Equity BuildUp with Appreciation

True, 30-year (or 40-year) terms help you qualify for higher priced properties than 15-year loans. Nevertheless, if you buy a lower-priced property,

Table 3.3 Equity Buildup Due to Mortgage Paydown of $151,000: 15-Year vs. 30-Year (no assumed appreciation)

15-Year Term

30-Year Term

Table 3.3 Equity Buildup Due to Mortgage Paydown of $151,000: 15-Year vs. 30-Year (no assumed appreciation)

15-Year Term

30-Year Term

Original loan

$151,000

(151,000)

$200,000

(200,000)

Total paydown @ 5 years

35,502

(114,498)

12,799

(187,201)

Total paydown @ 10 years

65,578

(85,422)

30,466

(169,534)

Total paydown @ 15 years

151,000

(-0-)

54,898

(145,102)

Both loans require a payment of $1,264 per month.

the wealth effect may favor that choice. Say you want to pay $1,264 a month for principal and interest. That size of payment and a 15-year, fixed-rate loan amortizes $151,000. Yet, you may still build equity faster with the 15-year term (see Table 3.3).

Now assume that you plan to trade up properties in five years. With either mortgage/property, you would place $20,000 down. This means that with the 15-year mortgage, you bought a property priced at $171,000; with the 30-year, a $220,000 property. Each property appreciates at 3 percent a year. Table 3.4 shows how your total equity would grow.

Or, what if we assume a 5 percent per year rate of appreciation (see Table 3.5).

Again, even a 5 percent a year appreciation rate builds equity quicker with the less expensive house and a 15-year mortgage versus a more expensive property and a 30-year term. In this example, you would need an

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