15 yr vs 30 yr Mortgage
Buying a house is expensive in both principle and interest charges. Looking at the interest charged over a 30 year loan, even with an incredibly low interest rate, may shock you. Play around with the payments in the calculators. Don’t forget to add up how much an additional 15 years of mortgage payments costs. At year 15, you won the house free and clear…unless you got a 30. Then you have another 15 years to go. My advice is to always go with the 15 yr note. Even if you only keep the house 5 to 8 years, far more principle will be paid down. The 15 yr note is the wiser choice, but it will limit the amount you can borrow. You will be able to buy a more expensive house with a 30. Most people will talk themselves into getting a 30 and paying on a 15 yr schedule but when it comes down to it, they never do. Life gets in the way and other cost show up.
Let us use the example of a $200,000 home mortgage at 3.50%:
While a 30 year loan is $532 less each month, you would save yourself more than $65,000 in interest charges over the life of a loan with a 15 year mortgage. That is $366 a month or $84 a week in savings!
You also build up home equity much faster because more of your payment goes towards principal reduction. The lower the balance, the less interest you have to pay each month, which allows you to pay even more towards principal the next month. The cycle of building home equity gains momentum very quickly with a 15 year home mortgage.