Benefits of a 15 Year Mortgage

Benefits of a 15 Year Mortgage

The push toward a 15-year fixed mortgage rate has never been more appealing because the interest rate benefit over the 30-year fixed rate has never been larger.  The rate benefit on a 15-year fixed rate in comparison to a 30-year fixed rate is about .875%.  Prior to the real estate crisis, the difference between a 30-year fixed rate and a 15-year fixed rate was .375% to .5%. a simple solution to this conundrum can be found at the comfort of your desk, only if you were to scour for enough websites explaining mortgages in detail.

For example, there are 2 $100,000 loans—one which is involved in a 15-year mortgage at 3.125% and the other at a 30-year fixed rate at 4%.  At the 30 year plan the monthly payment is $477.42 and at the 15-year plan the monthly payment is $696.61.  After just 15 years, the borrower with the 15-year fixed rate mortgage has paid 39K+ more but is out of debt whereas the borrower with the 30-year mortgage still owes $64,543.

Granted, there is a flip side.  A well-qualified borrower could use the 30-year loan and invest the difference in in payment from a 15-year mortgage to a 30-year mortgage.  Thus, offsetting the higher interest rate on the 30-year mortgage.   Some financial advisors recommend this type of approach to build wealth more quickly.

The challenge with making a program such as the one mentioned above work is that the rate of return on the cash invested must exceed the rate on the 30-years loan.

Another option is to talk to Summit Mortgage and to obtain a 30-year mortgage yet pay the mortgage as if using a 15-year mortgage.  By doing this, the homeowner would have the option to pay the lower monthly payment during a difficult financial month yet will still decrease the principle balance drastically when paying additional money toward principle on the “good months”.