If you are planning to buy a home in the spring real estate marketing in New England, you’ve probably applied for a 15 or 30 year mortgage. Despite what they qualify for, the majority of home buyers will end up with a 30 year fixed mortgage. A 30 year fixed mortgage is a great product, it’s secure and offers one of the lower monthly payments available to borrowers. There is a satisfaction that comes with keeping your payments low but you will pay a higher interest rate for a longer period. Ultimately, there is a lot more that needs to go into the decision between a 15 or 30 year mortgage.
30 Year Mortgage
If you borrow $200,000 towards your home purchase and you have an interest rate of 4% on your loan you will pay roughly $143,739 in interest in the lifetime of the loan. The monthly payment on this loan without taxes and insurance would be $954.83 A 30 year mortgage is a fairly standard product and it’s great for first time home buyers. If the home your buying is at the top of your price range this may be your only option. Financial situations can change quickly and keeping your payment low can give you peace of mind and provide you some flexibility in the future if you decide to grow your family or your circumstances change.
15 Year Mortgage
If you borrow the same $200,000 towards your home purchase with an interest rate of 3% on your 15 year loan, you will end up paying approximately $48,609 in interest on the lifetime of the loan. The monthly payment would be $1,381.16 without taxes and insurance. The most shocking comparison between the 15 or 30 year mortgage is the interest paid. In this example you would pay nearly $100,000 extra in interest on the life of your loan. Additionally, people also often assume that because the term of the loan is cut in half with a 15 year loan that the monthly payment would be doubled but this is not the case because the interest rate is lower. If you can afford to spend a little more on your monthly mortgage payment, it’s a good idea to run the numbers on a 15 year loan.
When Should you Consider a 15 Year Loan
You Can Afford the Payments – Plain and simple, if you can afford a slightly higher payment then you should calculate the 15 year mortgage rate. Use a monthly payment calculator to determine how much your anticipated loan amount will cost you monthly in both loan products.
You are Moving Up – When people are ready to sell their home and buy a new upgraded home they don’t think to upgrade their loan. Getting a new 30 year mortgage after paying down a mortgage for a few years is sort of taking a step backwards. Run the numbers to see if you can move up to that dream home and do it with a 15 year mortgage.
Refinancing is an Option – Already living in your dream home? If you’ve paid on your loan for a few years and you are comfortable with your payment and have some flexibility, consider refinancing and making the jump to a 15 year mortgage. Refinancing can be a great way to save money and shorten the time left on your loan.
You Don’t Have The Discipline to Pay Extra – Some people choose a 30 year mortgage and say that they plan to pay extra each month. However this doesn’t work for everyone. If you’re not good at putting aside extra money or paying more monthly then the required monthly payment, a 15 year loan will help you pay your loan faster and pay less interest without doing anything extra.
When choosing a 15 or 30 year mortgage you have to look at the entire situation and make the best decision for you, your finances and your family. A mortgage will stay with you for a long time, so make sure it works for you.
If you have started your home buying adventure, contact Title Mortgage to get started and apply for a loan today!