Florida Mortgage Loans: Know the Half Life

Unless you majored in chemistry, the term half life probably isn’t in your vocabulary. But regardless of whether you know a compound from an element, this term may actually have a practical use when it comes to understanding the financing aspects of a Florida mortgage loan: the time use of money.

When you borrow money on any loan, including home loans, you always pay back the amount you borrow plus a little extra (or a lot extra) which is the interest on the money.

People, sadly, don’t often understand how Florida mortgage payments work and think there is some magical formula for the paying back of the money. Most people don’t realize lenders use traditional interest in the loans, not compound interest or anything complicated.

An easy way to comprehend how these loans work is to demonstrate the half life of the loan: when half of the loan is paid back.

It tends to make people wonder what they’ve been doing. A lender will often offer to extend the term of your Florida home mortgage instead of raising the payment on your variable interest rate loan, if you have one of those. You should understand that while they make it sound great, you’ll have to work this side of forever to get the loan paid off.

On the other hand, a shorter-term, fixed-rate home loan can be paid off a heck of a lot faster — even if the initial payments are higher. You may find the following explanation of the half life quite interesting (note that interest rates make the payment time vary):

• A 15-year, fixed-rate Florida mortgage will be half paid off in about 10 years.
• A 20-year, fixed-rate Florida mortgage will be half paid off in about 13 years.
• A 30-year, fixed-rate Florida mortgage will be half paid off in about 20 years.
• A 40-year, fixed-rate Florida mortgage will be half paid off in about 30 years.

See the pattern? Most people say they’d rather pay the second half of the loan, which you can by taking a shorter amortization. The key to paying off your loan in a reasonable time without enormous amounts of interest is to pay it off in 20 years or less.

Going back to the premise that you only pay back the money you borrowed plus some interest, you can readily see how little progress one can make with some loans and how much progress you make in other home loan products.

A borrower taking a 20-year loan is finished before those in a 30-year pay off even half of their loan. How nice would that be if you were the one with a 15- or 20-year mortgage and not the 30-year? Or the conventional 30-year loan as opposed to (God forbid) a 40-year mortgage?

Nothing works like a simple picture that explains a somewhat complex or at least a confusing situation. Now the question is: what are you going to do about it?

If you do act, it will mean moving from certainty to uncertainty, at least for a while, in your life. Giving up the comfort of habit to reach for a better situation that is foreign to you can be uncomfortable at first. But life isn’t short. It’s long. And planning for the future never hurts. So make the right call and apply for the Florida mortgage that’s best for you.