Monday, November 18, 2013

15-year loan over a 30-year loan

Save big when you choose a 15-year loan

If you want to pay down your mortgage at a faster rate, here are some tips to help you speed the payment process.

By Tony Moton November 7, 2013 9:20 PM

Perhaps you thought there was only one type of fixed-rate mortgage: the 30-year. Well, believe it or not, there is a wide variety of fixed-rate mortgages out there - and some yield huge savings.

And, choosing a shorter term could really pay off.

"A shorter term mortgage comes with a lower interest rate, which means you pay less in overall interest. This reduces the overall cost of home ownership," David Bakke, editor at Money Crashers, a website devoted to career and finance advice, says.

So let's explore refinancing to a shorter-term mortgage and what it could mean for you.

The Most Popular Short-Term Mortgage: 15-Year Loan

Even though fixed-rate mortgages come in a variety of sizes, the one that's been trending for the past few years is the 15-year, fixed-rate mortgage.

In fact, according to the "2013 Second Quarter Refinance" report by Freddie Mac, one of the nation's largest lenders, 31 percent of those who refinanced in the second quarter of 2013 shortened their mortgage term. And, the 15-year, fixed-rate loan was a popular one.

And while shorter-term mortgages often mean higher monthly payments, Bakke says that because of the historically-low interest rates, people can actually lower their monthly mortgage payment while lowering their overall term from 30 to 15 years (depending on what their existing rate is).

[Thinking about refinancing your mortgage? Click to compare interest rates from multiple lenders now.]

"One possible disadvantage to a shorter term mortgage is a higher monthly payment, but this really depends upon your current loan's rate of interest. If it's rather high, it's possible to get into a shorter term mortgage and lower your payment at the same time," he says.

Just How Much Can You Save?

So glad you asked, because that really is the question on most people's mind when they consider refinancing. So let's get down to dollars and cents.

Here's an example using a $300,000 mortgage. We'll compare a 30-year mortgage with a 5 percent interest rate, and a 15-year mortgage at the average interest rate as of October 24, 2013, according to Freddie Mac's "Weekly Primary Mortgage Market Survey®."


30-Year Mortgage 
15-Year Mortgage 
Interest Rate:
5 percent
3.24 percent
Monthly Payment:
Interest Over Life of Loan:

As you can see, if you can handle paying a little more every month, you could save a whole lot of money. In this example, the savings totaled over $200,000. And if you're refinancing from a 30-year mortgage with an even higher rate, your savings could be higher.

Own Your Home Sooner

When people explore the massive savings in interest a shorter-term mortgage could provide over the life of their loan, compared with a 30-year mortgage, they often forget that an equally attractive result is achieving home ownership in half the time.

And that, says Bakke, is a huge step toward more golden, golden years.

"A shorter-term loan is a great idea for someone planning for retirement. Getting a mortgage paid off before you retire is an excellent strategy to make financial management during retirement more feasible," he says.

[Time to refinance to a shorter-term mortgage? Click to shop around and compare interest rates.]

Jim Duffy, a mortgage banker with Cole Taylor Mortgage in Atlanta, Georgia, says this is the main reason he's done many more 15-year, and even 10-year, mortgages in the past few years.

"Baby boomers are seeing retirement just around the corner, and today's low interest rates make it possible for them to get a shorter-term mortgage and enjoy their retirement, even on a fixed income," he says.

More Security

Do you like your home? Are you planning to stay in it through retirement? A shorter-term mortgage could help ease your mind about how you're going to pay your mortgage once your income shifts.

And who can disregard the emotional value of your home, especially if your home is filled with cherished memories of sons catching their first baseball in the front yard, daughters having sleepovers, and holiday family gatherings.

Duffy says wanting to stay put during retirement is another reason a lot of his clients have switched to a short-term mortgage: They're working now, and would rather pay a little more every month while they're earning income in exchange for the ability to stay in their home during retirement.

"Then, they don't have to move to a smaller place or apartment because they can't afford their mortgage on a fixed income," he says. "It's a real sense of security."

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Thank you
Joseph D’Ambrosio
Joseph D'Ambrosio
Real Estate Consultant / Realtor
West USA Realty


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Joseph D'Ambrosio
Joseph D'Ambrosio Cell: 623-204-2138
Real Estate Consultant / REALTOR 
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