15 vs. 30 year mortgages…
This is a topic that gets discussed far too little, both by buyers and real estate professionals. I’m guilty. As a real estate licensee, I’m not involved with the intricate details of buyers’ finances. Not wanting to be nosy or pushy, and given the fact that the majority of buyers automatically opt for the far more common 30-year mortgage, it’s easy to not even bring up the topic.
However, the question of whether to pursue a 30- or 15-year mortgage is a crucial one for buyers to consider.
What’s the difference? Without delving into the intricacies of mortgage lending, I’ll sum it up in a nutshell: On a 30-year mortgage, you pay less per month; but on a 15-year mortgage you pay a lot less over the long haul.
I won’t duplicate the whole article, but here’s an example from “Investopedia”:
“Imagine, then, a $300,000 loan, available at 4% for 30 years or at 3.25% for 15 years. The combined effect of the faster amortization and the lower interest rate means that borrowing the money for just 15 years would cost $79,441, compared to $215,609 over 30 years, or nearly two-thirds less.
“The rub, of course, is the monthly payment. The price for saving so much money over the long run is a much higher monthly outlay: The payment on our hypothetical 15-year loan is $2,108, or nearly 50% more than the monthly payment for the 30-year loan ($1,432).”
Read the full article here: http://www.investopedia.com/ar
Of course, there’s always the option of paying on a 30-year mortgage as if it’s a 15-year. While this sounds good, and technically could happen, it obviously rarely does in the real world. For most buyers, it’s hard to be that disciplined financially if one doesn’t have to be, but of course sticking to a 15-year payment schedule, while on a 30-year loan, saves you thousands of dollars over the long haul, while still giving the flexibility to make lower payments payments when needed.
30- or 15-year mortgage? At the end of the day there’s no one-size-fits-all answer, but it’s good to know your options and run the numbers!
“Your home sold in 90 days, or I’ll sell it for free!”