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INTRODUCTION
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 homebuyer pays less
than half the total interest cost of the traditional 30 year mortgage. The
purpose of this page is to help prospective homebuyers explore the 15 year
fixed rate mortgage; a very good option for saving on total mortgage
interest costs.
WHO
IT'S FOR
The 15 year fixed rate
mortgage has become 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 who desire 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.
ADVANTAGES
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.
-
A 15 year loan is
usually offered 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 with
private mortgage insurance providing financing with less than 20% down
payments.
DISADVANTAGES
The disadvantages
associated with a 15 year 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.
COMPARE
THEM YOURSELF
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.
| Compare |
30 year at 10 percent |
15 year at 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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