MORTGAGE PLANNING: 30-YEAR FIXED V. 15-YEAR FIXED

The shorter the term of the loan, the less interest you pay, and the sooner you pay it off.

So, why not apply for and obtain the shortest-term loan possible?

This makes good sense if you are comfortable with the payment.

Let’s take a look at the following 3 scenarios, a 30-year fixed, 15-year fixed, and a 30-year fixed paid over 15 years.

TYPE OF MORTGAGE INTEREST RATE LOAN AMOUNT MONTHLY PAYMENT INTEREST PAID OVER LIFE OF LOAN
30-year fixed 4.0% $300,000 $1,432.25 $215,607.20
15-year fixed 3.5% $300,000 $2,144.65 $86,036.45
30-year paid over 15 yrs 4.0% $300,000 $2,219.06 $99,431.74

 

The rate for a 15-year fixed mortgage is typically lower than a 30-year fixed mortgage. As you can see, you would pay less interest over the life of the loan with a 15-year fixed mortgage, but you would have to pay $712.40 more per month than a 30-year fixed; this could be a pretty heavy payment, especially around the holiday season.

The third option is a nice compromise, where you are obligated to pay the lower 30-year fixed payment, but you can pay more principal per month to pay it like a 15-year fixed. The amount of interest paid over the life of the loan is a little more than the 15-year fixed, but you have the option of the lower payment, which can work nicely over the holidays or months where you are short on cash.

Contact us to go over this or options you are considering.

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