15 year mortgages15 Year Mortgages

A 15 year mortgage not only pays off your home in half the time, but saves you hundreds of thousands of dollars in interest.

by Tom Levine

July 28, 2004

Imagine paying your mortgage off in 15 years! Think of all the great things you could do with that extra money. What would you do? Retire early? Buy an R.V.? Travel around the world? If you could eliminate your mortgage in half the time, then your options would be wide open.

Let’s take a look at 3 benefits and 3 considerations when evaluating whether or not the 15 year fixed rate mortgage, is right for you:

  • Lower Interest Rate
  • Huge Savings on Interest Paid
  • Mortgage Paid in 15 Years
  • Affordability
  • Expendable Income
  • The 15 Year Loan as an Investment

Lower Interest Rate

The 15 year amortized fixed rate loan carries a lower interest rate.

  • The interest rate is usually about ½ % the rate of a 30 year term.

  • For example, as of today’s date, the average 30 year fixed is going for about 5.67%, while the average 15 year fixed is going for about 5.10%.

  • That’s a savings of .57%!

Huge savings on Interest Paid

Do you want to save a ton of money? A 15 year fixed will accomplish this for you.

  • Let’s look at a $300,000 loan. Over the course of 30 years, at 6% interest, you will pay the bank $347,514 in interest. (Yes that’s right. You’re paying the bank 115% of the loan value, over the course of 30 years).

  • However, with a 15 year fixed rate loan, at 5.5%, you will only pay $141,225 in interest (Wholly smoke! That’s a savings of $206,289!).

What would YOU do with $206,289?

Mortgage Paid in 15 years

Because the loan is amortized for 15 years, instead of 30 years, your commitment to the bank is cut in half.

  • This is an enormous advantage. After 15 years, money normally applied to a house payment can be applied to investments.

  • Or, you can begin considering alternative careers, retirement, or home improvements.

  • Or you can just spend that extra money on fun stuff and goodies.

Any way you look at it, cutting your commitment down to 15 years affords you many more options in life.

So we’ve established that a 15 year loan clearly has some amazing benefits. But, is the 15 year loan right for you? Let’s take a look at some important considerations:

Affordability

Even though the 15 year fixed rate loan enjoys a ½% savings in interest, there is still the question of affordability.

  • For example, a $300,000 mortgage, amortized over 30 years at 6%, equates to a monthly house payment of $1798.

  • But the same loan amortized over 15 years at 5.5%, equates to a monthly house payment of $2,451.

  • That’s an extra $653 per month, or a payment that’s 36% higher than a 30 year fixed.

Can you afford the long-term commitment of a 15 year fixed rate loan?

Expendable Income

The 15 year fixed rate loan is an important consideration if you have extra income and you are looking to apply it somewhere. Ask these important questions:

  • Are all your bills getting paid?

  • Do you have low debt?

  • Are you spending too much each month on luxuries?

  • Are you spending too little each month on productive investments and savings?

If money’s got you down, and things are tight, and if there are other financial areas for you to explore first (such as paying off credit cards), then perhaps the 15 year loan may not be right for you, at least not right now.

Start by completing a budget analysis, and figure out a plan to get you from point A to point B.

The 15 Year Loan As An Investment

This is really, the most important consideration. A 15 year fixed rate loan is more of an investment then anything else.

  • The financial benefits of a 15 year fixed rate RIVALS the benefits of a 401k, Roth IRA, and Mutual Fund performance.

  • You need to compare the money saved (in our example, that’s $206,289) to the performance of your other investments in your portfolio. Remember to calculate in the extra money you are paying for the 15 year loan (in our example, that’s $653 per month), so that you can determine a net profit.

  • If you are exploring ways to build wealth, and apply your money in a productive way, then you need to seriously sit down, and figure out how to get a 15 year loan incorporated into your plan.

Remember, money saved, is money earned!

I’ve enjoyed providing this information to you, and wish you the best of luck in your pursuits. Remember to always seek out good advice from those you trust, and never turn your back on your own common sense.

- Tom Levine

Tom Levine provides a solid, common sense approach to solving problems and answering questions relating to consumer loan products. His website seeks to provide free online resources for the consumer, including rate-watch, tips and articles, financial communication, news, and links to products and services. You can check out Tom's website here: http://loan-resources.net , or you can email Tom at info@loanresources.net .

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