Replies to post #72931 on Zeev's Turnips Patch-No Politics (ZEEV)

[extelecom]

Sm, A mortgage loan is not Simple Interest... An auto loan is more like simple interest although they screw you using rule of 78...
Mortgage loan calc is:
http://mathforum.org/library/drmath/view/54623.html

Rule of 78:
http://www.pine-grove.com/pi09003.htm

You should always check with the Mortgage Co. / Bank to see how they handle early payoffs, they are not all the same...

JMO

[tantal]

Look, I said I looked at the numbers. the 30 yr is about 1/2 pt higher rate, something like 4.875% for the 15 year, and 5.625% for the 30 year iirc. No matter what you do, starting with the first payment, the 15 year pays roughly 90% of interest amount for the 30 year, that's roughly $900 to $1000, just the interest part of the payment, regardless of whether the payment is $1200, $1600, or $3200. It doesn't matter how much principal is paid, and over time the amount of interest required to be paid for the 15 year drops faster than the amount required for the 30 year, assuming the same total payment amount. The significantly higher rate for the 30 year kills the deal for me.

You are wrong in this instance, and wrong is wrong. Thank you for your advice, but I don't think this is shedding any new light on the subject.

[Newly2b]

Smart Money,

Since the interest rate is lower on the 15 year loan, and the principal balance declines more rapidly amortized over the shorter period, the amount of interest paid will always be higher with the 30 year loan.

For example, $100K at 5% 15 years, fully amortized payment each month = $790.79. First month, interest portion of payment = $416.67, principal = $374.12. Second month, same payment, but loan is now $99,625.88, at 5%, interest = $415.11, principal = $375.68. And so on.

$100K, 5.5% for 30 years, fully amortized payment each month = $567.79. First month interest = $458.33, principal = $109.46. Second month, loan is now $99,890.54, payment still $568, interest = $457.83, principal = $109.96. And so on.

In just two months, one has paid $84.38 more in interest with the 30 year loan.

Now assume one takes the 30 year loan and make the payment one would have on the 15 year loan, $790.79. First month, interest = $458.33, principal = $332.64. Second month, loan amount is now $99,667.36, interest = $456.81, principal = $333.98. And so on.

One has still paid $83.36 more in interest with the 30 year loan.

Tantal is correct, with the 15 year loan one would pay less total interest each month, and one's principal will decrease faster than with the 30 year loan despite making a monthly payment equal to that of the 15 year loan.

Newly