May 28, 2010, Newsletter Issue #220: Advantages of a 15-year Mortgage

Tip of the Week

There are three primary advantages of a 15-year mortgage loan versus a standard 30-year loan.

You will be mortgage-free in one-half the time. You will be given an interest rate between one-quarter and one-half per cent lower than a comparable 30-year mortgage loan. Your payment will not double, as you might at first think, but will only be 35-45% higher than a 30-year mortgage payment. Since there are fewer and fewer people concerned about “mortgage burning” ceremonies, the 15-year mortgage is not used very often any longer. However, it can save you thousands of dollars of interest expense because of the rapid repayment and lower interest rate you receive. Here is an example of your savings with a $200,000 mortgage loan:

Interest Rate 5.50% 15 yr. 5.75% 30 yr.

Payment $1,634.17 15 yr. $1,167.15 30 yr.

Pmt. Difference $467.02 (40% Higher then 30-year)

Interest Cost $94,150.60 15 yr. $220,174.00 30 yr.

Interest Savings $126,023.40

As you can see, you could save a huge amount of interest, real money, by using a 15-year mortgage loan instead of a 30-year product. If you’re going to keep your property for a longer period of time (over five years), you should give a 15-year mortgage serious consideration if you can afford the higher payment.

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