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Save
$100,000 on mortgage interest costs! Sound impossible? Not really. An old-time
mortgage that is once again proving popular allows homebuyers to so just that.
It is the 15-year fixed-rate mortgage that lets homebuyers own their homes free
and clear in 15 years. And, while the monthly payments are somewhat higher than
a 30- year loan, the interest rate on the 15-year mortgage is usually a little
lower, and importantly:
The
15-year fixed-rate mortgage has proved popular with two very different groups of
homebuyers. First, it enables young homebuyers with sufficient income to meet
the higher monthly payments to pay off the house before their children start
college. They own more of their home faster with this kind of mortgage. Other
homebuyers, who are more established in their careers, have higher incomes and
whose desire is to own their homes before they retire, may also prefer this
mortgage. The 15-year fixed-rate mortgage gives them additional financing
options using the house's equity. For example, they can easily take out a second
mortgage if they want to make use of the equity in their home. But you need not
fall into either category to appreciate the savings the 15-year fixed-rate
mortgage affords homebuyers. Let's take a closer look at some of the pros and
cons of this type of mortgage and what savings you may expect.
The
15-year fixed-rate mortgage offers the qualified consumer five big advantages.
- You
own your home in half the time it would take with a traditional mortgage.
- You
save more than half the amount of interest of a 30-year mortgage. On a
$75,000 mortgage at 9.5 percent, you save more than $95,000.
- Lenders
usually offer this mortgage at a slightly lower interest rate than with
30-year loans--typically 0.5 percent to 1.0 percent lower. It is this lower
interest rate added to the shorter loan life that realizes the savings for
15-year fixed-rate borrowers.
- Fixed-rate
means exactly that - no matter where mortgage interest rates go, the
payments for this mortgage stay the same from the first to the last. This
helps many borrowers plan their budgets with more certainty. They know that
their monthly payments will not increase (or decrease) and throw their
financial planning off.
- Fifteen-year
mortgages can be insured by the Federal Housing Administration (FHA) and the
Veterans Administration (VA), and with private mortgage insurance.
The
disadvantages associated with a 15-year rate mortgage are really the qualifiers
that will tell consumers if this is the mortgage for them.
- The
monthly payments for this type of loan are higher than those for a 30-year
mortgage, roughly 10 percent to 15 percent higher per month.
- Because
borrowers pay less total interest on the 15-year fixed-rate mortgage, they
lose the maximum mortgage interest tax deduction.
At
right is a comparison of a $75,000 mortgage with terms of 15 and 30 years. We
used a 15-year mortgage at a half percent lower rate, which is typical in
today's market. As you can see, the 15-year mortgage saves more than $95,000
over the traditional 30-year loan.
For
more information about 15-year fixed-rate mortgages, or to find out if you
qualify, talk to your mortgage lender. He or she will be able to help you select
the mortgage that is best for you.
30-year
at 15-year at 10 percent 9.5 percent Monthly Payment (Principal and Interest) $
658 $ 738 First Year Interest Cost 7,481 7,023 Mortgage Balance 74,583 72,625
Fourth Year Interest Cost 7,336 6,244 Mortgage Balance 73,052 63,991 Total
Interest Cost Over the Life of the Loan $ 161,942 $ 65,970 Difference From
30-year Total - $ 95,972
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SAVE
MONEY AND LOWER INTEREST RATES WITH A 15 YEAR MORTGAGE
