even 60 percent off the overall finance charges that a 30-year loan would involve. But many applicants won't even inquire about such so-called quick-pay mortgages because they mistakenly think their monthly payment would be twice as large as those required by a 30-year payback schedule. In reality, they'd be between 30 percent and 40 percent more based on the amount borrowed and other factors.
To illustrate, monthly payments for principal and interest would total $695 if you obtained a $150,000 mortgage for 30 years at the current national average of 3.75 percent. Payments on a 15-year loan at its lower average rate of about 3 percent would be $1,036, or $341 (34 percent) higher.
Sure, finding an extra $341 a month in today's tough economic environment would be difficult for a lot of us. But if you could swing it, you'd not only own your home debt-free in half the time but also save a boatload of interest: Finance charges over the course of the 15-year loan would total a relatively modest $36,457, compared with a much steeper $100,082 if you stretched the repayment over 30 years.
In other words, choosing the shorter-term loan over a 30-year schedule would leave you an extra $63,625 to supplement your retirement income, help to put your kid or grandchild through college, or spend any other way you wish — all without worrying about making an additional 15 years of housing payments.
Despite the benefits that quick-pay loans can provide, they're clearly not for everyone. Because monthly payments on the loan would be larger than they would be under a 30-year schedule, your income would have to be higher to qualify. You should shun the shorter-term loan if the higher payments would make it tough to pay other bills — or prevent you from keeping an amount equal to at least six months of your pay in a savings account to make ends meet if you get laid off or encounter unexpected expenses in the future.
You also might want to pick the longer-term repayment plan if you're a savvy investor who could use the cash that its lower payments would free up to make promising investments.
Q. Where does the word "acre" come from? My wife believes it originated in England, but I think its history dates back even further. Our dictionary doesn't provide a clear answer.
A. Most lexicologists — the fancy term for people who study the origin of words — believe "acre" came into common usage in England around the 13th century. But it's believed to be based on an earlier Latin word, ager, which means "district" or "field."
A busy seaport in northwestern Israel is named Acre, as is a small federal territory in Brazil.
Q. Is it true the colors you choose to paint your walls can make you gain weight or help you lose it?
A. Yes, according to several studies.
Red seems to be the most "fattening" hue, according to experts at color specialists Pantone LLC. It increases appetite, and also raises blood pressure and heart rate.
Red, of course, is also the color of meat. Avoid using it in your kitchen or dining room if you want some subliminal help in curbing your hunger.
The color orange also tends to make homeowners overeat, Pantone says, and so does yellow. But on the upside, yellow also raises the occupants' energy and happiness.
Blue and aqua, on the other hand, tend to deter appetite. Few foods are blue — and those that are often are rotting — so it can send subliminal signals that can make the home's occupants eat less. Some experts even suggest you replace your white refrigerator light with a blue one and buy blue dinnerware if you want to lose weight.
• For the booklets "Straight Talk About Living Trusts" and "Free and Clear: Getting the Mortgage Monkey off Your Back," send $4 for each and a self-addressed, stamped envelope to David Myers, P.O. Box 4405, Culver City, CA 90231-4405.
© 2012, Cowles Syndicate Inc.
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