Real Estate News with Terri Taydus, GRI, CNA

15 Year Mortgage vs. 30 Year Mortgage

July 17th, 2011 9:26 PM by Taydus Taydus

On the surface the 15 year mortgage is a very attractive option because the rate is typically ½ percentage point lower and you pay off the loan in ½ the time.

 

Upon closer examination, unless you have limitless cash available, the 15 year can be a very dangerous option with little benefit to you.

 

The key to the 15 year loan is all about making a payment that is 30% higher each month.  If your 30 year payment is $1,500 then your 15 year payment would be $2,000 which is obviously significantly more.

 

You can make the same additional payment on your 30 year loan and accomplish the same end result and that is that you will pay your mortgage off in 15 years and 5 months.  That is correct.  The ½ percent lower rate translates to only 5 additional payments 15 years from now.  Those additional payments are interest so they are tax deductible and what will be the cost of money 15 years from now?

 

The danger of the 15 year loan is the fact that the payment is 30% higher for 15 years.  What if something happens to you or you lose your job?  That extra payment each month could make the difference between keeping your house and being forced to sell the home.

My conclusion and my experience over the last 20 years is that the 15 year mortgage is not the best way to go for most people.

 

If you currently have a mortgage and are planning for retirement, I will be happy to calculate the additional payment that you will have to make to pay off your mortgage in a specific amount of time, or I can tell you how long it will take to pay off your mortgage if you pay a certain amount extra each month.

 

The best way to do this is to tell me your current balance, interest rate, when you closed on the loan and your escrow for taxes and insurance.  With this information I can give you a very accurate estimate.

 

For more information, please contact my preferred lender, Joe Taydus – Bank of Commerce Mortgage at: (303) 544-0600 or email him at joe@bankofcommercemortgage.com

 

Posted by Taydus Taydus on July 17th, 2011 9:26 PM

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