Which is better a 30 or 15 year mortgage loan? That depends…
Posted: August 11, 2011 Filed under: General Real Estate Q&A, Mortgage Programs | Tags: 30 year vs 15 year, arizona, FHA, financing, First time homebuyer, home loan, interest rates, Mortgage, Phoenix Leave a comment »That depends on a number of factors that include job stability and self-discipline. Obviously if you finance a home for 15 years you will ultimately pay less interest over the life of the loan but when you sign that note you are committed to paying that amount every month no matter what. While with a 30 year loan you will pay more interest over time but you have the option of paying extra toward principle as you are able.
Here is an example using a $120,000 loan with interest rate of 5% on the 30 year option and 4.5% on the 15 year.
- A 30-year term would give a monthly principle and interest payment of $644. The borrower would pay $111,905 in interest, and $231,905 over the life of the loan.
- A 15-year term would give a monthly payment of $918; pay $45,239 in interest, and $165,239 over the life of the loan.
The 30-year term has a lower monthly payment by $274 but will cost $66,667 more in interest over the life of the loan. The benefits of the 15-year term are the considerable savings in interest. The drawback is your monthly payment is higher.
But what if you opt for a 30 year and pay if off in 15?
An extra $305.00 per month or $949.00 total P&I would payoff the house in 15 years and cost $50,790 in interest charges. I personally like this option and often recommend it to my clients when asked because it allows for wiggle room should something financially negative happen. Of course the main draw back being self-discipline; if you can’t be consistent and you really want to payoff your home in 15 years then a 15 year note maybe for you.
Feel free to contact me with any questions.
