Weighing 30- and 15-year Fixed-Rate Mortgages
Posted by PKSRealty Team in Blog | 0 comments
One important decision homebuyers face is whether to secure a 30-year, fixed-rate mortgage or go for a 15-year one, which carries a lower interest rate.
“All things equal, a 15-year mortgage allows you to pay off your mortgage twice as fast while saving a significant chunk of money on interest,” explains Mark Crosby, a mortgage expert in Wilmington, Del. Still, “I think the 30-year mortgage is a logical choice for most people because it has more advantages.”
For starters, mortgage payments are less expensive with a 30-year mortgage, enabling more consumers to qualify for home purchases. “With a 30-year mortgage you are almost always free to make additional principal payments necessary to pay off your loan [faster] without penalty,” Crosby says. “With the 15-year loan, you are committed to giving that extra money to your lender each month, whether you can really afford to at the time or not.”
Higher payments that come with a 15-year mortgage make little sense if they keep you from building savings or contributing to a 401(k) plan, IRA, and perhaps your kids’ college funds, adds Dan Green, a loan officer with Waterstone Mortgage in Laurel, Md. “You could be needlessly tying up too much of your money into your house.”
Green said another reason people favor a 30-year fixed mortgage is the tax benefit that can be achieved. “This is because the amortization schedule of 30-year fixed is back-heavy, with early-term payments big on interest and light in principal,” he explains. “By contrast, the 15-year fixed is always light on interest which lowers its taxpayer benefits.”
While it’s true you gain more of a tax break from a 30-year loan, it shouldn’t be the main consideration when deciding on a term. The 30-year borrower pays less in yearly taxes because he or she pays significantly more in interest.
So it all comes down to choice and circumstances. Choose the 15-year loan if you have the financial wherewithal to assume the payments. Your interest savings will be substantial and you’ll own your home faster. Opt for the 30-year loan for lower payments and greater flexibility. You can always choose to pay more on your mortgage when the money is available.
Prudential Karam and Simon Realty can be reached at (330) 929-0707.
, the Prudential logo and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. Used under license. Equal Housing Opportunity.
The information provided in this site is believed to be accurate, but is not guaranteed. The data relating to real estate for sale on this web site comes in part from the Internet Data Exchange (IDX) program of NORMLS. Real estate listings held by brokerage firms other than Prudential Karam & Simon are noted and include the name of the listing brokers. The materials contained within this page may not be reproduced without the express written consent of this broker. The information contained within this page is for personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. All information is deemed reliable but is not guaranteed and should be verified by personal inspection or with the appropriate professionals. Listings displayed on this website may be subject to prior sale or removal from sale; availability of any listing should always be independently verified.