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Balloon mortgage 30/15 - Colombia Credit Union
It is also known as a 30/15 fixed-rate mortgage. Like a 30-year mortgage, it is written off, but at the end of 15 years the remainder (alias the balloon) falls due. That means you have to repay the mortgage, you have to buy the house or you have to finance it within 15 years. For example, ballon mortgage loans maturing in five or seven years are less attractive.
But if you meet the standard and don't see yourself in the same home for 15 years, a 15-year-old ballon can be a very intelligent credit option. Indeed, it has become one of Colombia's most beloved mortgage choices.
30-years versus 15-years mortgage
Interest is higher on 30-year mortgage loans than on 15-year mortgage loans. It can be displayed as a higher ratio, more points, or both. Often, 15-year and 30-year term mortgage loans can be obtained at the same interest level, but with 1 - 3 more points in advance for the 30-year old. Let's say we make a comparison between the 15-year-old and the 30-year-old as follows:
We' re taking out a $100,000 mortgage at 9 per cent in any case. But with the 15-year-old, because we are paying in advance 1.75 points less, we have to spend 1750 dollars. Thirty-year mortgage payments are only $804.62 per annum, up from $1014.27 for the 15-year-old. Therefore, we have every months over 200 dollars more available to make with the 30-year mortgage to continue investing.
Our goal is to reinvest the funds (1750 dollars in advance in the case of the 15-year-old, 200+ dollars per months in the case of the 30-year-old) at a re-investment ratio until we reach the end of 15 years. If, for example, we reinvest at a 9 per cent re-investment level, the $200 per months from the 30-year mortgage adds up to $79,330.49, which is exactly the amount due for the 30-year mortgage at that time.
However, the $1750 is $6716.58 ahead of the 15-year maturity and there is no debt owed. In summary, it can be said that we have a reinvestment ratio of 9 per cent after 15 years: This example shows that if the reinvestment interest is equal to the mortgage interest rates, then the monetary differential between the mortgages amounts to the 15-year mortgage having a lower initial outlay.
That makes the 15-year year a better option. For the 15-year mortgage, if the return is below 9 per cent, the case is even worse because the "net" of the 30-year mortgage is minus. And if the return is much higher than 9 per cent, then it is beneficial to have the lower montly payout on the 30-year mortgage.
break-even point is around 10.34 per cent. When you think that you can make 10.34% or more from alternate investment options versus a mortgage interest of 9%, a 30-year mortgage will make you well-off. A lot of respondents have asked whether the ability to deduct mortgage interest for taxation purposes changes this paradigm shift.
An error that humans make is comparing a pre-tax return interest return with a post-tax mortgage return. Thinking is that if you acquire 6 per cent on an investment and can Pay 9 per cent as mortgage interest if your mortgage is more than 33 per cent your rates will come ahead.
Indeed, you will be subject to tax on your capital gains, so both the reinvestment and mortgage rates should be net of Tax.