# Time

Mortgage term is a very important factor because the time it takes to pay off your loan, the mortgage term, will have a significant impact on your bank account.

# Why Does Time Matter?

Interest income for a lender is a function of two variables:

1. The interest rate,
2. Mortgage term.

The longer the mortgage term, the higher the bank’s interest income. Borrowing money from a lender is a zero-sum game because every dollar the bank wins is a dollar you lose, and vice versa. Therefore, it is very important that you consider what we’ll call the “time factor” in your borrowing decision.

## Mortgage Term – Understanding the Time Factor

The easiest way to understand the time factor is counting the number of periodic payments you’ll make (for most mortgages, 1 month = 1 period). Here are some common mortgage terms and their periodic payment schedules:

• 30 Year Mortgage = 360 Periodic Payments (30×12)
• 25 Year Mortgage = 300 Periodic Payments (25×12)
• 20 Year Mortgage = 240 Periodic Payments (20×12)
• 15  Year Mortgage = 180  Periodic Payments (15×12)

The easiest way for me to illustrate the impact of time on your mortgage is to show you an example, so let’s compare two mortgages that have the exact same interest rate of 5% and a balance of \$100,000.

A 30 year fixed mortgage will have 360 payments of \$1,073.64. Multiplying the two numbers together gives us a product of \$386,510.40. That is how much you’ll end up paying the bank over 30 years. Let’s compare it to a 15 year fixed mortgage, that has 180 payments of \$1,581.59. Multiplying the two numbers gives us a product of \$284,686.20. Thus, it’s now very apparent that repaying the loan 15 years faster saves you \$101,824.20. That’s a pretty penny! Wow!