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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