Why Is A 15 Year Mortgage Better Than A 30 Year Mortgage?


By: Robert C. Bess Sr.

Most people also prefer to get a 30-year mortgage as opposed to a 15-year mortgage. According to the Mortgage Bankers Association, 86% of people applying for mortgages go with the 30-year option. Financing a $120,000 home with a 15-year mortgage will cost a consumer $800 monthly or for the same $800 monthly mortgage payment with a 30-year financing option you can purchase a 185,000 home. Even though the cost of the $185k home versus the $120k home will save $65,000 on the surface; over the life of the loan, the interest paid would be $25,350 for the 15-year mortgage and 107,717 for the 30-year mortgage. The interest is over 4 times more for the 30-year mortgage. 30 year mortgage rates almost always cost more than 15 year mortgage rates. We are talking about thousands of dollars being saved over the life of the mortgage.

A 15 year mortgage as compared to a 30 year mortgage could save you money which could be used to invest in your retirement. In addition to that, you could also use part of the savings for your child’s education.

One of the main concerns for most consumers, of course, will be the monthly payment. The price for saving thousands over the life of the loan is a much higher monthly payment. However, if you are close to retirement and can afford the higher payment then you can plan to have your mortgage paid off prior to your retirement. If a consumer does have a 30-year mortgage and does not have a prepayment penalty in the mortgage then just making the extra payment amount monthly according to the 15-year schedule would serve the same purpose. Those extra payments could be applied to principal only and if done consistently would pay the mortgage off in a much shorter period or 15-years dependent on how many additional payments are made.

Frankly, many Americans have opted to purchase a home with a 30-year mortgage option. However, if saving money was the primary focus of the loan then the 15-year option is the much better option. The lower interest and shorter term saves a significant enough money over the life of the loan to at least consider the option.



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