The 15 Year Fixed Rate loan is much like the 30 Year Fixed Rate loan but with two major differences. One, the 15 Year loan amortizes (reduces and pays off) in half the time of the 30 Year product. Second, the 15 Year loan will cost less than one-half the interest of the 30 Year mortgage. This is the result of what might be called “reverse compound interest” theory. Here is an example that explains this important feature:
Loan Amount: $200,000 Interest Rate: 6.0%
Total Interest on a 30 Year loan: $231,932
Total Interest on a 15 Year loan:
$106,428
Savings with 15 Year loan: $125,503
In addition, your monthly payment will not be double the 30 Year payment. Using the example above, your monthly payment on a 15 Year Fixed Rate loan would be $1,702.38 while your payment for a 30 Year Fixed Rate product will be $1,199.81. This means your regular monthly payment only increases by 42% even if you had an identical interest rate. To further enhance the attraction of the 15 Year loan: You will probably pay an interest rate that is around
one-quarter to one-half percent less than the 30 Year mortgage!
As you can see, there are some good reasons to consider a 15 Year Mortgage loan, but it’s not for everyone. Your cash flow, future ownership and financial plans, and the potential savings you might enjoy with an Adjustable Rate Mortgage loan should all play a role in your analysis of the best mortgage loan for you.
