A 15-year mortgage can be a money-saving choice, if you can afford the larger monthly payments. In general, interest rates for 15-year mortgages are lower than the more popular 30-year option. Not only will you likely enjoy a lower interest rate, but you’ll build equity faster by paying down the principal of your loan in half the time.
When you shorten the term, however, the jump in monthly payments can be prohibitively expensive for some borrowers. Make sure you can afford the higher payments before you agree to these terms or refinance.
You can run the numbers on Bankrate’s mortgage calculator to see how much you’ll save over the life of the loan and how much you’ll have to pay each month.
Crunch the numbers using the calculator
If you want to plug in the current mortgage rates, go here for the latest numbers on 30-year and 15-year fixed mortgage rates.
How much interest would you save if you opted for shorter terms? The number might surprise you.
If the principal balance on your house is $210,000 at 4.52 percent interest for a 30-year fixed rate mortgage, then your monthly payments will be $1,070. If you half the mortgage term to 15 years, using today’s average rate of 3.83 percent on a 15-year mortgage, you’ll owe $1,755 per month.
The difference in monthly payments is sizable and can be a barrier to getting a home loan with shorter terms. Ultimately, however, the borrower who can afford a 15-year mortgage will save $100,000 in interest over the life of the loan.
A 15-year mortgage can be part of your retirement plan.
Keep in mind, even if you can’t afford a 15-year mortgage now, it might be a feasible option later as you pay down the principal and can afford higher payments. People will often refinance their 30-year mortgage into a 15-year mortgage as they near retirement. The larger monthly payment might be worth the sacrifice when you consider how much you can save, money that you can put away in a retirement fund.
Another thing to keep in mind is that even if you don’t refinance your loan to cut the term, you can make your own 15-year mortgage, or any shorter term you can afford. Simply add extra principal payments to your mortgage each month. Check with your lender to find out how to identify the extra payments as a paydown of principal.
Compare 15-year mortgage rates from lenders in your area. Find rates, APR and monthly payments to get the best 15-year mortgage for a new home purchase or refinance.
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