15 Year vs 30 Year Mortgage
In the world of real estate and related mortgages the classic term offerings within fixed rate mortgages was the 30 year and 15 year terms.
30 Year mortgages have been around since the beginning of standard mortgage lending over the last nearly fifty years. A borrower is provided a mortgage and signs a note which states I am borrowing monies at a certain interest and will repay over 30 years making payments on a monthly basis. If the borrower makes all 360 payments the note is paid off and the mortgage lien is released.
Early in a 30 year mortgage a certain amount of the payment will be applied primarily to principal and very little to interest. Over time as payments are made more of the payment will go to principal and less to interest.
Why choose a 30 year fixed mortgage. Simple. It allows you obtain a more affordable payment and may help you to qualify for a higher mortgage amount which may allow you to buy a larger home.
Most homeowners are usually not in their homes for 30 years and on average a borrower will have the mortgage for about 6 – 7 years as they will have either refinanced or moved.
Why would you go into a 15 year mortgage. Typically, we see consumers moving to a 15 year mortgage after being more established and earning increasing amounts of income. You will be able to afford the higher payment and pay the home off in half the time. Interest rates on 15 year mortgages are typically .25% – .75% lower than a 30 year fixed as you are borrowing the money for half the amount of time. If you performed analysis on the amount of interest paid out over the life of the loan a 15 year mortgage would incur 60% less interest as compared to it’s 30 mortgage equivalent.
Also, don’t forget when making a payment on a 15 year mortgage more of the payment is applied to principal than it’s 30 year equivalent thus building equity faster within the house.
The last alternative for some consumers is to take a 30 year fixed mortgage and make extra principal payments either with each monthly payment over a lump sum during the course of the year. Making one extra payment every year on a 30 year fixed mortgage will cut the term to about 22.5 years shaving off nearly 8 years and interest.
As always, consult with your Hall Financial Loan Officer for the best professional advice and what suits your needs.
For more information, chat with us at callhallfirst.com or give us a call at 866-Call-Hall.